Mkt nervous ahead of US poll; may move higher ahead: Goetti

As President Barack Obama and his republican challenger Mitt Romney gear up for the race to the White House, Hans Goetti of Finaport is of the view that global equities are relatively nervous ahead of the big decision. He expects Obama to retain his position but, believes there could also be a surprise.

Also read: Re-elected Obama would push quickly for fiscal deal: Aides

Goetti feels global equities might move higher over the next few weeks and months into the year end. However, there is a likelihood of choppy trade, he added.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Give us a sense in terms of what are you expecting from US elections and what the global equity space is factoring in right now?

A: Global equities are relatively nervous ahead of these big decisions. Firstly, elections in the United States looks like a neck and neck race but the President is leading and we expect a Obama win, although there could be a surprise. But, the odds of Obama winning is probably a bit higher.

What is important of course is what the Congress will look like. We expect a house of representatives to stay in Republican hands, the senate probably goes to the Democrats, which means it splits Congress and probably a bit more of the same as you had over the last four years

Q: If Obama does win, as many people are expecting, from now until the end of the year how do you see global equity markets move in reaction to that?

A: Global equity markets are moving pretty much in line with the balance sheets of the central banks. The correlation between the expansion of balance sheets in central banks and the equity market is extremely high.

Maybe until five years ago corporate earnings controlled everything, but now we think that with unlimited QE and the ECB probably having to step in again to extinguish the fire in Europe there is a good chance that equities might actually move a little bit higher over the next few weeks and months into the year end. But, it will be choppy and probably quite nervous as you are seeing right now.

Q: Coming down to China what are you expecting in terms of a change of guard affecting global equities and commodities? How relevant would it be in terms of a reaction or do you think it is already factored in?

A: I think it is already factored in. Everybody expects a smooth transition including ourselves and this is probably factored into global equities. We are not expecting any positive or negative surprises out of China.

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Q: Coming back to the US Presidential elections, you are expecting an upside if President Barack Obama gets re-elected, but what about that overhang in terms of the fiscal cliff? If Obama does win, he is expected by many analysts to move very quickly on the fiscal issue, what is your sense on that overhang for the markets?

A: That depends on the composition of the new Congress. If we have a split Congress, the solution on the fiscal cliff will probably be more difficult and it is obviously a concern. I think the markets will start worrying about fiscal cliff on November 7, the morning after the election. It is uncertain and we expect some kind of a last minute deal. There has been talk on Capitol Hill of some kind of ‘Bridge’ bill that would delay the whole thing into Q1 of 2013.

It is very iffy right now, it could spook the markets but, I think that is the fact of what we are seeing right now. The markets are relatively nervous, if we do have a short-term quick fix as we had last time with the debt ceiling, maybe we could rally and that is what we are expecting.

Q: Europe seems to be affected by its own cues such as the news coming out from Greece etc. What are the most important cues to watch out for from Europe? How important do you think the US elections would be in terms of an equity market movement in the European markets?

A: Greece of course is right in the front burner again. Although, we do not think there will be a Greece exit in the next few months and anything will be done to keep Greece in the eurozone. Not that they deserve to be there, they probably should not be, but the political will by the European elite is such that they are going to keep the eurozone together no matter what the costs are.

We do not see a short-term exit for Greece right now and therefore, we could see a rally in the euro and probably a rally in European equities. We actually prefer European equities over US equities based on more attractive valuations. We could also see that European equities have actually held up much better since the QE3 announcement than US equities have. So our overweight in equity space is in Europe and in Asia.

Q: What is your view specifically on the Indian markets? If you are bullish on the global equities space, do you think India will move in tandem?

A: We think so. Emerging markets are usually the main beneficiaries of QE and that is what seems to be happening again. We have some allocation to emerging markets right now. India obviously will be a component of that and it has held up very well over the past few months if you compare to other markets.

Looking at India, we see still have relatively negative sentiment, but we see an expansion, probably an acceleration in the money base at some point and the interest rate cycle is still very much on the downside. We are relatively constructive on India for the next few months.

Q: What is your view with regards to the entire currency and commodity basket, especially with the dollar index and levels we can watch out for Brent crude as well?

A: The dollar-euro will probably remain in a very narrow trading range. The euro has suffered a bit over the past few days because of the debt crisis, Greece and everything. But we are expecting a short-term quick fix and in the very near-term a rally against the dollar.

We think that euro will be extremely rangebound for the next several weeks. As far as crude is concerned, it is the same thing. I think crude should actually be much lower than it is but it is being held up by a lot of other things like QE and some geopolitical risks. But, we do not see much downside in crude from here and probably the rangebound market for the next few weeks.