'Seeing real panic across mkts; but India may outperform'

The slump in global equity markets today can be attributed to the bouts of weakness persisting in emerging markets -- particularly China, where worse-than-expected PMI data seemed to be confirming the worst.In an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Micheal Every of Rabobank said he expects emerging market stocks to continue to face weakness."I think we're seeing real panic right across the market," he said. "India is relatively outperforming at the while. But investors will need to see decisive steps [by the government] in India."Below is the transcript of the interview on CNBC-TV18.Latha: Is the new growth scare because of the Chinese PMI numbers?A: I think that hasn’t helped matters but we have already got a huge amount of negative sentiment momentum building. And given that we have got much worse numbers [from China PMI], the lowest we have seen since March 2009, it underscores the scale of the problems in the Chinese economy. Yes, we are seeing further headwinds and that is obviously putting pressure on emerging markets.Latha: Do you see them catching their breath and the fall taking a break by the end of trading today at all? A: Very hard to say. Coming into the end of the week, sometimes people decide to take a little bit of profit on positions and you can see some kind of reversal. However, I have to say it looked to me more yesterday that we got that profit taking in advance yesterday. Emerging market (EM) currencies were under huge amount of pressure for most of the day and at the end of the day the dollar itself weakened quite significantly. So, maybe dollar has already seen that dip and today we will continue to see further selling pressure. It remains to be seen but I have to say I think when the major markets coming in Europe, London and US see that Chinese number, they are not going to very happy.Sonia: We are seeing the largest equity outflows that we have seen in this week compared to the last 15 to 20 weeks what is the sense you are getting about the flow situation. Do you expect to see more money being pulled out of the emerging markets?A: It depends on how much it is gone in the first place. It is a very differential equation for each particular country, isn’t it? Those that have seen the most going in, on the most speculative basis or the ones who are seeing the most coming out rapidly, those are the least going in on a more fundamental FDI driven basis. We are saying less going out so everybody is wary. However, having said that right now we are seeing real panic right away across the market because it isn't easy to see where the money should be going to.Back in 1997-1998 when we had the pan Asian crisis, everyone could see where you put your money. You put it right back in to western economies. However, right now you want to be doing that, look what the equity markets are doing n Europe, look what they are doing in US.Latha: I guess that explains why the yields fell so much yesterday. What is the sense in terms of relative preference? Will India be seen at all as a place to hide or precisely because it has not fallen so much, it will be a profit to take profit?A: It is very hard to stand out against the kind of global storm we are seeing at the moment, but India is relatively outperforming. I think we have to pass that. Yes, the rupee is around 65.5, but look at Malaysia, look at Indonesia, things could be much worse than they are. So, take some comfort in that. But, at this moment in time, what you really need to see is decisive leadership within India; steps being taken by the authorities to continue to make it an attractive destination for that capital which is looking around anxiously for somewhere to go. So, let us try and be proactive about it rather than reactive.Sonia: So, what is the next important global trigger in your mind?A: That is hard to tell because it depends how things pay out in various different locations. Obviously data point is important and there are a huge number of countries where we have got a, what can we call, mystery meet still baked in. we are not quite sure what exposure to them is likely to cross different asset classes.For example, Kazakhstan devaluation yesterday; they are obviously only a small player, but I wonder if that will have a ripple effect across other countries too. All-in-all it is a bit of a minefield at the moment. I am sure I gave a lot of mixed metaphors there but it is a very mixed market.Latha: Greece came out of nowhere, will that develop into something ugly? One didn’t expect this Greece turmoil to start hitting the market nerves, will that be an additional worry?A: Of course, absolutely. I have to say I think the Greece issue to be honest with you from my personal perspective is worrying either way because on one hand the Greek people voted against the package that the government has just agreed, which by the way they voted against as a public when they voted in the government that is putting the policies they didn’t want. However, even if we do get basically a coalition emerging in Greece that continues with austerity, which if possible I have to say by no means certain. Effectively what they are doing is kicking the can down the road because we know that policy is not going to work, everyone involved knows it is not going to work and at some point the fact that it hasn’t worked is going to register with the electorate again and they are going to vote for the government that is even more radical than the previous one. So it is just extend and pretend and I think we cannot be too complacent about that.Sonia: In hindsight a global sell-off is always a good buying opportunity at least for an Indian investor. Do you think things are different this time? A: There is always going to be a buying opportunity. The question is when do you think now is the right time to get in; the old saying buy property when there is blood on the streets. I have to say I personally at the moment can’t see whether some turning point is going to come from to the upside because what you need to drive that is a major global economy in the background somewhere saying, that is it, we are throwing in the kitchen sink. So, you need the Europe, US or you need China, one of them to actually say we are going to start turning the tide here and lifting all boats. While the US is going to raise rates which is the opposite policy, Europe just navel-gazing in terms of exchange rate policy and China with its recent devaluation is showing that it is putting itself first rather than the global economies. So, until we get a candidate standing forward and saying, yes I am doing all the heavy-lifting, it is hard to see how we are going to turn that corner.