Current upmove is just a relief rally: Mirae Asset Sec

The European Central Bank has cheered the global markets. The ECB has agreed on a new bond-buying programme to lower struggling Euro zone countries' borrowing costs.

In an interview to CNBC-TV18, Bill Belchere, Mirae Asset Securities says the global markets are getting a little bit ahead of themselves. "We still have unresolved fiscal issues. I am going to characterise this as a relief rally or re-rating rally. We really don’t have a real change growth yet," he adds. Also read: Markets happy with ECB move; look out for downward move, says Richard Ross Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: It’s ofcourse a celebration across all risk asset classes for sure. How long will this celebration go on? Will the markets begin to reckon that there will be conditions attached to even the precautionary credit line and therefore governments like Spain may be wary of asking for it? A: Yes, I agree with you. I think that we are all getting a little bit ahead of ourselves. We do know that now the ECB is going to act like the Bank of Japan and the Fed. If they can intervene in the bond market, they atleast take out the worst downside risk to the economy. But we still have unresolved fiscal issues. There are a number of hoops to jump through, before we see Spain actually get onto a programme and that’s successfully implemented. So, there are still ways to go. But I think I am going to characterise this as a relief rally or re-rating rally. We really don’t have a real change growth yet. Q: What is your perspective in the timeline of events? We do have the non farm payrolls data due tomorrow and then we follow it up with the Constitutional Court from Germany ruling on September 12 and then we have the FOMC meet on September 13. Given these strong mount of events, how exactly do you expect the European as well as the US markets to move? A: I would be much more comfortable with the US market. One, the economy is beginning to surprise a little bit on the upside. We will get confirmation of that this evening with the jobs report. I think the Fed remains biased towards giving in the market, supporting the market. So, they are going to take out any sort of downside risk. So, I would be long US and long the US dollar. But when I look over the Europe, with the German Constitutional Court to get through, there is still plenty of room for disappointment on that side. So, I would be short European versus the US equity market and short the euro versus the US dollar. Q: What about Asian equities itself? Would you be confident that fund flows will come in, especially if the Fed were to continue to hint about quantitative easing? If that money you expect will keep coming, who would be the larger beneficiaries? A: I think that if that easing comes with an expectation of much higher growth then I think you have got to go with high-beta Asia, Korea, Taiwan. But if that easing just takes out the downside in the global economy, the global outlook and the upside still looks rather sluggish then I am more favourably disposed to countries like India, China, Association of Southeast Asian Nations (ASEAN). They are larger domestic economies and have the policy leverage under their control and have lagged the developed market a bit, perhaps India less so. But even there, I think India could see a fairly significant rally as well. _PAGEBREAK_ Q: How exactly would you read the ECB cutting the 2012 growth forecast? In light of this bond buying program and this liquidity push that we possibly get or the support that we’d get from the ECB with regards to the Spanish and Italian yields, we are still dealing with a fundamentally poor economy which would possibly have its repercussions in different forms and manners going forward. How exactly would you read the growth forecast? How much worst do you think it could possibly get? A: I do think that the ECB moving now and making the statements out there, if it follows through, we can get those much more modest growth targets. I think those downward revisions are just a added mission of the damage that’s been caused by the lack of proactive, concise, consistent policies to address the problem in the first. They are also setting expectations that they think they can hit in a worse case scenario. What you want to be doing as a policy maker is surprising the market positively. Doesn’t do you any good politically or economically to negatively shock the market because you give them unrealistic expectations. So, I think both US and Europe are setting expectations low so that you can beat them. Q: We have got a strong rally going in the Chinese markets which are recovering from multi-year lows. Do you think the worst is over for China at this point in terms of an equity perspective atleast? A: From my vantage point, I think it is. I am not expecting growth to reaccelerate or be particularly powerful, but I think what the Chinese are telling you is essentially, ‘we are not stupid. We are a python. We swallowed the period between 2008 and 2011. We grew way too fast. It created lots of imbalances. We don’t care whether the global market really wants us to stimulate crazily again or not. We are going to give ourselves time to adjust and time to rebalance. So, we can grow on a more sustainable albeit slower growth path.’ I think that’s a completely sensible solution. Q: So, you would give them 7.5% this year? What are you working with this year and next? A: I would say 7.5%. It’s more modest than in the past, but it is sustainable. It is something that they can achieve. Q: Would you also therefore say that commodities, especially crude have scaled their highs for the moment? You don’t see them going above USD 115-116. A: I don’t think so. I would think the global economy is going to remain a bit below trend. That’s going to favour countries with large domestic economies in those domestic counters, not the high-beta stuff, the commodities and that sort of thing. I don’t think that’s what’s really going to perform here. So, I think it’s going to be much more the big domestic economies that can have a strong domestic growth despite the fact that the global economy is suffering. That is possible in India, that is possible in China.