Last Updated : Jun 16, 2016 10:12 PM IST | Source: CNBC-TV18

Mkts will continue to sell going into Brexit week: Heritage Cap

If the markets continue to sell off going into the Brexit decision, the last week of June will see a bottom and the markets will rally, says Paul Schatz, President, Heritage Capital.

Speaking to CNBC-TV18 Paul Schatz, President, Heritage Capital, said everytime there is a known decision coming along, the markets will sell off. Schatz was referring to the Brexit decision imminent on June 23. 

If the markets continue to sell off going into the Brexit decision, the last week of June will see a bottom and the markets will rally, he said.

"The markets will pivot on the news."

Talking of US bonds, he said there will be some kind of bottom in long-term bond yields. Schatz is positive the US equities will rally during the third quarter. 

Sector-wise gold will reverse on the downside and there will be a healthy enthusiasm for technology.

Below is the transcript of Paul Schatz's interview with CNBC-TV18's Surabhi Upadhyay.

Q: It is a lot of uncertainty, we have seen a lot of selling continue over the past couple of sessions. 5-6 days of selling in a row now. Is it getting a little excessive? Do you think this little bit of paranoia that we are seeing is actually perhaps justified?

A: No, I don't think it is justified but it is certainly expected. If you go back 10, 20 years, 50 years or 100 years, every time there is a known decision coming markets typically will sell-off into that decision. Look at any kind of ultimatum with war or things of that nature, stocks typically sell-off into the date and then rally regardless of what the news is.

So,  if the markets continue to sell-off into June 23 which we have another week left, I would feel very strongly that  the last week of June we see a bottom and the market's rally sharply.

If by some chance markets rally really strongly into June 23 which I don't think is going to happen then I think you put in a peak in last week of June. However typically regardless of what the result is, the markets will pivot on that news.

Q: Where do you expect the money to move? Is some of the money that is pouring into bonds like the German 10-year or the US 10-year, is it going to come back to US equities? Do you expect some of the money to start moving back towards emerging markets at all?

A: The answer is pretty much yes. Let us say we put in a bottom, pick any date you want this month, I think you are going to reverse a lot of the trades that have been done over last couple of weeks. For instance I do think you will see some kind of bottom in long term bond yields. I would be a seller into any spike lower of US treasury bonds for sure. You can argue whether things are good bad or indifferent but it is certainly the best house in a bad neighbourhood. I think US equities will rally during the third quarter or certainly end of the third quarter. Emerging markets I do not believe  that trade is done yet. They have sold off pretty nicely the last couple of weeks but countries like Peru and to some extent Russia, Philippines and may be even Brazil on the fact that the Olympics won't be as bad as everybody thinks.

Sectoriwise I think gold will reverse to the downside when stocks put in a low and you will get a pretty healthy bit of enthusiasm back for things like technology.
First Published on Jun 16, 2016 08:51 pm