Equity only light in Europe rumble: UBS AG

In Europe, things have been a little better on Thursday and that maybe partly because Ben Bernanke hinted that he is ready to provide stimulus and Stephane Deo of UBS AG tells CNBC-TV18 how Europe is coping up with internal issues.

Below is an edited transcript of the interview on CNBC-TV18. Also watch the attached video. Q: Sarkozy's opponent Hollande did send out a shiver down the spine with his comment on his plan to revise the European fiscal compact. The opposition to fiscal austerity measures in the Netherlands has given rise to further goosebumps. How do you see Europe panning out in the next two-to-three months?
A: The air is thick with political risk in Europe. France will have its parliamentary elections in June after the presidential elections on May 6. Then there is a state election in Germany, the referendum in Ireland which is becoming more important, and the Greek polls on May 6.
All these events could bring a lot of volatility because Greece has got a bit of fiscal tightening to be done and the campaigns are not going in that direction at all. Q: ECB president Draghi issued statements on Wednesday in which he suggested that a growth compact rather than a fiscal compact was the need of the hour. This seems to echo Hollande's views. Do you think focus will also shift to growth and tweak the fiscal compact to ensure growth?
A: It is interesting what Hollande is saying. He has changed his view to revising the fiscal compact by adding the growth angle to it. This is in line with most economy experts in Europe have expected and is similar to the stance adopted by the socialist Jospin government in 1997. Q: So if Hollande wins the French elections, it will not be a cause for worry?
A: I stick to my view that the fiscal compact will not be renegotiated and it is possible that it will be amended by adding  focus growth.
What could put volatility in the market is the gap of one month between the presidential elections on May 6 and the parliamentary elections in the middle of June. Q: We had a fairly robust risk appetite in the first two to-two-and-a-half-months, probably propelled by the two money infusions by the ECB. There has been a lull in this appetite. Do you see it returning on US data with the Fed upping the growth forecast and yet saying that it stands ready to give a fiscal stimulus? When do you see period of consolidation breaking?
A: The ECB's LTRO has been a big help but at the same time the data was better than expected due to a rally supported by fundamentals.
The consensus which was extremely low in the October-November period of 2011, has been revised during this period. The problem is looming in the near future with the diminishing possibility of a big monetary stimulus.
So, in my corner of the woods in Europe, there is a lot of political noise that needs to be absorbed in the next two months. I am a little bit cautious for the near future. Q: Is there any negative event on the horizon that could de-stabilise the market?
A: In my view, Greece still holds the threatening cards as the situation in the country lacks clarity or maturity in being able to implement the IMF's measures.
Though the market stands to disregard Greece being fenced in, but the country still has potential for a big shock which could unsettle the market again. Q: What might money look at in terms of asset classes?
A: The bond market can be ruled out as it is very expensive. The equity market is a bit cheap though at some point there is a risk on rally.
But equity will probably be the best class. With the creditors having already rallied quite a lot, I do not think there is a scope for any further rally now.