Emerging markets remain attractive in long-term: Rabobank

Developed market is currently outperforming the emerging market. But this is a short-term phenomenon. Emerging market remains attractive in the long-term, says Jan Lambregts, Rabobank. The equity market has been under some stress due to news of Brexit. But a weaker pound is a plus for the equity market, says Lambregts.He says a Federal Reserve rate hike seems unlikely in November. They may shy away in the last minute. But the Fed may hike rates in December by around 25 basis points which he senses may not lead to any global market imbalance.Below is the verbatim transcript of Jan Lambregts’s interview to Latha Venkatesh and Anuj Singhal on CNBC-TV18. Anuj: What is happening to the currency world and do you see further lows for pound and a bigger question then, could that be a catalyst for a bit of a near term correction for equities? A: No, I think at the moment we are seeing further downwards pressure on sterling. We are sort of looking at what happened over the past, around midnight UK time there was a newspaper article that presented the views from Mr Hollande, the president in France where he took a fairly hard stance on Brexit saying that Europe should take a hard negotiating stance and should particularly pay attention to making sure that the principles of the single market are respected. This then connects with Angela Merkel earlier in the week also telling businesses that business in Germany have been asking for smooth negotiating process and also Angela Merkel saying like this and we have to look at the principles here though there are bigger things at stake than just one country. one quick deal. We need to make sure that the European project stays intact. So, that will suggest a hardening of the stances on both sides of the isle. That was the trigger from thereon option barriers were triggered. Not too long ago we would have called it fat fingers, now it is algorithms that get blamed that made for the flash crash. Quite a bit of that has recovered but sterling remains on downwards pressure. Latha: There were a lot of reports which said it is at least one fat finger trade or at least one rogue outlying trade, was all the fall because of algorithms and this kind of harsh talk? A: It is definitely something that is possible. If you sort of look also at the timing this is early opening in Asia. Very little liquidity there, you got some really big support levels formed by options around at 1.25 level and 1.20. Once those got breached it just went down there. So, like I said we used to call it fat fingers now it is algorithm that gets blamed. We did see it come back quite a lot because downward pressure is still on sterling. Latha: As my colleague was asking you will this mean cascading impact or even somewhat of a negative impact on this underway global equity rally? A: It is a difficult one. If you just look at the FTSE 100 it is actually up. So, people or at least the equity markets think very simple weaker currency means good for equity here and the rest of the global markets haven\\'t been paying as much attention. The topic though, the hard Brexit topic the pressure it puts on Europe and the strain on UK that is by itself a long term equity negative. But there is a long term to get through. For the meantime weaker currency is actually beneficial for equity market there, that is world we live in. Anuj: But do you get a sense that we are now in for a bit of a developed market outperformance compared to emerging markets. Even as we speak right now the Indian market is underperforming most of the other markets. Most of the European markets are in green. The DOW Futures have recovered and still the Indian market has been sulking a bit? Yes, this is a shorter term theme. Longer term emerging markets remain attractive including India especially if currency risk which is normally a big worry there are as big in developed markets as they are in emerging markets. That is bit of an equaliser. Latha: Final question about the non-farm payroll numbers. If they come in above 1,75,000 are we going to see equity markets show pressure on Monday as probably the imminence of a Fed rate hike gets discounted? A: Yes, the ever elusive of Fed rate hike, they are talking it up with the movement again. We know they will probably shy away at the last minute. We have seen this now so many times. We think it is very unlikely they will go November. The market hasn\\'t fully priced in a rate hike for this year yet. We do think they will squeeze one in December. So, there is room to price in. You don\\'t even have to be a Novemberist, you can just go for December there and that will be a short term equity negative. Let us just be real though, 25 bps shouldn\\'t upset the global balance so much.