'See slow US growth; India better placed among BRICS nations'

China Central Bank has set yuan mid-point at 6.5590 per dollar on the back of which Shanghai Composite Index has opened down 1.8 percent at 2847.54, its lowest since December 2014. In an interview to CNBC-TV18, David Mann, Head- Asia Economic Research at Standard Chartered, says there has been no serious stimulus by the policy makers in China and the fact is becoming difficult for the market to absorb. There is a weak investor confidence and the situation is taking longer to stabilize, he adds. Furthermore, he believes US growth will continue to slow down going forward. Backing Mann's views, Claudio Piron, Head- Emerging Asia Foreign Exchange and Fixed Income Strategy at Bank of America, says he sees risk on the downside for China. Though there may be some stability by February, global markets volatility is likely to continue. He credits this to the absence of policy intervention and lack of a verbal communication on policy easing. However, India is relatively attractive due to the domestic factors, Mann says, adding, policy benefits in the public sector will keep it better placed. Mann believes growth in India will be better in 2016 compared to the other BRIC nations—Brazil, Russia, China and South Africa— due to the 7th Pay Commission. On then rupee, Piron says Reserve Bank of India (RBI) will try to protect it at level of 68 per dollar and smoothening of rupee volatility will be in RBI's interest.Below is the verbatim transcript of David Mann & Claudio Piron's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What is the sense; will the yuan appreciation in terms of fixing calm currency markets?Mann: They are attempting in multiple channels to stabilise the currency. I think what is difficult for the market to absorb and to accept is that they really mean it this time when a policymakers in China talk about the trade-weighted basket for their currency and that is what they are focused on rather than just the dollar renminbi bilateral cross exchange rate and that is a very difficult one to absorb because for the last ten years we were hearing that the basket was relevant but it is playing a big role now, if you look at how it trade-weighted has move versus dollar-renminbi, it's clear that that is their bigger priority at this stage. The big question of all those is the market absorbing that and not absorbing or not taking into too much, the idea that there is some deliberate cloy to try and devalue the currency. We do not think that is going on but the sentiment is very fragile and no one wants to give the benefit of the doubt right now. The question of course for the rupee is that we were at very elevated levels on a real effective exchange basis, so we did think that there would still be some room for a little bit of a rupee weakness short-term - that is playing out as we are seeing in the market today. I think it is going to take a quite a longer before we are fully start to countdown about how things are going on two fronts, not just on what China policymakers are prioritising buy also just how many more rate hikes we are going to get out of the US and how much more market stress we need to see before we get a policy response across the board, not just from the US stopping sooner than the market think which is our centre case of forecast. We think only one more rate hike out of the US but also other policymakers when they may need to react to market stress that is a risk of continuing for at least the next few weeks. Sonia: What have you made of the slowdown that we have started to see in the US economic data because that is when disconcerting a lot of investors, the fact that the mother market is now starting to slowdown and that could have repercussions on global growth as well?Mann: It is very relevant. First, for global growth, it is the second most important contributor to global growth after China. China is about the third of the world's GDP growth, the US is about half of that but it is very relevant because it affects policy. We were forecasting since last year that we would only see two rate hikes in the entire hiking cycle from the US and actually by yearend policymakers may even be considering a rate cut and the way that the data is panning out and the fact is why we were saying that originally is still valid, which is actually we are very advanced and we are very mature in the economic cycle in the US. We have gone a lot longer through a period of expansion than we normally have done over the last several cycles, we are many months beyond the average and as a result we are not so convinced that consumer spending will be strong and that means that US growth won't be so strong either in the absence of ramp in investment or productivity growth.Latha: Do you think that the latest move from the Chinese People\\'s Bank of China (PBoC) too appreciate the yuan as well as increase in reserve requirements enough to stabilise the currency markets?Piron: It looks increasingly that way. I think what is happening is couple of things may stabilise renminbi for the near term. You have heard about the measures with regard to restricting or trying to increase cost of liquidity for the CNH market that was announced over the weekend, but additionally we will get into Chinese New Year on February 8, which closes down the market in China for one week and around February 24-26, G20 meeting of central bankers and finance ministers in Shanghai which should be hosted by China, keeping in mind that China has the presidency of the G20 for this year. So for those reasons we are coming into a period of stabilisation but at the end of the day we will still come back to the underlying concerns of economic growth and tomorrow we will get Q4 GDP out of China and industrial production. So it does boil down the fundamentals, it does boil down the risk of capital flight from China because increasingly for the coming weeks in the month of February, we will see some stability in the China renminbi for the very reasons that just given.Latha: February 8 is a distance away. What might be the near term reverses or cuts that we can see across emerging markets? What for instance is the GDP expectation from China and can that be a catalyst to reverse markets or at least stabilise them?Piron: In some aspect no, partly because Q4 GDP is somewhat backward looking but the expectation is that we will track around 6.9 percent on Q4 GDP number but the risk is perhaps to the downside. Importantly more would be China industrial production numbers which will be coming out and the market's expectation is around 6 percent, slightly lower than 6.2 percent for the month of November. So we will be watching that. I think overall the data that we have been getting and we have some proprietary indicators that try to summarise all the data including things like electricity production, cement production, industrial production etc are pointing to some near term stability in the overall China economy. So maybe the market has got ahead of itself for the moment but what we have been seeing is that China is trying to come to grips with some structural issues and structural problems and it is not clear. What the market keeps hoping and wanting is to see some clear evidence - a) of a robust recovery which is still illusive and b) much more proactive easing by the Chinese policy officials and so far it has been more of reactive policy rather than the proactive policy and that's fundamentally another issue that the market has with China.