Manish Singh, Crossbridge Capital explains to CNBC-TV18 that he is bullish on the US as the economy continues to register growth despite the looming fiscal cliff. Singh also calls for measures to address the slump in the manufacturing sector.
Manish Singh of Crossbridge Capital explains to CNBC-TV18 that he is bullish on the US as the economy continues to register growth despite the looming fiscal cliff. Singh also calls for measures to address the slump in the Indian manufacturing sector.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: How are we to understand this fiscal cliff that will emerge in the US? Do you see it getting resolved in the next few weeks in the run-up to 2013? Do you think that the kind of equity sell-off that is in progress will not last for long?
A: The fiscal cliff is USD 600 billion of increase in taxes and cuts in spending if nothing is resolved. Not all of this is going to happen on day one. It is going to continue through the year. It is my belief that Republicans are going to accept the increase in taxes especially if there is a proposal to increase taxes over people earning USD 1 million. I find it hard to believe how Republicans are going to resist that.
You have to also understand that in the last elections the Republicans did very well in mid-term polls and they control House. So there will be a lot of negotiation. I do not see that it is not going to be resolved in the very short-term.
Q: Would you be a buyer of equity assets in the current downturn? If yes, what kind of equity assets?
A: The data is shifting quicker than the debate. There is one index I always like to look at - it is called the Citigroup Economic Surprise Index. On this index, both US and China have performed much better. My belief is that you have to go into the cyclical sector that includes industrial, material, energy and consumer discretionary stocks. I am definitely more bullish on the US because even though there is a fiscal cliff, the macro-economic data is looking much better led by a 2 percent growth in GDP which indicates that negative news is bottoming out in US.
Emerging markets are tied to what happens in US and to some extent in Europe as well.
I would like to play the emerging markets through the ETFs and deal very little in stocks. So I would play the MSCI Emerging Market Index, the MSCI Asia Pacific excluding-Japan. Japan is a very interesting economy. There is weakness in the Japanese Yen and there is election probably in December. The incoming Prime Minister likely is going to be Shinzo Abe of Liberal Democratic Party (LDP) and he has gone on record saying that he would like to see the inflation at 3 percent and not 1 percent.
Q: What are the key risks in Europe at this point in time and how much weightage would you accord Europe?
A: There is not much to pick in Europe. I believe in the European Union, but I do not believe in euro as a currency because it has its own troubles. The EU will carry on and muddle through despite the Greek crises with a scenario where they do not want to precipitate a big crisis.
The ECB is ready with its Outright Monetary Transactions (OMT) policy to go and buy the bonds and is waiting for Spain to ask for a bailout. So there are enough safety measures in place for investors to be active in European market. In terms of assets, I interested in peripheral debt rather than peripheral equity. While I would buy the debt of Spain, Italy, I would buy German and French equity. In Europe, I have been buying cyclicals and playing through ETFs.
Q: Where would India rank in your pecking order since you are positive on emerging markets?
A: I think very quickly about India because of the recent release of data. The WPI was below expectation is good as it gives the RBI room to cut policy rates. The key aspect in India is that the slowdown emanates from the factory or manufacturing sector. That is worrying because the manufacturing sector it is big part of the economy.