Greece's exit will spark rout in global assets: Parson

Nick Parsons, National Australia Bank, says that the markets should not pin up any hope from the 18 EU leader's summit which is scheduled to be held today. 

I think there is an acceptance in the market that Greece will leave the eurozone, but I don't think that the markets have fully priced in the volatility or the fall in asset prices that would result from the exit. The day Greece decides to leave, we will see a rout in global assets. Also Read: Will rupee retire at 60/$? Experts debate Nifty's next move Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying videos. Q: What do you think is optimism low and is Greece possibly now exiting the Eurozone? A: Optimism is certainly low. Next week we will see 18 EU leader's summit. The last 17 summit have taken us to the brink of disaster for the euro where they actively discussed the possibility of Greek break up, yields in Spain are back above 6% and Greek yields today are almost 20%. I think anyone who has pinned any hopes from this summit is going to elide anything positive for the market has not been paying attention. Q: What are you looking out in today's informal summit? Will Hollande have his way or Merkel will stand by her opposition to the euro bonds? A: I don't expect Merkel wavering slightest and equally Hollande has got a very strong presidential mandate and he too will not move from his position. Rather than seeing a compromise, we are focusing on disagreement and even if that assessment proves wrong, I think any rallies in markets tomorrow will be met with very heavy selling interest and the euro will go down to testing its low of 1.26-1.25 and the stock markets will find it very difficult to rally even from these current levels. So, for me the downtrend continues. Q: Do you think the markets are factoring that Spain could also be as bigger problem if not bigger than Greece? A: Greek exit is containable. There is no suggestion that the same analysis could be applied to either Spain or Italy. Spanish trades have widened another three bps today having gone out 16 bps yesterday, we have got the yield well north of 6% is currently yielding around 6.10 and against those levels Spain is effectively excluded from capital markets. Yes, Spain was yesterday able to issue some three and six months treasury bills but there is no prospect in the near-term that Spain would be able to issue any longer-term debt and on that is certainly a concern amongst investors. Q: Do you think RBI has any arrows in its quiver to fire now or administration measures will not really yield much and the rupee will do what it has to? A: RBI certainly has arrows in its quaver. We are now trading at 56.03, which is a new all time high; it is not worth firing those arrows in the current environment as the Indian rupee has got momentum against it. It has sentiment in the asset class in the emerging markets generally against it and in a pro-US dollar, anti-risk mood one has to question whether intervention or any measures would be successful. It is too early to try and turn it around from current levels and one has to wait until the market gets into a parabolic sell off before deciding that it is oversold. For all the movement that we have seen since early March where we have come from 48.80 to 56.04 currently has been an orderly decline and that is a compelling reason for the authorities to step in. The market might need to do more widely at 60 level and at that point when it become consensus that its clearly going to fall then that is opportunity for intervention. Q: What sort of beta are Indian markets working with? The Won has depreciated 0.6% versus the dollar, the rupee has depreciated more than a 1% in one trading session, yesterday there was hardly any correlation with the rupees depreciation versus the Asian currencies. Give us a sense in terms of the beta that the Indian markets are working with? A: In the last 24 hours currencies of Poland, Czech Republic, Indonesia, Mexico, South Africa and Hungary have performed worse than India. This is not just an India specific move but a move against emerging markets as an asset class and partly for that aspect I would be less inclined from a policy perspective to be moving into panic mode just yet. If India was the standout loser and markets were unjustified and unreasonable in pushing the currencies to the levels then one could argue that there would be a good case for intervention. There are six currencies that have been worse than the Indian rupee over the last 24 hours and just broadening that perspective and looking at the month to date, there are seven currencies which in this month alone since May 1 have been worse than the rupee. The rupee has lost 5.9% against the US dollar this month but the Hungarian Forint has lost 9.2%, Poland has lost 8.6%, South Africa has lost 7.3%. It's bad news but not catastrophic. Q: Do you think adverse event in Greek is being priced in right now, or still a lot will come if the event were to actually happen and this is just the beginning? A:I think there is an acceptance in the market that Greece will leave the eurozone, but I don’t think that the markets have fully priced in the volatility or the fall in asset prices that would result from the exit. The day Greece decides to leave, we will see a rout in global assets. The euro itself will fall sharply, but the time to be buying those assets is the weak after Greece leaves and there is not a lot of merit in trying to fish around for the bottom and trying to buy in anticipation of that because the moves potentially could be quite spectacular. So, our advice to investors is to hold fire and to wait for it to happen because that would be the catalyst for a potentially a very sharp rally in global asset markets. But that sharp rally won’t come unless and until Greece actually leaves the euro.