Global rally may continue; Fed likely to hike in June: Ian Hui

The markets see Janet Yellen's speech yesterday as being dovish, says Ian Hui, Global Market Strategist, JP Morgan Asset Management, referring to the Fed chair's speech on Tuesday. Fed statements suggest they have a cautious approach towards rate cuts and so it is unlikey to see a hike in April. But a hike in June is possible, says Hui.

With comments from Yellen on Tuesday boosting sentiment, the world markets rallied. Going forward, too, Hui expects the rally to continue, more so because commodities have stabilised and fears of a China slowdown have diminished.

Crude prices depend mainly on demand and supply. With supply expected to remain subdued, the prices could inch higher to around USD 40-45 per barrel by year-end, says Hui.

With regards to the Indian market, he says the catalyst for outperformance depends on earnings and positive news on the reforms side. Valuation-wise, too, India is scores over other markets like Brazil.Below is the verbatim transcript of Ian Hui’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18. Ekta: Wanted your thoughts in terms of Janet Yellen speech and what would that mean in terms of the Fed possibly moving in April? A: Yellen speech yesterday for Asia Time, I do believe that it has to be taken very dovishly. She did mention that they are very cautious on their outlook for raising rates in the US. That would most likely mean that an April rate hike is probably off the cards at the moment. That is in line with our own JPMorgan Asset Management view. We think the next rate hike, I should suggest, for the US is probably going to come in June. April will unlikely to happen at the moment especially considering Yellen’s latest comments. Anuj: We have seen big rally in equity markets so all through the month of March. Do you see that extending in the month of April then? A: For the moment, I think that Yellen’s comments has boosted the sentiments in the market. It does mean that we will see a weaker US dollar, which should be good for emerging markets especially combined with what we have seen in most of the other markets, commodities have stabilised, the China issue -- with the worries about the slowdown and the Yuan -- seem to have stabilised as well. So, as long as those three major issues -- what is happening in the US with the US dollar, what is happening of the China and the Chinese Yuan, what is happening in the commodities market -- don’t flare up again, I do think we will see a continuation of the rally. However, if they do see issues of the oil prices or the commodity market falling again, a bit of instability in China, a bit more hawkishness from the Fed then we might see an end to it. However, for the moment, it does seem like they are quite supportive of the markets. Ekta: What is your sense on crude prices because we have jumped up around 40 percent odd from the lows that we have seen this year but now we seem to be consolidating for at least brent crude between USD 39 per barrel and USD 40 per barrel thereabout? Your sense in terms of what the triggers for crude prices would be in the near-term and may be how much higher or lower it could go? A: What is happening with the oil prices, I do still think it is quite a matter of supply and demand. As long as, we don’t see any huge changes or surprises to the supply issue, we are slowly going to see the oil prices grind higher. Given a fairly large sort of estimate of the oil prices, I think we are still probably looking at USD 40-50 per barrel at the end of this year. It depends on what Organization of the Petroleum Exporting Countries (OPEC) and Russia will do with their supply. I do believe that what we are seeing in the US -- the oil rig count is still going down there so the US production is still probably going to go down.  If OPEC holding steady, probably still we are going to see the oil prices only grind slightly higher as the demand slowly increases. Anuj: What about Indian market? It has outperformed this month but still year to date it is an underperformer. Do you think we could correct some more of this underperformance going forward? A: I still think we are in a cyclical downturn for the earnings there. We are still waiting for an improvement. Also, if we see more positive political reforms, we should see a catalyst. That should boost the India market upwards compared to what we are seeing with the rest of the emerging markets. Otherwise, most of the worries on India are concerned around the earnings as I mentioned they are in cyclical downturn. The valuation argument -- India does seem a bit more expensive when compared to other emerging markets such as Brazil, Turkey, Russia. They are seeing a lot better valuation. With the stability that we are seeing in the commodities market so far, I think some other investors in markets might see those as a bit more favourable when compared to India.