ECB decision to help DMs, EMs rally on; OW India: UBS

The ECB keeping its key  policy rates unchanged was a surprise to market because eurozone is currently quite strong with unemployment peaking out, the PMI momentum not so worrisome and lending by banks also seeing is a positive trend, said Hartmut Issel, UBS in an interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.European Central Bank president Mario Draghi suggested that the euro zone's trillion-euro bond-buying program will need to be "re-examined in December" as inflation remains stubbornly low amid emerging market weakness.According to Issel, this ECB-led rally has further leg to go and will benefit both the developed as well as emerging markets at least in the short-term. Moreover, he now expects other central banks too also make dovish comments, especially the Bank of Japan next week.His is bullish on eurozone and Japanese equities and within Asia. India remains an overweight. India is likely to out perform.Below is the verbatim transcript of Hartmut Issel's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Latha: How long can this European Central Bank (ECB) unleashed rally last? A: It did come as a surprise to the market and the reason why I think this came as a surprise was because Draghi's domestic economy that is the eurozone economy itself is quite strong. If we look at various indicators -- unemployment has already peaked out and is starting to come down, bank loan lending into the economy after couple of years of negative growth has started to become positive, momentum indicators like PMI is very worrisome. So like many in the market, I wouldn’t have expected him to emphasize that element so far and therefore it comes as a surprise, typically that means that markets need to adjust a bit longer than just one day. So I think the rally has legs. Sonia: Do you believe that the rally does have more legs from hereon and not just the developed markets but do you think that a lot more money could flow into emerging markets as well?A: In the short-term it is likely that we will see that because it does bring us into a more risk-on mode again and if there is risk-on then that doesn’t only benefit the DMs, that also benefit the EMs.Latha: What would your top three assets be now?A: Top three assets certainly -- the top two are in eurozone still. We already went overweight into this decision yesterday on eurozone equities that serves us very well. Secondly, also eurozone high yields are very attractive asset class globally and also the space we like here is Japanese equities and it will be interesting because Friday next week we are also going to have the Bank of Japan (BoJ) decision.Sonia: What about India, what are your thoughts on how to approach the Indian markets from here?A: India is one of the two overweight markets for us in Asia. As a matter of fact though I think India should also benefit today but I guess some of the early part of a regime change more towards risk-on, it could be possible that India goes up and underperforms other markets that have been beaten down more especially in the August-September sell off, maybe it underperforms in the short-term but of course if it is positive for EMs in general, then that would also lift up India.