Watch experts decode 'The rise of ESG investing' on October 29 at 4pm. Register Now!
Last Updated : Feb 15, 2016 06:10 PM IST | Source: CNBC-TV18

It is not bear market but unpleasant correction: Credit Suisse

Robert Parker, Senior Advisor at Credit Suisse is of the belief that the recent volatility and sell offs seen in global market is not a bear market but just an unpleasant correction.

Robert Parker, Senior Advisor at Credit Suisse is of the belief that the recent volatility and sell-offs seen in global markets is not a bear market but just an unpleasant correction.

However, the pullback rallies seen in Asian and European markets on Monday is due to lot of short squeeze, says Parker. Also there is expectation of oil production being cut back or at least oil supply is being cut back giving support to commodity market.

According to him with the MSCI World currently down about 14 percent, markets could be close to the end of that correction. After the correction there is high probability of markets trading sideways or marginally higher, says Parker.

Below is the transcript of Robert Parker’s interview with Anuj Singhal and Surabhi Upadhyay on CNBC-TV18.

Anuj: What did you make of the recent pull-back rally that we have seen in risk assets, equities most particularly?

A: Clearly, if we were having this conversation last Wednesday or Thursday, the markets became very oversold, there was some very significant short positions in the markets. Now, what we have seen on Friday and again today is clearly a lot of short covering. We have seen a squeeze on those short positions and know clearly this is a very significant rally. Now, having said that, apart from the technical position, one has to highlight a number of more fundamental factors.

Firstly, the action by Deutsche Bank last week in announcing it was going to carry out a buyback programme for a number of its outstanding bonds has had a significant and positive impact on what was very adverse investor sentiment towards the banking sector. Secondly, expectations are building up that we may see some cut back in oil production and in any event oil supply is being cut back.

So, there is support for the oil market and commodity markets at a around a current levels. Plus, I think it is increasingly like that any rate increase by the federal reserve has been pushed back and of course, as we go into March, there is a high probability that the European Central Bank will ease monetary policy further, possibly by extending negative interest rate into even more negative.

So, whereas we had lots adverse news affecting markets badly, we should not forget that Europe has been hit very hard indeed with even after today’s rally. Euro stocks year to date is down close to 13 percent. Japan, likewise, is hit hard with the Nikkei down close to 16 percent. But I think apart from it just being a short squeeze, going on, we are seeing some fundamental factors moving from being negative. So, I would not necessarily say positive, but certainly less negative.

Surabhi: This rally comes at a day when a lot of negative macro cues have anyway come in whether it is GDP, contraction in Japan, whether it is that pathetic trade data over the weekend from China, what would you say? The million dollar question really or maybe the billion dollar question. Is this just a short covering rally in an overall bear market?

A: I do not think we have got a bear market compared with the situation we had in markets in 2008 or in 2000. Just to remind ourselves, from 2000 until 2003, Morgan Stanley Capital International (MSCI) World fell by 50 percent. And obviously, in 2008 MSCI World fell by 65 percent. So, I do not think we are in that sort of bear market. I had taken a view in January and February that we are going through a very unpleasant correction. And a very unpleasant correction is of the order of 15-20 percent, similar to what we saw last August and similar to what we saw in the third quarter of 2011.

Now, MSCI World year to date is now down about 14 percent. So, I think we are probably close to the end of that correction. We are definitely seeing a short covering squeeze. What happens thereafter I do not think that markets go back to previous highs. I think that after this correction there is a high probability that actually markets trade sideways possibly marginally higher. But, I do not think we are in a bear market. The risk is that we end up with a lot of day to day volatility, but after this squeeze, the rally runs out of steam perhaps in a month’s time, and then we just trade sideways. 
First Published on Feb 15, 2016 05:20 pm