India a key pick among EMs: Banque Internationale

Global equities have bounced back over the past month, probably a bit more than warranted, says Hans Goetti of Banque Internationale. Still, given central banks' accomodative monetary stance and recovery in oil prices, the medium term outlook looks positive.In an interview with CNBC-TV18, Goetti picked out India as his pick amongst key emerging markets even as he said the recent FII outflow remained a bit of worry.Below is the verbatim transcript of Hans Goetti’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: It has been a big risk-on rally for global markets. Do you see that continuing over the next one or two months?A: The rally was impressive and of course, it came from the oversold positions in the middle February. In our view, this move has been a bit too fast, because if you look at sentiment readings, you look at technical readings, the number of stocks above their 50-day moving average -- I am talking about the US here -- we think we are probably ready for a correction. Because we now went from deeply oversold to pretty extremely overbought within a period of a month. So, we think risk assets should probably do okay over the next few months, but we probably get an entry point which is a bit lower than it is today.Ekta: In case there is a correction, would you possibly buy into the correction?A: Yes, the drivers here, you have to look at what central banks are doing and where the price of oil is going. These are the two key drivers. As far as central banks go, you have easing across the board, by the European Central Bank (ECB), Bank of Japan (BoJ), People’s Bank of China (PBoC) and now, with the Fed not moving in March, they have essentially put up the reflation trade back on which is supportive of risk assets. So, that is a positive. Oil, we think can go higher from here, although we have seen a very impressive rally, at least it will not go down. And that means, again, this could be supportive of risk assets as well. Anuj: What is your call on India? That has also rallied in line with the Asian markets. But over the last fortnight or so, the rally has been stronger in India.A: That is correct and I think it has been across the board in emerging markets. And for that, you have to look at the US dollar. As I mentioned, the Fed has backed off from the normalisation process and that should put downward pressure on the dollar. If you look at where the dollar, how low it has been trading over the past few months, really looking at the relatively toppish pattern, that benefits emerging markets in general. Among others, the problem that India has the outflow of foreign money that has continued. It is not exactly positive in the near-term, but I will think that a better environment for emerging market in general, taken by somewhat lower dollar will benefit India in the long run.Ekta: If you are talking about Brazil, Russia, as well as India right now, all three of these markets have seen good gains, but in the past month, and Brazil and Russia have really led the rally. What would an FII or foreign investor do if he had to choose between three markets at current levels and what would be the pecking order.A: The drivers for the three are totally different. In the case of Russia, it is oil. In the case of Brazil which is a commodity based economy, commodity prices play a role too, but you have a political situation there which is very fluid, very volatile. So, politics plays into it. India, on the other hand, normally benefits from lower oil prices, so the drivers for these three markets are completely different and yet we tend to put all emerging markets into one basket which is probably not the right thing to do. We tend to look at the long-term and in the long-term, India probably offers best opportunities of all three because it is probably the most stable economy, most growth based economy and where the growth is the highest.