Global mkts stabilising; expect bouts of volatility: Citi

In an interview to CNBC-TV18, Guillaume Menuet of Citi spoke about his reading of the global market and the road ahead for equities.

Below is an edited transcript of the interview on CNBC-TV18. Q: How are you approaching the global markets? Right now there seems to be a lull in terms of any kind of economic data. What is your view on how to approach the US and the European markets now?
A: If you listen to what every central banker has got to tell you, the amount of policy stimulus on the table will remain quite sizeable for the time being and therefore there is no reason, why over time, we don’t continue to have a very accommodative monetary policy stance both on the side of the US and here in Europe.
We will get more from the European Central Bank (ECB) next week when they have this policy meeting. In the meantime, the sentiment surveys continue to show marginal improvement. So, the things are getting less bad and I guess that is what supporting the equity markets. Q: That's supporting equity markets globally or the more developed markets as they call it. But what about emerging markets? There is a fear that the emerging market underperformance will continue as we head into the latter half of the year. Do you believe that as well that developed markets will continue to perform better than emerging markets for the rest of the year?
A: It is quite likely in a sense that the data flow, both in terms of hard and soft surveys, is likely perhaps to show that there is a greater positive sentiment being encountered over the developed side of the business. There is a lot of uncertainty about the extent of the slowdown in China. The consequence of monetary policy tightening from the Fed has a significant indication for emerging markets generally. So, I think it is quite likely that we will see underperformance from emerging markets. Q: Do you think the markets have made their peace with tapering now and subsequent FOMC statements will not throw the market into a tizzy?
A: It will be nice to think that monetary policy announcements will not lead to any market reaction. It is unlikely that market is still trying to work out exactly where the Fed is headed. Any surprises, both in terms of perhaps slowing down the pace of tightening or if the economy gets slightly better quickening the pace tightening, is still liable to throw the markets off a little bit.
Central bankers do not even know what they are going to tell you in the next few weeks or so. It really depends what's the pace of the data. So, expecting no volatility on crucial periods of transition for monetary policy would be nice but I don't think it's going to happen. Q: You spoke about the dwindling interest in emerging markets. Will emerging markets, as a basket, get punished or do you think that investors will make the distinction between several indices within that basket? Do you have some favourities in emerging market space at all or do you think the market won't have patience for that?
A: If you think about retail investors, for them, it’s going to be emerging markets in one single allocation. They would not necessarily look at various countries or various stories but certainly there will be differentiation. The fact that you have different monetary policy stances across emerging markets will give you different performances. So, there will be differentiation to be had if you are careful enough. Q: The rupee has been one of the most pressured currencies along with the South African Rand and the Rupiah. Do you look at any level in the rupee as sacrosanct? The way the authorities have behaved do you think Rs 60 to the dollar will be protected?
A: I don't enough about India to be able to comment on it. Q: We saw a sizeable amount of outflows of foreign institutional investors (FII) debt from emerging market debt instruments. Is that likely to continue or do you think for the moment people have made their peace with emerging market debt?
A: Given the amounts from what I could see in the last year or so of relentless buying of local fixed income or even dollar debt for emerging markets from various investors, I think there is still a bit more to come in terms of reducing exposure.