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See 50% chance of Fed starting to taper in Dec: HSBC

Herald Van Der Linde, head of equity strategy for the Asia-Pacific region at HSBC says India would not be impacted to a great extent by tapering because of the corrective steps taken by the government.

December 08, 2013 / 11:35 IST
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Herald Van Der Linde, head of equity strategy for the Asia-Pacific region at HSBC believes there is a 50 percent chance that the US Federal Reserve may start tapering in December.

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He says though India would be impacted by tapering, quantum-wise it would be less than what happened in the summer on just taper talks. The country is not as vulnerable as it was some time back, he says. This is because of some of the corrective steps taken by the government, he says. But, whether that would be enough or not is yet to be seen, he adds.


He feels India is starting to get expensive at the moment.

Below is the verbatim transcript of Herald Van Der Linde's interview on CNBC-TV18

Q: Markets appear to be a little jittery as taper fears seem to be returning earlier than expected? In your opinion what is the kind of timeline that you think the Fed could follow?


A: At the moment I would say we have seen a couple of data coming through over the last week in the US which clearly suggests that the underlying economy is gathering a little bit of steam, it is fairly robust particularly in light of the shut down which we had early this year and the fiscal drag much earlier on in the year. So, that is quite encouraging now. Our official view is that there is a good 50 percent chance that they are going to start tapering in December. I think the market was initially expecting March and is bringing this forward on the back of those good numbers.

Q: How do you think Asian markets could react to news of early taper and which countries do you think will be impacted the most?


A: If you look at the last couple of years, remember this is QE3, we are talking about QE1 and QE2 as well. Typically markets would fall by a couple of percentage points in the first month or so, after they started to stop QE that ofcourse is a bit different than tapering. However, it would suggest that markets could come off and ofcourse the issue of current account deficit and things like that would come back.


The interesting thing across Asia is that some countries still look vulnerable and India we should not be excluded from that and Indonesia either. But I think the dynamics are slowly changing as well whereby the countries which have been highlighted till six months ago as being very vulnerable - India and Indonesia - have taken some good steps to address the issue. If that is going to be enough is another question. But I see a further deterioration in some other countries. Thailand, for example, runs also a current account deficit.

Q: How would you be placed on India? To your mind, what are the key concerns as we head into 2014?


A: The concern for Indian equities, the reason we are underweight, we moved underweight about over a good month ago. That was clearly too early. I had expected that the valuations actually were starting to get stretched and that would cap any further upsides. What we have seen so far in the last couple of weeks in India is that there is quite a lot of expectation on political change in the country and that it would allow for reform and FDI to come in. I am a little more cautious on that. I think India is now starting to get expensive. So I am currently underweight on India for that reason.

Q: What about politics? We have assembly results on Sunday. General elections will follow next year. Do you think that could be a big catalyst for Indian markets going forward?


A: My suspicion is that in India the case is going to be a little bit like buy on rumor and sell on facts. A lot of anticipation is being factored into the market now. I also looked back at the previous elections where cash levels in particular in foreign or in domestic side were relatively high at the time of the elections and when the market had rallied afterwards people were caught out. People don't want to see that happening again. So, they have been anticipating this to a certain extent. Ofcourse the exit polls show one of the candidates Mr. Narendra Modi is seemingly doing quite well.


So, the market is factoring in to a large extent already that Modi is going to do extremely well and that would also lead to a further implementation of reform, that it would be good for economic growth. I think all of these assumptions have some kind of probability attached and I wonder if we should be pricing all of that in at this point in time. I think we might see further optimism, but we got to be careful about not running ahead of the underlying fundamentals and risks.

first published: Dec 6, 2013 09:23 pm

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