See further downside risk; sentiment driven mkt: Goetti

The market is clearly sentiment driven and it is still very much in the risk-off mode globally, says Hans Goetti of Banque Internationale. Refusing to get into a debate on how long this can continue, he says fundamentals will ultimately prevail.

As far as India is concerned, purely looking at technical indicators, there is a downside risk of 6850 level - that is the 200 DMA.

He says the bigger issue is there is a view that the US Federal Reserve has raised rates prematurely. And as long as the dollar continues to remain strong, emerging market currencies will continue to suffer and only if the Fed reverses policy and the dollar weakens, then once again buying opportunity will emerge in EM equities and currencies — everything that has been hammered so far.Below is the verbatim transcript of Hans Goetti's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: Tough time for equity markets, every rally, pullback has been sold into?A: That is correct. At the moment, clearly sentiment driven and the sentiment is still very much in risk-off mode globally. So we don’t know exactly how long this can go but our view is that fundamentals will ultimately prevail but for now at least it is risk-off.Ekta: What are the levels that you might be watching now very closely on the yen and maybe that might be the reason why we are seeing the Nikkei underperform?A: So at the moment, the correlation between the US dollar yen exchange rate and the Nikkei is very strong probably as strong as it has been the previous year. So it is clearly a sentiment issue and that can only be explained by psychology not necessarily fundamentals.Anuj: Do you get a sense that this currency market volatility that we are seeing could drive emerging markets in particular to much lower levels even from hereon even if the fundamentals state otherwise?A: That is possible in an environment which is clearly sentiment driven, almost anything is possible. In the case of India if you are purely looking at technical indicators, we have a bit of a downside risk on the Nifty probably to about 6,850 level that is 200 day moving average (DMA). However, I think the deeper issue is this, I think there is a perception that the Fed has raised interest rates prematurely and I think as long as the dollar stays strong, in this environment emerging markets will softer. If the Fed were to reverse policy then of course the dollar would be weak and that would become a buying opportunity for emerging markets commodities and Asian equities, everything that has been hammered so far.Ekta: Going by that theory then what is your expectation one from the ECB, there is a policy meet that takes place today as well as in terms of maybe what the US Fed could do at least for the foreseeable future maybe the next two-three months?A: What has been priced in earlier on were two rate hikes one in March and one in June and now at the end of the year, now financial markets are pricing in only at 28 percent probability for a rate hike in March. That means the Fed is already looking to delay rate hikes. From the ECB we will not expect anything new, they will stay easy like most other Central Banks.However, if you are watching the Fed, that is the key driver for this year, what they are going to do, why they have to reverse either the interest rate hike or even more extreme go for QE4 sometime in 2016.