Buy emerging mkts; Fed rate hike unlikely: Crossbridge Cap

Manish Singh, chief strategist & head- investments at Crossbridge Capital LLP in an interview to CNBC-TV18 shared his outlook for emerging markets and his expectations from the FOMC meet.

He believes that soft energy prices are a big positive for emerging markets and one should buy into these markets with a 6-12  month perspective. According to him low oil prices will feed into good data and there will be a pick up in manufacturing and demand.The house yesterday bought out of money call option in emerging market as an index, says Singh.He thinks the Fed is unlikely to raise rates until second half of 2015.Below is the transcript of Manish Singh’s interview with Ekta Batra & Reema Tendulkar on CNBC-TV18.Ekta: Dissect what is happening in Russia because at same time yesterday it was showing extreme amount of volatility. Today, we have seen the ruble recover close to levels of 60 against the dollar and the Russian index is up around 10-11 percent – isn’t that odd?A: As you see this market where there are very violent movements both on the upside and downside and you saw how the currency went from 64 to 80 yesterday in just one session, which is almost like 25 percent drop.

Therefore, one way to say that is if it is in the Options market and if it is in place by very few numbers of investors then you will have very wide spreads and very wide thing. As we couldn’t explain very well why the market was dropping so heavily yesterday similarly the rise is just a make up of short covering. Maybe people will short in the market and they are worried about more response from central banks and they are covering the shorts.Reema: Do you expect the outflows from emerging markets to continue at the same rate that we have seen over the last few days. Are you at Crossbridge penciling in much lower levels for global indices?A: I would say low energy prices is a big positive to emerging markets and of course this story is getting lost because Russia and ruble story is catching up far more headlines and what Federal Open Market Committee (FOMC) is going to do today or what is happening in Europe may have an impact. My view on emerging market is a buy.Reema: Even at this level?A: Even at this level because if you are taking a view which is 6-12 months then it is a buy. I have done some yesterday by buying out of the money Call option in emerging market as an index and I would say that low oil prices will feed into good data and you will see manufacturing and demand picking up and that will be the story for 2015.Ekta: Your expectation from the FOMC tonight?A: I expect that FOMC is probably going to drop the core guidance; rates are going to stay low for considerable period of time which I think is very likely. Of course for FOMC and the US, ruble doesn’t matter as much because it does not have that much impact on their economy. What impacts the US economy is high yield credit spread and that has widened and you have seen a selloff in the credit market. I expect that there might be some reference to that in the post FOMC press conference. However, I do not think FOMC is going to be alarmed about that because you recall they have been pointing out that the tightening credit spread was representing some kind of risk in the market because there was excess risk appetite, so this widening is in a way of undoing that. I still believe that FOMC is not looking to raise rates for some time and I still hold on to my belief that rates are going to be raised only in second half of 2015 if they are going to be raised.