Global markets will remain jittery: Rabobank Intl

The global markets have witnessed a pullback today. Jan Lambregts of Rabobank International says, it will be just a mild bounce back. “It is hard to see some of the big topics, which have been weighing on market sentiment before, going away at this stage,” he adds.

He thinks the markets will remain very jittery and the situation will be very murky. Also read: Greece may exit EU before June elections, says HSBC Pvt Bank Below is the edited transcript of his interview with CNBC-TV18's Ekta Batra and Gautam Broker. Also watch the accompanying video. Q: It has been a bounce back for risky assets yesterday. The Asian markets are strong as well this morning. Is it a formidable return to risk appetite or is it just a bounce back in a longer set decline? A: I think this will be just a mild bounce back. It is hard to see some of the big topics, which have been weighing on market sentiment before, going away at this stage. It looks like coming out of the weekend, the market is taking a little bit of heart from the G8 summit. There was not much coming out of the G8 summit. But perhaps it was just enough, a little bit of support for Greece staying in euro. But soon the attention is going to focus on Wednesday’s summit meeting in the EU. I think that summit meeting will be hard pressed to deliver any real support for these markets. So, markets remain jittery. Q: Tomorrow, the EU informal summit kicks off in Brussels. The undertone, which was set by the G8, was that there could be something decisive which comes out before June 17. In your mind, do you think that the markets are now factoring in a decisive step by the ECB before June 17 or the Greek elections via bonds etc? If so, what do you think would the likely tools be? A: I think ultimately the markets are working on the assumption that when the crisis gets bad enough, the ECB will be there to provide a bottom and a safety net. At the same time, I cannot say, looking at some of the peripherals in Europe, that the markets have priced in such action by the ECB. Truly, the way we see it, it is hard for ECB to do a third LTRO, when the first previous two were not successful. It is also hard to see successful way for return of S&P purchases. Those bonds purchases, when they were not very successful in curbing the crisis last year. Then you would be in a scenario where ECB only shows up, when the pressure is on, when you are frightened as a system as a whole, we are not there yet. Q: How do you expect all of these events to play out? Do you expect the EU leaders to ring fence this entire event and make sure that even if the Greece political outcome were not conducive for the markets, they would have done all they could to prevent a catastrophe in financial markets or do you think people will wade by and see what the result is going to be? A: I think markets will remain very jittery and the situation will be very murky. It is unclear exactly what the political outcome in Greece will be. There have to be a coalition government. There could even be a Left Wing government that is against the austerity plans and that believes these austerity plans should be renegotiated with Europe. We think such a power should be very troublesome because the leaders in the rest of the Europe have clearly indicated that they don’t want to be sitting back at the negotiating table over just exactly this topic. The Greeks would be on their own on this one or the major parties in Greece are able to form a coalition party and are able to stick with the austerity measures. But even then they may have an undermined mandate as they too might want to have some renegotiation or some leeway where increasingly leeway is more difficult as in the core countries bailout fatigue is setting in just as much as in the peripheral countries austerity fatigue is setting in. _PAGEBREAK_ Q: We have heard some divergent opinion on Greece's exit from Euro zone. While some point out that Greece exit would actually be beneficial for the other stronger countries over the longer term, others point out that it could be a catastrophe and there is a complete no-no in terms of Greece going out. What is the consensus opinion at this point? Do people believe that Greece could exit and you could still have financial market stabilise, if the EU leaders can ring fence it? A: I think investors in general have a very difficult time at the moment to make out whether Greece leaving would be a boon to the Euro zone. I think most investors are well informed here, they understand that the Greek’s leaving may make things worse even in the short-term rather than solve things. Many investors also subscribe to our views there that ultimately its about building a better system rather than pushing one country out which is in a way a victim of this weaker system. Many investors are also trying to weigh up the odds of Greece ultimately leaving Euro zone. There seems to be roughly better than even odds of flipping the coin really, which is only increasing and certainly further, if you are trying to trade these markets. Q: In your mind, where do you think would be the best place to allocate money say up to the Greek elections, June 17, the next two to three weeks? What do you think will be a good asset to bet on in this current environment? A: This current environment long bond positions remain very attractive for the simple fact that even as these yields are low, they can head lower. It is a very uncertain environment out. Greece is just one of the question marks we have. June 17 is a double important date. It is not just the date when we get the Greece elections, a second attempt at forming a collation thereafter, but it is also when the French elections will have finished there, the French parliamentary elections that is. Even as Mr. Hollande has come in, he has been relatively quiet. We believe one of the key reasons is that if you look at his agenda, he first needs a parliamentary majority in France secured. Those elections taking place on the 10 and the 17 from the top of my head, so they are again doubly important date in terms of getting this done. It also reminds us that Greece is not the only trigger point for turbulent times in the Euro zone. There are other ones as well, among which is an Irish referendum at the end of this month. Q: Any thoughts on India? Our currency has been sliding quite sharply. It's been underperforming the other emerging markets. Is the investment view negative on India right now? A: I don't think most investors are regarding India as a complete risk-off bet. I am not saying that India is considered one of the most risky bets, certainly not. But it is in a high-beta category, just as most parts of Asia are in a high-beta category, especially if you add in some of those domestic risks. Also, now increasingly the fact that one of the big engines in Asia would argue that India and China combined, atleast in China we have seen considerable signs of a slowdown coming through over the past month. It's the Chinese slowdown, so you still see double digit growth in some sectors, but multi-year lows by historical standards. So, those are all coming together there and making the investors are careful in these volatile times.