ING sees more room for EM equities to claw back

The ECB has moved to a more competitive stance says Tim Condon, head of research, Asia at ING Financial Markets and that is why the markets have been stronger in 2012.

EM equities have the most room to grow considering they fell the most in 2011. We have to prepare for the oil price shock and India is the first one to get affected in oil prices especially considering the tensions in the Persian Gulf. Below is the edited transcript of the interview. Also watch the accompanying video. Q: The market quietened after the robust rally of six-seven weeks. What are you expecting from the ECB in the next 24-36 hours and will that be enough to fuel another quantum leap in risk assets? A: A quantum leaps maybe little optimistic but certainly supporting continued moves higher. We think that the take down amount in this and next auction will be somewhere close to the previous one. Too much would cause people worry that the banks were too dependent on the ECB, so about somewhere in 350-500 billion euro range. The ECB has moved to a more competitive stance under Dragi than it had under Trichet. I think that is one of the reasons that the markets have been stronger in 2012. The other two advanced economies central banks, the Fed and the Bank of Japan take some small steps to additional accommodation. More G3 and central bank accommodation is what is helping support risk assets year to date. In addition, upgrades in GDP growth will forecast supports markets moving higher for the rest of the year.
 
Q: But there are also perhaps two dampeners. There were recent reports indicating that perhaps the secondary market purchases of sovereign bonds by the ECB have declined. More importantly, crude is staring us in the face as a potential dampener of growth everywhere. What kind of rallies you expect in risk assets from here on? What would you bet your money on and how much are you expecting by way of rallies in US equities, emerging markets (EMs), commodities? What is your choice? A: EM equities would be my choice. It has the most to claw back. The S&P 500 is already back at its 2011 high. The European markets have about 10% more to go. I like those as well but the EMs has the most room to move higher given where they fell from in 2011. I think the only good thing about 2011 is that it has set us up for a nice bounce back in 2012 on the strength of more industrial friendly central bank stances as well as GDP growth forecast upgrades. We all were so bearish at the end of 2011 looking at really a dire scenario for 2012. It turned out to be a little bit less so, the direction of change with the growth forecast is up, and that I believe will be positive for risk assets. As a bottom line, we should look for most equity markets to claw back to their 2010 in case of India or 2011 in case of most other markets highs in this year. Q: Additional liquidity will help India as well but given the fact that crude has gone up so much, how will the fund managers allocate this additional money with respect to India. Will high crude price keep them a little wary? Will they allocate a little more money in other markets apart from India? A: I do not think they will allocate their money to risk assets in the event of oil price shock. Economists find that it is a discontinuous relationship; it is not the steady rise in the price of oil, it has to be a shock, which some economists have defined as the spot price hitting new three year high. If that happens and for that to occur the price of oil, Brent, would have to be at USD 140-145 per bbl today. Were we to see that? I don