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Last Updated : Jun 29, 2015 02:59 PM IST | Source: CNBC-TV18

ECB reaction, Greek referendum key ahead: Crossbridge

In an interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar, Crossbridge Capital's Manish Singh discussed the Greek crisis and explained why he thinks the ECB's action and the Greek referendum are important going forward.


In an interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar, Crossbridge Capital's Manish Singh discussed the Greek crisis and explained why he thinks the ECB's action and the Greek referendum are important going forward.


Below is the transcript of the interview on CNBC-TV18.


Latha: How are markets expected to behave ahead?

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A: It is all about Greece, isn’t it? What I am interested in seeing is that what is going to be ECB's reaction because they have said they will use all the tools to contain the crisis and we haven’t heard from ECB as yet.


From here and now it is all about what is going to be the outcome of the referendum. If it is a yes vote then clearly, it makes the position of the current prime minister untenable because he is campaigning for a no vote, which could mean that he could have a coalition government.


However if it is a no vote then that will embolden prime minister Tsipras. That could lead to a standoff and maybe bank closures for a long time as the negotiations still continue.


For me, today, the main thing to watch is ECB. Remember last week, ECB's hands were emboldened when the European Court of Justice said that they could use all the tools they have at hand to ensure that the monetary policy gets transmitted to every part of Europe.


If I may say one more thing: could this be the big test of poor market liquidity that we are seeing in the past when there are more sellers coming in to the market than buyers? That is something which every central bank would have to worry because we have seen a flash crash in the past as well. So these are things I am going to watch out today.


Reema: In your conversations, have you heard whether the banking crisis in Greece is spread through the other European banks and if yes what will be the ripple impact and therefore consequences?


A: I would say that no because banks have been very well capitalisedrecently in the last few years. Of course, ECB is there behind. They have stressed assets on some of the major banks, I would not talk about the peripheral banks. The risk is going to be on peripheral banks that is for sure which is why you are seeing Portuguese, Italian and Spanish market doing fireworks and the reasons is because they are most liquid markets.


If you are taking risk off today because you want to wait and see, you go and sell your most liquid assets. Of course, they are going to be massively impacted compared to the other asset classes and that is even more so because [they have the] most liquid futures that you can trade in the market. This is what you are seeing but in terms of banking crisis spreading through Europe, I see very small likelihood given that ECB is standing behind and a lot of banks have been recapitalised very well.


Latha: I have two questions are there inter-linkages between banks, Greek banks and banks all over and can a domino effect be created because Greek banks are not paying someone and therefore someone is not able to pay someone. Is that kind of a banking issue possible?


A: It is very small likelihood again because banks have been cutting exposure to Greece over the last two years because this crisis started almost three years ago we had a near-collapse of the system in 2012. It was the biggest test and which the banks and everyone came out through. Since then, a lot of the debts and exposures have been transferred to the official sector i.e. Eurozone and the EU countries. So I think that likelihood is very small.


Latha: The other thing I wanted to ask you is, do you see a general risk-off? You said that there is a risk-off in peripheral Europe which is why Italy and Portugal are falling, will this translate into taking money off Asian markets. Will funds like yours or other exchange traded funds (ETFs) and hedge funds take money off the table and go to German bunds?


A: I think you will see some sell-off, there is no doubt about that. So let us say if you go into safe asset class, you end up buying German bonds or US treasury, you are buying German bonds because you know that ECB will come and buy that off you.


So a lot of people will be doing that trade anyway because if ECB comes in and I have no doubt that if the financial condition deteriorates primarily due to Greece, the ECB will come and they will use all those things they have mentioned in the past. Now if you know that ECB is going to come then you might be tempted to trade before them and you can sell bond back to the ECB.


Latha: How much of a fall because would it be that knowing that there isn’t any direct real economy impact between many of these Asian countries or emerging countries and Greece, will they be buyers at lower levels, how much of a selloff are you expecting in Asian emerging markets?


A: It is difficult to put a number but I wouldn't be surprised -- if the referendum poll number starts coming out and if the votes start inching towards a no vote which strengthens our stance, then I think it opens a whole new pandora's box of -- is Grexit going to happen and then you will have a big pause.


That will totally depend on how this week goes and where the referendum polls are coming through. If it is yes, coming through a yes vote, then I think a lot of these things sell-off is going to get bought off.



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First Published on Jun 29, 2015 02:59 pm
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