Societe Generale not hopeful on Greece bond buy back plan

In a bid to end their financial crisis, Greece will buy back bonds through a Dutch auction. The move is seen as an effort to cut Greece’s debt and will allow it to assess the level of demand before setting a final price for the deal. The success of the auction will pave the way for the country to get long-funding to avoid bankruptcy.

Also read: Euro zone tensions may recur despite Greece deal: StanChart
Benoit Anne of Societe Generale in an interview to CNBC-TV18 explains what he expects out of the buyback offer. He says the Greek debt crisis continues to be a problem fro the foreseeable future. He says the big picture for Greece remains challenging.
“There are many other issues to be concerned about in global markets including the clarity about what is going on right now in the US. So I am short-term positive perhaps from that headline but still a bit cautious here about risky assets,” he adds. Below is the edited transcript of Anne’s interview to CNBC-TV18. Q: How are you looking at this auction itself, this buyback itself? Do you think they will be able to buyback something like 40 billion euros worth of their own bonds?
A: This Greece issue remains a problem for the foreseeable future. So I would view that as a short-term negative, but the big picture remains quite challenging as a whole. As a result, I am not going to be too enthusiastic about the development. There are many other issues to be concerned about in global markets including the clarity about what is going on right now in the US. So I am short-term positive perhaps from that headline but still a bit cautious here about risky assets. Q: If the buyback is not successful, if they buy it at above 30 cents euro, do you think that will call for a reassessment of the whole Greek package that US has come up with? Could that be a significant negative or have the terms largely been worked out and this is just an exercise that has to be carried out?
A: Some number crunching might be necessary down the road. We might also see some slippages and that is a story we have seen many times before. So to me, Greece as a whole remains a negative factor and a big risk for the euro zone still. We have not moved to a situation where we can be fully positive for now. Q: We have seen very significant inflows into India over the last one week or so and from what we read from the sell side, it suggests that there has been significant fund flow into emerging markets (EMs) particularly from the exchange traded funds (ETFs). You manage emerging markets, what is your sense of how much is still to come in? Do you expect more inflows into emerging markets and particularly in countries like India?
A: Yes, definitely. When you make a big step for the period ahead, you have all factors pushing for emerging markets to do well including Asia. The main game changer in that part of the world is the growth dynamics now are turning positive. We have been worrying a lot about the China growth story in recent months, but this is now no longer a serious issue for global markets. We can pretty much price out the scenario of a hard landing. So, that is a massive positive signal for the return as a whole. So yes, there are capital inflows into emerging markets chasing yields and chasing growth. Q: Do you think there is more to come by way of gains? European markets on both sides of the Atlantic equity games have been seminal, not to speak of equity gains in other emerging markets as well but on both sides of the Atlantic we have seen a fairly big jump in risk assets, in equity assets. Will there be more to come as we get closer to the discussions over the fiscal issues in the US or do you think the best is over?
A: Technically there are risks of profit taking but at the turn of next year, the environment is likely to turn more positive for risky assets and therefore I can see a rally developing later on then.