Japan mkt looks promising; risk appetite back: UniCredit

Japan was the star performer among the Asian markets today as it opened with gains of 4 percent on encouraging economic data and weaker yen. Gains in some peripheral markets of Euro Zone are also attributed to rise in Japan indices.

Marco Valli of UniCredit said, "Good close of the stock market in Japan and also some strong collateralised debt obligation (CDO) activity seen out of Japan is showing that Abenomics is probably starting to give some positive results." Also read: EMs haven't lost sheen yet; cherry pick stocks: Nilesh Shah
Valli sees risk appetite returning to global markets as participants takes a fresh look to Ben Bernanke's comments on quantitative easing. He noted that many Federal Open Market Committee (FOMC) and European Central Bank (ECB) members have observed that recent volatility in markets and decline in risk appetite is probably overdone. "Given that Mr. Bernanke is always conditioning the exit from QE on an improvement in the economic cycle which is ultimately good for risky assets," Valli added. Below is the verbatim transcript of the interview Q: Give us your thoughts on European markets itself, we saw that seven year long-term EU budget deal gets signed yesterday. What could the positive impact be, do you think it is just a one-day event that has played out or do you see some long-term implications and perhaps the worst is behind for many of these European markets?
A: No. I think today the markets are opening on a positive footing. Most of the positives we have seen particularly when it comes to peripheral markets in the Euro Zone are linked to the good close of the stock market in Japan and also some strong collateralised debt obligation (CDO) activity seen out of Japan showing that Abenomics is probably starting to give some positive results. Also some of the concerns related to China have started to fade. Yes, there is some worry about stalemating the process of the discussion of the European budget, but probably I do not think that it is going to be a major issue now for market. We can see that there is risk appetite back in the market and this is particularly clear on the peripheral sovereign bonds, which show clear decline in near-term. Q: How do you think risk assets will move from hereon? For the next one month do you think the best gains of at least smart funds are going to chase US equities and maybe a little bit of European and Japanese equities, will that be your order of the smartest assets?
A: The market has moved extremely rapidly in the selloff over the last previous weeks. The last two to three days it is clear that the market has started to settle down a bit. We have seen good performance in equity markets In Europe. We have seen strong performance of peripheral government bonds. So to me this means that the market has taken a fresh look to what Mr. Bernanke said. We had also several members of the Federal Open Market Committee (FOMC) coming out. Recently they said that market has probably overreacted. We had the same rhetoric out of euro zone with Draghi and several other European Central Bank (ECB) members saying that the ECB is very far from any exit from extremely loose monetary policy. So to me it looks like an official statement by policymakers, in particular by central bankers had started to calm down the market a bit and they are seeing the recent moves in volatility in the recent decline in risk appetite is probably overdone given that Mr. Bernanke is always conditioning the exit from QE on an improvement in the economic cycle which is ultimately good for risky assets.