Global equities were mixed in trade as US markets extended gains post the FOMC minutes closing up nearly 2 percent while Europe ended lower on growth fears.
Seth R Freeman, CEO and Chief Investment Officer of EM Capital Management says the US market heaved a sigh of relief as Fed explained issues it was concerned about.
In an interview with CNBC-TV18’s Ekta Batra and Anuj Singhal, he says that a lot are now looking at rate increases in Q3 of next year while until today, most were thinking it to be during midyear.
Furthermore, he sees some selloff as we near November-December as major funds and institutions would want to show that they are fully diversified according to what they told their investors.
Below is the verbatim transcript of the interview:
Q: What have investors made of the US Fed minutes and what would you assume in terms of a possible timeline for a rate hike now from the US?
A: Our market pretty much told the story today. Yesterday we saw declines in major indices by about 1.6-1.7 percent and today they made up for the last round, in fact I believe this was the single biggest increase, one day increase since 2006 which is eight years ago. The Fed explained what issues it was concerned about and I believe a lot are looking at rate increases in Q3 of next year while until today the thinking was midyear.
Q: What is your call on equity markets especially emerging markets from hereon? Do you think they can outperform for the rest of the year or would it be about developed markets for some time?
A: It depends on individual investors’ current allocation to emerging markets and for those investors that were more allocated to emerging markets than India. For example, they may now have too larger percentage in their portfolios of emerging market stocks and Indian stocks, so they may want to take some profits.
As we get closer to November-December, we do see some window-dressing by the major funds and institutions. They want to show that they are fully diversified according to what they told their investors and that may cause some selloff. On the other hand, there are many investors who are underweight emerging markets and in particular India and they may find themselves needing to buy more in order to meet their benchmark targets.
Q: Overall, what would be the next big risk factor for global equities to possibly see some amount of correction from current levels?
A: We have to look at earnings reports and see if corporate earnings can support some of the lofty valuations – that’s going to be key and the other thing frankly is the Chinese economy. It has become so large and so important that as much as customarily, we have looked what is going on in London and New York. I think we have to look at what is going on in Beijing, Shanghai and Hong Kong.
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