Auerbach Grayson eyes further downside of emerging mkts

After a relative calm of last few sessions, global markets seemed to be entering into a rough phase once again. Richard Ross, global technical strategist at Auerbach Grayson & Company told CNBC-TV18 that he expects to see a further downside for the major emerging markets (EMs).

He indicated that the weaknesses in developed markets (DMs) like the US and Europe are reinforcing the bearish mood in EMs.
He advised the investors to cautious. "Investors should remain defensive and conservative. They should keep some cash on the sidelines for a better buying opportunity, perhaps at the end of the summer, but at much lower levels in terms of price," he explained. Here is the edited transcript of the interview. Also watch the accompanying video. Q: The US market has seen another sharp cut. What do you see on the S&P and Dow in terms of support levels now?
A: The disappointment actions in the DMs are reinforcing the bearish action in the emerging world. Investors are concerned about the global growth story. These EMs have been the engine of the global growth in recent years and the DMs have benefitted from that.
The debt concerns, both in Europe and US, have been dragging down the rest of the world and putting a question to the global growth trade. Weakness in developed is mirroring the weakness in emerging world, which is a disappointing picture for investors. Q: The bigger problem seems to be in Europe. What is the picture there? Do you see more damage there from what we have seen already?
A: European markets are already in the throws of a very deep correction. Across the continent, not even a single market is positive for the year. Many, if not all, have been showing double digit declines. The picture in Europe is very bearish.
The stronger markets from a fundamental standpoint like Germany, France and the UK or the weaker markets like Spain, Italy, Portugal and Greece are almost at a generational low or a 20 year low. There has been visible structural damage to the charts. We are looking at a potential retest of 2009 lows in Europe. Q: What do you see on the chats of the emerging markets? Will the charts hold out or will there be a sharper cut?
A: We have been witnessing structural damage in the technical foundation of the EMs. On a-year-to-date basis, not even a single EM is showing gains for the year. We have been seeing major technical breakdowns from the complex top formations. We expect further downside for those major EMs. Q: Technically, do you see a 2008 like waterfall decline taking place from here? How should investors be approaching this decline?
A: Investors should continue to be cautious. This is reminiscent of the situation in October 2008 where we had the financials, cyclical stocks and interest rates rolling over and testing historic lows. This smells like a deflationary risk of deleveraging type trade, which is a potential for this macro debt situation to completely unravel.
Investors should remain defensive and conservative. They should keep some cash on the sidelines for a better buying opportunity, perhaps at the end of the summer, but at much lower levels in terms of price.