Global mkt in wait and watch mode; bullish on EMs: SocGen

With the US fiscal cliff looming large, Benoit Anne of Societe Generale feels global markets at the moment are going through a wait and watch period. According to him, the time is still not ripe to go for buying opportunities, at least till December.

Taking into consideration the global market scenario, Anne is bullish about the emerging markets going ahead in January. However, he is cautious for the near-term. He believes the Indian currency can bounce back next year if the government delivers a strong policy agenda.   Here is the edited transcript of the interview on CNBC-TV18. Q: The markets across have been sulking over how the US will negotiate this increase in taxes that it has called for and the spending cuts which the Republicans are demanding. What is your sense? Will it cream off a lot more from the risk assets?
A: We are still in a wait and see mode where the risk of buyers indeed are surrounded by those concerns in the US. Ultimately, if I take a deep leap of faith forward, I think the authorities will manage to solve their issues and probably delay the decision or push it back by a few months. That will be viewed as a positive signal for risk appetite. But, right now it's too early to say and that is why we are seeing global risk appetite under pressure. Q: How would you expect funds to behave or smart money to behave? Will they not look at this as a dip which is an opportunity to buy or do you think there is still time for that and there could be more dips as the US negotiates this difficult political problem and therefore, this is not an opportunity to buy, you are going to get much attractive dips?
A: It's a bit too early to shift gear and go for a buying opportunity. We might see that in December but, right now we are probably in risk-off mode for a couple of weeks and there is also the year end book closing. Taking risk off the table anyway is always very negative.
I am more bullish especially on emerging markets at the turn of the year. January is going to be a strong month for emerging markets but, right now I am cautious for the near term.
_PAGEBREAK_ Q: If you are bullish on the emerging markets, which index or which country you think has the maximum upside and what would it be and also a last word on India?
A: I am bullish on Asia because I think the fundamentals are improving. The growth momentum is turning around. We can pretty much price out the scenario of hard landing in China and that obviously has a massive impact on appetite for the region. We are seeing those central banks also ending their easing cycles. Things are turning around, Asian currencies are catching up and the fundamentals are improving.
India is a bit of a different story. I guess the INR looks cheap to me from a fundamental perspective, but the macro backdrop continues to be challenging. We still have to deal with the negative mix of bad inflation and slowing growth combined with those deficits that the governments try to address.
I want to see the government go ahead and deliver a strong policy agenda and then INR can also do a catch up, but it's a bit too early to call right now. I am going to be cautious INR for now hoping that the INR would rebound next year. Q: In general what has cash been chasing of late, ever since the election we have seen about a 5% sell off in the global equity markets. What is cash currently doing now?
A: This is exactly in line with what I was saying earlier. We have switched to risk off and we are definitely out of EM equities and EM currencies for now and investors have returned back to EM fixed income which happens to be a more defensive way to play global markets.
So, EM fixed income is back in fashion for now, especially with the retail money investors you can only find yield in emerging markets at this point. With the liquidity environment being so generous and favourable you are going to see EM investors still going for two or three years in emerging markets. Q: About events nearer home, in Europe I guess all eyes are now on the November 20 meet when we will know how exactly the European leaders will plug the gap that Greece's budget is pointing to. What are the events you will watch out for and would you say the kind of stability that Draghi brought with his promises in September will continue? We are not going to see too much of anxiety as far as a Greek exit or talk like that is concerned?
A: I would say there is good news and bad news on that front. But, with the bad news prevailing recently, it has also been a negative drag on sentiment, essentially the signalling delivered by the ECB in September has been undermined now by the delays on the part of Spain in requesting for more bailout request. To me, this is not positive news near term.
Then indeed Greece is back with uncertainty about how they are going to finance themselves. We need more visibility on that and before we get that, risk is going to stay off for now.