Expect a stronger US, Europe this year: StanChart

In an interview to CNBC-TV18’s Sumaira Abidi and Nigel D'Souza, Sarah Hewin, senior economist, Standard Chartered said though the recent ISM data was a big shock to the markets, it does not signal a real slowdown in the US economy. Below is a verbatim transcript of the interviewSumaira: We have seen a big knock coming overnight from the global markets. Today, as well, Europe has opened weak. How concerned would you be about the kind of weakness that is emerging from the US economic data? Would you be using this dip to buy?A: We have to be very careful about assuming that the latest batch of data signals a real slowdown in the US economy. There will be inevitably something of a stabilisation of the relatively strong growth that we saw in the second half of last year in the US. The recent set of the Institute of Supply Management (ISM) data was a big shock to the markets. I think it is not necessarily indicating a substantial slowdown in activity in the US. Some of that is going to be weather related and that is obviously just a temporary factor. There is some sort of broader concerns of course not just in the US—though the fact that we saw the weaker Purchasing Managers' Index (PMI) data from China as well raises some anxieties about the strength of the global economy. On the other hand, if we look at India, Korea, if we look at Euro area then activities is doing pretty well their according to the PMI.Nigel: The Japanese index is closer towards 14000 odd mark. It was the outperformer in 2013, up more than 50 percent. This year it is down 14 percent. How are you viewing that market?A: We can be reasonably optimistic about the outlook for Japan. There are some concerns about the impacts that the sales tax is going to have on spending, but the central bank seems to have the right idea. They seemed to be having some success in generating inflation and the cheapness of the Yen of course means that the exports side ought to be doing better. The fundamentals are looking perhaps better than the sort of market valuations would suggest.Sumaira: Is that a view then that could be also extrapolated to the entire emerging market set and at what point do you think the EMs will become an attractive bet?A: I think you can make that judgement. Obviously within individual countries there are some points of concern. Political developments in Thailand, elections coming up in India of course and elsewhere, so I think that investors have very much one eye on those factors when they make their decisions about where to put their money. Fundamentally, we think that the market maybe have gone too far in downgrading EMs. A lot has been achieved over the last few years. We think potential is still very good. Even if China growth moderates then within Southeast Asia there is enough dynamism to continue to generate activity. Of course for this year, US and Europe should be looking a lot stronger. So that in turn will be a positive for exporters in the region.