2016 challenging yr for EMs; exchange rates to be volatile: UBS

2016 will be a challenging year for emerging markets, says Lutfey Siddiqi, Global Head, EM-FX, Rates and Credit at UBS. In an exclusive interview to CNBC-TV18's Menaka Doshi in Davos, he says that structurally there is disruption and dislocation everywhere and the impact will be felt by economies with rigid labour markets. Below is the verbatim transcript of Lutfey Siddiqi’s interview with Menaka Doshi on CNBC-TV18.Q: How do you see this year shaping up?A: Challenging year for sure but if you take a step back, there are some structural things going on globally which is why the theme of Davos is the fourth industrial revolution. It is a revolution of sorts and arguably multiple revolutions happening at the same time which means that structurally there is disruption and dislocation everywhere. Arguably, the impact of that will be felt, the negative impact, in the immediate term will be felt more in economies that have rigid labour markets. Menaka: Can we get a little bit more detail about China, your view on how much pain there is still left to go in terms a) the macro picture of China and b) what we are seeing happen to the yuan?A: China, there are two parts to that story. One is what happens to China itself and implications for the rest of the world. Firstly, for the story for within China, I believe that they are going through a transition that has been well telegraphed. So, they need to change the drivers of their growth from fixed asset investments to more consumption services. It is not an easy maneuver to effect and while they are doing it, there is no doubt that there is a huge overhang in the property sector and the construction sector. There is excess capacity, producer price inflation is negative and private sector credit has been growing quite rapidly. So, that needs to be managed, it is an execution challenge but I will that they will be able to manage that. In that process, we will see more volatility in the exchange rate but not a dramatic decline from hereon.