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Last Updated : Jan 23, 2015 05:38 PM IST | Source: CNBC-TV18

Euro can gradually rise to 1.10/$ post stimulus: Expert

Manish Singh of Crossbridge Capital LLP expects euro to appreciate to 1.10 level against the dollar indicating it will be a good buying opportunity going ahead.

Manish Singh, CFA, Strategist and Head of Investments, Crossbridge Capital LLP expects euro to appreciate from current 1.12 level to 1.10 level against the dollar after European Central Bank (ECB) announced higher-than-expected euro 60 billion per month quantitative easing programme till September 2016.

Speaking to CNBC-TV18 on Greece election, Singh says the country is unlikely to leave eurozone. He does not see Greece defaulting and may get extension on its debt.

Below is verbatim transcript of the interview:


Q: We have seen this big stimulus from ECB. What is your call for equity markets now? Do you think this is going to be enough to keep the outperformance of emerging markets or will money now flow back to European markets and some other developed markets?

A: Clearly what ECB announced was larger and longer in the sense what the expectation was. People were expecting euro 50 billion per month and they are doing euro 60 billion per month. Also, they are doing it for longer time not just one year but 18 months.

Whether money will flow out of emerging markets, emerging market as a whole is very difficult to say but if you look at the specific market and if you are looking at Indian context then I say no. Because the special reforms in India is positive and market is looking at that.

One other thing to point out is that when ECB is doing a quantitative easing (QE) unlike what you saw in US when a lot of QE money was deposited back at the US Federal Reserve I do not think that is going to happen in Europe because the deposit rates here is negative minus 20 basis points. When this happened in US the deposit rates was positive top 25 basis points.

So that just means that there is even more liquidity and that liquidity has defined its way into the market. If you are a bond investor and if you are looking at yield then where do you go?

Emerging market bonds still offer a very good yield environment especially in chosen few names that I was talking about and India being one. So I would say that yes it should be positive for the risk assets.

Q: What about the Greek elections over the weekend? What is the expectation and if Greece left the euro zone then what would the repercussions be on global equity markets?

A: I do not think Greece is going to leave the eurozone. I see that as a very small likelihood, they can leave unless they want to default which is not the base case scenario.

Even the leader of the left-wing party, he has said categorically that he wants to stay in the eurozone. So, it will be a risk event in the sense that uncertainty is going to worry the market more which will be plus in sense of a left-wing socialist leader or rather radical left wing leader becoming a prime minister as the poll suggest.

If Greece was to leave the eurozone and of course there will be a catastrophic event in terms of risk but not in terms of overall losses because you are still taking about its gross domestic product (GDP) or the debt being only three to 4 percent of the whole eurozone tax.

We will have coalition government. It does not look like Syriza by itself is going to form a government. They are also committed to negotiating with the ECB.

They are saying that they will try to make the ECB understand that they cannot undergo the same program and expect the different results. So they are making a point that the debt, a sustainable part that the Greece has been put on is not going to work so there is going to be a lot of discussions between ECB and Greece.

I am hoping that they are going to renegotiate the debt and debt will be extended and Greece will stay in the euro zone that is my base view.

Q: Do you see euro hitting parity to the dollar this year at some point?

A: I see that euro weakening and going down to 1.10 euro or slightly below. I do not see a parity. The reason I am saying is that there will be a lot of reversal of flow into euro as well. If every central bank is easing and making it easier it becomes very difficult for Janet Yellen and Fed to go ahead and raise the rates which will strengthen the dollar.

At the January Federal Open Market Committee (FOMC) meeting Janet Yellen is going to repeat the same thing as last time but come March they will change the tune. That would mean that dollar would start weakening and other currencies would start strengthening. So, if it goes below 1.10 euro it becomes a buying opportunity, Europe becomes a buying opportunity to accumulate slowly and we could see the flow reverse.

Q: You mentioned that the head of the Syriza party wants to be a part of the eurozone and they want Greece to move out. What is the latest stance as far as Angela Merkel is concerned? What is your stance on Germany?

A: The political talk before the election, they are playing the hard ball and making the Greek electorate realise that you can have a peaceful negotiation but it will not be something that Syriza can defy and get a deal of their own choice.

The German political talk is still that they should play hard ball and should bring Syriza or whoever the new government is, into the line. However, there have been a lot of reports where there is acceptance on the part of ECB and part of European politician that the current program that they have put in Greece is not sustainable.

For example, Greece has to run a primary Budget surplus of 4 percent to even think about paying down the debt. And despite all the austerity they have done they are running a primary budget surplus of only 2.4 percent and by this I mean that all the bailout money that they have received over last two years 90 percent has gone in to debt repayment and 10 percent has gone in to local economy.

So the situation is really bad in Greece and I do not think the new government can do it anymore. ECB, International Monetary Fund (IMF) and the European University Institute (EUI) troika have realised that it is a difficult situation. Therefore, there was an IMF report where they said in base case scenario there could be at least 35 billion of debt forgiveness.

There is a reconciliation approach on all side and therefore I put a probability of Greek exit very small because they realised they are in difficult situation and the troika realised that they may have to renegotiate.

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First Published on Jan 23, 2015 03:53 pm
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