Michael Every of Rabobank believes the year is unlikely to pan out positively for equity markets across the globe, but says investments in fixed income assets could positively surprise.
Speaking to CNBC-TV18, Every says markets are nowhere factoring in the weak manufacturing data that was announced for countries like China, US and India recently.
What could further drag markets, Every says, is the fact that until now liquidity was driving markets instead of fundamentals.
However, India is likely to be a outperformer among emerging markets (EMs) due its relatively better macro situation.
Below is the verbatim transcript of Michael Every's interview with Latha Venkatesh & Sonia Shenoy.
Latha: What have you made of the mix of data? Do you think the markets have dithered and shuddered and the data is in the price or do you think that there is still a lot more of discounting to be done?
A: It depends, if you are looking at individual market or if you are looking at the global picture, but if you are looking at the global picture then my view personally is that the data are extremely disappointing and equity markets are nowhere near factoring in just how unpleasant the underlying picture really is globally. However, individual markets, India for example may offer a countertrend or relative outperformance but what we saw at the beginning of 2016 even though it doesn't been replicated so far this morning, is nonetheless likely to set the tone for the overall year.
Sonia: What is your prognosis for the first half of 2016? Is it too early to call this the start of a bear phase for global equities or do you think that is how it is going to play out?
A: I think that's exactly how it is going to play out. Frankly, equities have been living in la la land for a long period of time been driven by liquidity rather than fundamentals in most cases and what we have now is a global backdrop where the data continue to deteriorate in far too many places and at the same time global liquidity is going to be tightened by the US Federal Reserve. So it's the worst possible combination and I have failed to see how anyone can expect equities to do anything other than suffer in a particular environment.
Latha: What would be an asset class that you would prefer as a market man?
A: It really depends on where do you think inflation or deflation is more likely as the global backdrop. However, let me just side the question for a moment, of course people are still continuing to give money to fund managers and fund managers are always looking to put money into things and on personal basis so do I, but just because I have got money to put into something, it doesn't mean I am not prepared to overstretch in terms of valuations, so it's unrealistic that something will appreciate 6-7-8 percent when fundamentally the global economy is deteriorating.
However, in terms of asset classes, I do not think equities are going to have a good year this year and ironically there is probably a slightly better chance, the fixed income might have a better year - that may sense surprising particularly with the US raising interest rates but if they do that prematurely and if we continue to see signs of underlying deflation and yields grinding down at longer end of the US curve, you may be surprise, you might get better value for money from fixed income than you do make from equities.
Sonia: Will India selloff less than the other markets?
A: I do think that is the case. I may sound bearish but I try and tell as it is, but India does have stronger underlying fundamentals than many other markets. I am not talking in terms of valuations or particularly equity sectors because some of those do look stretched but in terms of what the prognosis is for underlying growth in India, there I am far more optimistic than I am on many other places and so on that basis India can relatively outperform.
Latha: What are you expecting from China? Today the currency itself has been fixed a little higher than where it ended yesterday, at 6.51 compared to yesterday's close of 6.53. Are the Chinese jitters over for now or are we going to see something like June 2014?
A: I think we are going to see repeat - it is not going to happen every day because nothing in market has moved in a straight line and nothing continues day-after-day without variation but what you are saying is for example the renminbi fixing this morning is significantly lower than it has been for some time. The market at the moment isn't selling off any more, which suggests there is some kind of intervention happening but the message from the People's Bank of China (PBoC) publicly in terms of where the fixing is set is that this currency will continue to weaken and on that basis with the share market dipping back into red again having been green, I think we will continue to see an echo if not exact repeat of what we saw yesterday going forward.
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