ECB stimulus not enough; Fed may not be hawkish: Ashmore

Jan Dehn, head of research, Ashmore Investment Management, says investors were expecting the ECB to be more dovish and there could be more sell off in the European market as the less-than-expected stimulus is not yet priced in completely.

Dehn says, the ECB’s easing programme is a defense against high interest rates in the US, adding “It is probably a reflection that the US Fed is not going to be as hawkish as the market has been expecting”.

Dehn sees the period between today and the Fed announcement on December 16 to be good buying opportunity.Below is the verbatim transcript of Jan Dehn's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.Reema: Is the disappointment over what Mario Draghi done yesterday, priced in completely or should we expect more selloff in the European markets?A: I think it is not priced in completely. Investors are positioned very wrongly in respect to this. This is one of the most heavy consensus trades towards the year end that we have seen for a very long time. Everybody was expecting Draghi to be more dovish than he was and are positioned accordingly. So there is a pain going through the markets now. It is interesting how badly the market has misinterpreted the European Central Bank (ECB). In my opinion the ECB\\'s easing programme is directly related to Mario Draghi's expectation of how much Yellen at the Fed will tighten monetary policy. Basically the easy monetary policy by the ECB is a defence against high interest rates in the United States. So when Draghi comes out and delivers less than expected easing, which was the case yesterday, it is probably a reflection that the Fed is not going to tighten as much or not going to be as hawkish as the market has been expecting. So what we are going to see is that by the time we get to December 16th, we are going to get very dovish hike from the Fed and that is going to give life backing to the global trade. So this is the gap that we have right now and December is a good buying opportunity in my opinion. Mangalam: How much lower do you think we can get from here considering you did say that it is not being priced in and once the December 16th comments come in, how much higher do you see the European market going from here?A: There is a little matter of an Organisation of the Petroleum Exporting Countries (OPEC) meeting and particularly non-farm payroll today and those two factors are going to be important. The nightmare scenario for current investors given positioning which has been all wrong and it would be that we had a hawkish statement from the OPEC meeting that they got output and at the same which would put further upward price pressure on oil and therefore downward pressure on the dollar and therefore push the euro up and also if we had weak payroll number that too could push the euro higher and that would inflict even more pain. The problem for stocks is not that these decisions have a lot of impact on the real economy; the problem for stocks is that people have positioned themselves in the bond market in the wrong way. So people were basically expecting the Fed to be hawkish and the ECB to be quite dovish, so people have been shorting short dated government bonds in the US market particular but also on the European bond market and now they have to buyback these short dated bonds and the way to finance that, unfortunately is to sell the long end of the yield curve. So you are seeing long end yields going up and that of course is extremely painful for the economy and that is what is killing the stock market. So if we get a soft payroll number and if we get a cut in output of oil by OPEC today then you should expect to see euro dollar goes significantly higher, you should see further selloff in the long end of the yield curve and a worse near-term outlook for stocks.