The ongoing Ukraine crisis and the geopolitical tensions in the region will have far reaching effects. Richard Gibbs, Global Head, Macquarie Securities believes risk aversion will be elevated because of weak growth in China and tensions in Crimea, a strategic peninsula going into the Black Sea and Russia’s only access to all weather port.
Also Read: Putin takes on West over Ukraine: who blinks first?
Crimea was gifted to Ukraine by a Soviet leader about 60 years ago, but tensions simmered in the region when pro-Russia leader Viktor Yanukovych was ousted on February 21.
Gibbs however says India need not worry too much as it is well supported by domestic demand. According to him, investors should use every dip to buy into markets like India. He says the country could see opportunistic buying.
Below is the verbatim transcript of Richard Gibbs' interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: How seriously should we take the tension in Crimea? Are we going to see a longish risk off?
A: It isn’t serious issue and it comes at a time when there is an intense focus on emerging markets and of course eastern European emerging markets are also caught up in that focus, its been doing the rounds of the globe. This week basically risk aversion being elevated by two factors and both beginning with ‘C’; the first being China and China growth and growth projections for this year and Crimea and the potential for protracted conflict and stabilisation.
Sonia: What would you advise our viewers to do now? Does it seem sensible to seek protection in some risk-off markets like gold etc or would you use every dip to buy into a market like India?
A: Markets like India which has reasonably well support on domestic demand side; we probably will see some opportunistic buying opportunities. I think they should be used in relation to industries and sectors that are in good position but in terms of speculative flows particularly the emerging markets signal, one would have to cancel against that and be basically park some money in those harder assets.
Latha: Are there some fresh doubts over growth as well both in the US and in China. Is that also resulting in some risk-off?
A: Yes, certainly. The US - a lot of data being distorted as a result of severe weather conditions we experienced in North America; right throughout North America through December-January and early February and that is going to take another month to come out with the data. More concerning is the situation in China in relation to growth trajectory there and in particular this week’s National Peoples Congress and what is endorsed as the growth target for 2014.
Latha: Is there a tendency for funds to sell emerging markets (EMs) because China is doing badly. Would it be the entire basket getting a bad name?
A: Yes, it is. There seems to be still that tendency and we are still seeing that with reports from our fund managers and clients that they are still seeing the outflows from the markets and investment trusts. Interestingly we are also seeing some shifting out of the United States in favour of Europe where investors are seeking those deep growth opportunities, they are coming out from a very low base in Europe but really value add investment opportunities coming through there.
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