EMs to gain till Mar; see rally in Europe, US: Nick Parsons

The European markets did not react much to US agreeing to increase the debt ceiling. However, Nick Parsons, head of research, UK & Europe, National Australia Bank, has a different view. He says they first received the news at around 3 o'clock on Wednesday, which is nearly closing time. There was a strong rally post 3 PM and thereafter a consolidation, he adds.

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He expects Europe to rally on the assumption that there will be resumption of growth in the US as its shutdown ends and on belief that the Federal Reserve cannot start withdrawing stimulus until March. He feels even emerging markets are going to do well considering there are five more months of stimulus push before the Fed starts tapering. Though, according to him, the fears of emerging markets getting hit if and when the Fed starts tapering is overdone. Below is the verbatim transcript of Nick Parsons' interview on CNBC-TV18 Q: It is a muted reaction in the European markets to the US agreeing to increase the debt ceiling?
A: It is. I think part of the reason that the reaction is muted is that we got first news of this around 3 o'clock our time on Wednesday so we had a strong rally into the close and what we would say is that we have consolidated that rally, we held on to the gains. However, it is not that the market does not like it today; it's that they did like it yesterday and that was the price action that contain the news. Q: What happens from hereon now? We have seen a fair amount of rally in the European equity markets as well as in US equity markets. Does that continue?
A: I think the rally does continue and the reason for that is we are going to be focusing on a resumption of growth in the US economy - that those headwinds that it was facing from the government shutdown are now going to fade, plus the ongoing monetary stimulus - this is still very important because it creates the ideal background for equities because the Fed isn’t going to withdraw stimulus in December, it won’t do it in January because its Ben Bernanke’s last meeting. There is no Federal Open Market Committee (FOMC) meeting in February.
So, the realistic date for withdrawing stimulus is not until March 19 or 20. We have got five months of ongoing stimulus. That’s another USD 400 billion that is going to be pumped into the system from the Federal Reserve and against the background we have got growth going up and continued monetary stimulus. Q: So for same reason emerging market equities will also keep rising through 2013?
A: Yes, I think they will and fears that this turning off the monetary taps is going to lead to a collapse in EM equities, of course those fears were overdone but if we now look at a possibility of another five months before we have to consider it then we would have thought that EM also is going to do pretty well in that environment and so remember here we are today on October 17, we have 17 working days into the quarter and investors have done little or nothing. They sat on their hands for the last 17 days and at some point they are going to put money to work and I do believe that this adds up a decently positive background for global equities.