ECB stimulus expectations running high: Richard Gibbs

With the European Central Bank's president pledging to bring in stimulus measures in the monetary policy by March, investors globally have cheered the move. In an interview to CNBC-TV18, Richard Gibbs of Plantagenet Investments says stimulus expectations have been running very high since Mario Draghi's commentary on Thursday.However, despite the news, Chinese equities have remained under pressure. He says China suffering a major bout of loss of confidence in relation to the regulators and to those who govern the markets.Meanwhile, Gibbs believes India's steps to become transparent positions the country in a good state.Below is the transcript of Richard Gibbs’ interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: What is going on? Asian markets, just a short-covering bounce, the Nikkei has bounced back up sitting with a gain of 5 percent. What is the sustainability of this? And what exactly has caused this besides the comments that came out of the European Central Bank (ECB) president yesterday?A: I think it is part of that and it is probably a short-term relief rally. By some effect, you may see further stimulus measures by the Central Banks around the world led by the ECB on this occasion. Mario Draghi’s comment has got to be taken at face value. And it also means that other countries that are thinking of raising rates are likely to think twice now.Reema: So, stimulus expectations are running pretty high now, but how realistic is it? Are we likely to hear anything from Bank of Japan with respect to an enhanced stimulus? And if it does not come through in the next few days, will there be a lot of disappointment? How much of this stimulus hope is already priced in into the Japanese equity markets?A: That is right, I think the risk of disappointment is ever present and it is probably heightened at this point in time, so it is really anyone’s guess whether that Japanese stimulus will come through. They certainly have the capacity and they have talked about it in the past. They have talked about a lot of things in the past and it has not come to fruition, so it depends what happens there. Also, depends what happens in relation to the crackdown on capital outflows from China. That is getting a lot of press around the Asian region including in Australia and the potential fallout in relation to real estate property markets in particular making it much more difficult for small economy investors to actually get money out of China.Nigel: Interesting that you mentioned China because that is what has really been the bad boy in the last couple of weeks. That is what really triggered this entire fall and if you take a look at it, currently, Asian markets are doing very well. China however, refuses to take part in this. That is as flat as can be. What is your outlook on the Chinese market as well as from the emerging market basket, how do you rate India?A: In terms of China, we are suffering a major bout of loss of confidence in relation to the regulators and to those who govern the markets or try to, and we are feeling that they have lost control and they do not know what they do not know and the rest of us do not know either. And so, in that sense, China is likely to remain oversold and out of favour for quite some time. In relation to India, India has recently taken further steps to become more transparent and of course, the RBI governor is being very vocal in relation to telegraphing possible policy moves and the like in the policy discussion. That certainly stands India in very good stead in comparison to what we are seeing in China. Reema: Will this rally be sold into as we have seen in the past? What is your sense?A: I suspect it will be from those investment fund managers who are under short-term performance pressures. So, those who are subject to fairly onerous quarterly performance indexing, they are going to have to probably sell into those rallies and put some cash back into the fuel tanks, so to speak. But, for longer term investors , I suspect that a lot of us will be looking for opportunities to continue to buy on the dips when they are brought down with volatility.Latha: I still want your near term answers. Are you reasonably confident as a person advising your fund managers that a near term bottom is in place, are you telling them to deploy money and if yes, what is the top three asset classes or markets?A: On the market I still think it could be very volatile in the short-term, if there is a chance to buy in, I do think there are opportunities in certain markets that are available. However, we are still more favourable on developed markets over emerging markets. We still think emerging markets face a number of headwinds like US dollar, the weak commodity market, slowdown in China.In developed markets, I still think Europe is one of our most favoured market especially the latest announcements from the ECB, we think more easing is on the cards. We also do believe that the European companies do have a better potential to outperform compared to Japan and the US currently. Latha: Are you advising money in any of the emerging markets. Actually I want your view on India. We have seen a goodish bit of foreign fund selling. Does that stops and what are you advising your own funds?A: In emerging markets. India was previously one of our more favoured markets. Unfortunately it is seen a bit less favourable currently with what is going on. India with its twin deficit problem, it is a lot better now in that situation with the fiscal deficit and the current account deficit. It is seen more favourable as a benefit from currently very low oil prices. However, there are still some issues here. We do see growth slowing down slightly, inflation wise it was previously very low; it has slightly ticked up more recently. However, more importantly the earning story for India has disappointed quite significantly. I do believe that India's earnings is at a cyclical downturn, so we do expect it to improve going into the future, but for the moment it does seem that it is disappointing and of course there is a hope on government reform, previously last year we along with quite a number of other fund houses were a bit too optimistic on the prospects of the Modi government and its reforms. It has done quite a lot but more recently we have seen what seems to be a policy deadlock, GST still not passed at the last government session at the end of last year. Most markets were still expecting that to happen. So government reforms have disappointed but we have to keep in mind that the government has still pushed forward quite a number of items in India. We are still positive in the future but it just has turned a bit less favourable more recently.