Speaking to CNBC-TV18 Laurence Balanco of CLSA said that India and Philippines are among the better Asian markets that are immune to shocks arising from Brexit. Neither of these markets will retest their January lows, he said.
Speaking to CNBC-TV18 Laurence Balanco of CLSA said that Nifty is likely to trend up to 8700-9100 levels by year end.
He adds that India and Philippines are among the better Asian markets that are immune to shocks arising from Brexit. Neither of these markets will retest their January lows, he said.
He warns there could be volatility in the next two months arising out of Brexit.
The US dollar index has been stuck in a range since 2015, he said, adding that he sees an upside for the US currency.
Japan's Nikkei has broken below its January lows, says Balanco, predicting a similar low for the Chinese market, too.
S&P 500, which he tracks, will trade towards the bottom end of its range, and he see the bourse in 1940 levels.
As regards gold, he sees the precious metal at USD 1428 an ounce. He adds that it is a buying opportunity.
As for Nifty, he sees 11200 as a longer-term target.
Banks have been the main contributors for the advance in the bourse, he said, adding that IT is a weak sector, and pharma the worst.
Below is the verbatim transcript of Laurence Balanco's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: Let us start with the view on the Nifty. We had the low of 7,927 on Friday, which was also very close to the 50 day moving average (DMA) for the index. Do you see the index at any point going below that and would that be a buying opportunity?
A: It you look at the structure this year for the Nifty, we have broken the downtrend that it had unfolded from 2015. The support area between 7,900 and 8,000 had increased that 50-day moving average that you mentioned. So our base case here is that while we are likely to see more volatility with the uncertainty around Brexit is that we should be seeing as a buying opportunity because that break out gets us new targets of 8,700 up to 9,100.
Sonia: This 8,700-9,100 target that you spoke about on the Nifty, what could the timeline be, do you expect us to hit it within this calendar year itself?
A: I think towards year-end through the summer, you typically see market volatility and this is the weak period of time for global equity markets and we have the uncertainty around Brexit. So volatility in the next two months is highly likely but once we get through that towards year-end and start of 2017, we should be working towards those targets.
Anuj: A lot of these moves are dependent on currency and you track that space very closely. What are the charts of dollar-index telling you and also some of the other major currencies?
A: We look at the dollar index, DXY, it is probably the most well-followed dollar-index and that has essentially been stuck in a trading range since early 2015. What we saw in May was a reversal at the bottom of that range at 91 and we have now seen that recovery rally continue. Our base case for the dollar is that we have still got another 18-24 months of dollar strength before we see a peak and a major peak in the dollar. So we are looking at 100 dollar-index as the next target level.
Sonia: You spoke about the support on the Nifty at 7,900-8,000. How high is the possibility of the market breaking that support during the course of this calendar year and what are the indicators that could lead to that?
A: The volatility around the current global markets -- we have the S&P break below its May lows, which suggests the trade is down, some more downside risk on the S&P and obviously European banks are still trending lower from a breakdown on Friday. So that is where the risk of an overshoot to the downside on the Nifty, so there is a potential to drop below 7,900 but what we don’t expect on the Nifty as we see another markets is to break below the January-February lows.
Anuj: So for other markets which are the markets where you see January lows being breached and if that happens what about the contagion risk?
A: So contagion risk would be high but we have already seen the Nikkei in Japan break below the January lows. Just looking across the region we would expect the Malaysian market to break below the lows and we are also looking at the China market off the January-February low. So those are the markets that are still in downtrend.
Sonia: You did give us a near-term view on the S&P 500 very briefly but how are you looking at the Dow now because we have seen two straight days of a sell-off on the Dow, it is currently hanging on to 17,000 over the next three-six months, what is your expectation there?
A: If you look at the past 18 months, the S&P and the Dow for that matter has essentially been stuck in a trading range of roughly 16 percent. Last night as we mentioned we broke below the May low. So we are looking for move at least in the near-term back to 1940 and quite comparable to the sell-offs that we saw in August and what we saw in January and then typically if you look at those declines, it is a far sharp sell-off until you find support at the bottom-end of the range. So the S&P has been stuck in this range for 18 months and in all likelihood we are more than likely to trade towards the bottom end of that range.
Anuj: What about gold because that is also one asset class, which is making a strong come back and in times like these we have seen quite a bit of safe haven buying in assets like gold, what are the charts indicating here?
A: From start of the year, we started to see bullish price action in gold, we broke at a basing pattern in February. That gave us initial upside target of USD 1300 per ounce, which we oscillated around for three months and on Friday's price action, we broke through that USD 1300 per ounce. So we are looking at USD 1428 per ounce and above that USD 1600 per ounce. So we have clearly seen a trend reversal in the precious metal and the old resistance at USD 1300 per ounce if we do get any pullback in the near-term back to that area, USD 1300-1310 per ounce would be a buying opportunity with USD 1428 per ounce as an initial target but then ultimately USD 1600 per ounce.
Sonia: You still believe that for the Indian markets despite all the roadblocks that we have seen over the past couple of weeks and months that Nifty is still in a structural uptrend?
A: Yes, essentially we don’t expect the Nifty and the Philippines market for that matter to break or retest the January low. So we would come back under the current conditions and volatility we have seen global markets but hopefully we see higher low developed in the Nifty and then that will keep the uptrend intact.
Anuj: Higher low on the Nifty and with the move towards 8,700 to 9,100, which will take us very close to the previous all-time highs, what after that? If the market has to make higher highs, post 9,100, it is a bit longer-term chart view, what are the next targets?
A: When you look at the weekly or monthly chart, your next big level will be 11,300 area and then that will be part of the uptrend playing out on the 2013 lows and would be equivalent to what you saw from 2009-2010 highs but yes 11,200 will be the longer-term target we would have.
Sonia: You did give us a year-end target on the Nifty, do you track any of the internals as far as the Bank Nifty is concerned or even the IT index because both have been moving in opposite direction lately?
A: I think what has been positive this year in the Nifty is that the banks have been remained a contributor for the advance that we have seen and we look at historically when the banks are moving in a positive direction, we will get some sustainability in the move. The two weaker sectors -- we have seen underperformance from technology and probably the worst looking sector has been pharmaceutical sector in India -- we have seen a breakdown from that.