Japanese mkt to see maximum upside; $ will rise: Finaport

Hans Goetti of Finaport sees more upside in Japanese market than the US market. Despite the fact that Japan has risen by 35 percent year-to-date, Goetti says, the recent crash presents a good buying opportunity.

He favours Japan as the number one pick, but with a caution towards yen exposure because he expects yen to weaken."The Bank of Japan will continue on their course of QE (quantitative easing). The yen will most likely weaken," he told CNBC-TV18. Also Read: Liquidity party to continue on Japan push: Geosphere
Meanwhile, Goetti feels that dollar will go higher against most other currencies and commodity, particularly the emerging currencies. Below is the verbatim transcript of Hans Goetti's interview on CNBC-TV18 Q: The rally continued in the US markets overnight, Europe has not picked that up and has opened a bit soft. What is your reading of the European markets?
A: There is still fear about a possible Fed tapering and that seems like a new password. We are not that pessimistic. We don’t think the Fed is in any position to reduce or to take the foot off the pedal because fundamentals are still soft, although we have seen an improvement lately. Fed is very much aware that the implications on financial markets would be severe and almost unmanageable. Still a few months off, until the end of the year, until they even think about reducing the stimulus. Q: What about the risk-on trade and the risk appetite because we have seen quite a bit of inflows in emerging markets and big rally as well especially in markets like India? What is the current sentiment in terms of risk-on for equities? How will the sentiment change as we head into the second half of the year when the noise on Fed tapering will become a bit more profound?
A: The noise will be on and off, but the fundamentals remain same. Central banks of the world are now trying to push investors into riskier assets and we have seen this across the board. They have been very successful in doing so and therefore, we don’t think this equity bull market is over.
We will have some short-term volatility because sentiment is off the charts, valuations are not exactly cheap and there are few reasons why we could see a bit of volatility. But fundamentally, the central banks will not change course this year and that also benefits emerging markets. Emerging markets have been the laggards and the emerging world is not only driven by liquidity, but also by fundamentals. They could catch a little bit up over the second half of the year. Q: Don't you expect any kind of actual tapering by the Fed in this calendar year?
A: No. They have given us relatively specific targets, they are talking about unemployment at 6.5 percent and we are still one percentage point above that. They want to see inflation expectations going up, so they have an inflation target of 2.5 percent. Again, we are not there yet. I could paint you a scenario where we get to 6.5 percent unemployment by year-end, but that does not necessarily mean that QE will be over. They could shift the goalposts and may look at other indicators as well. So for this year, we will not see any change in the policy of the Fed.
_PAGEBREAK_ Q: Germany may now look at ending austerity and going all out in terms of there own expansion plan. If that was to happen, what would be the call on the equity markets if we have fresh round of money supply from Germany?
A: There is across-the-board tightness about austerity. We have seen that austerity alone leads to a downwards spiral in terms of economic growth, tax revenues, which again lead to higher deficits and so, it is not working. You can have austerity, but your economic growth at the same time and that is what they are trying to address.
We don’t think that running higher government deficits will necessarily yield to results. Reforms are needed in Europe and elsewhere, labour market reforms, a lot of reforms in the real economy that would help, but that takes time. There are no quick fixes there, but there is a try and drift away from austerity, which is positive for equities in the near-term. Q: Global markets are likely to move higher, which market would you play for most upside from current levels?
A: There are two – the US market still has a upside, but the bigger upside in our view is Japan, despite the fact that Japan has risen by 35 percent year-to-date we had a pretty sizable correction, which was a bit unnerving. But that’s a buy opportunity. So, the Bank of Japan will continue on their course of QE. The yen will most likely weaken and we would favour Japan as the number one pick, but with a caveat that you would have to hedge your yen exposure because we expect a weaker yen from here. Q: We have seen quite a bit of strength in the dollar, but in India, the currency depreciation has been a bit more profound. What's the call on both Indian currency and Indian market at this point in time?
A: Dollar will go higher against most other currencies and commodities. In currencies, particulaly it will do well against emerging (market) currencies. We could see some weakness here not because of weak fundamentals, but because the dollar is the best among all the weak paper currencies. So, that will drive it and that will lead to somewhat lower currency exchange rate in Asia as well. Q: Have you set any kind of targets on the dollar Index?
A: You look at the DXY, we have now exceeded the 84 level, which was a bit of a resistance. We could be headed for about 89, so that’s another 5 percent against most major currencies.