US Fed likely to continue USD 10 bn taper programme: CIMB

Below is Shane Lee's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: US markets have seen a good run, S&P is just shy of its all-time high. What are you expecting from the Federal Open Market Committee (FOMC) meeting and what could be the next big trigger that could take the global markets high?

A: In FOMC meeting the Fed will continue on the path of tapering its asset purchase programme. The data that we are seeing over the last couple of months has been impacted by the weather. The payrolls’ data on Friday showed that despite cold weather, the underlying economy has seen fairly good momentum at the moment and once we return to the data that is more consistent with an underlying growth, market will take the next leg up. The equity market sort of front run a bit, the bond markets being held back a bit from selling off by developments in Ukraine and so, we are expecting that bond market catch-up with equities.

Latha: We have seen a decent amount of outflows. Does that peter out or do you think that we are going to see inflows into domestic markets and outflows from emerging markets from this quarter as well?

A: In the last few months flows have come back into emerging markets particularly in India and Indonesia. Indonesian equity market has been one of the better performing equity markets in Asia. So, flows have come back but what we saw around the middle of last year, there is still a good chance that it will repeat itself and outflows will start reemerging once strong US growth coming through and treasury starting to selloff as a result of that.

Latha: As you say there have been decent amount of inflows in the last two-three weeks into Indian markets, the stock indices are at all-time highs and notching up new all-time highs everyday. Is there a valuation worry for you on Indian stocks?

A: It is a bit, but the other thing that has happened as well in India is that the economy has improved slightly. There has been some downward pressure on the current account deficit as a result of the reversal flows but also growth has picked up somewhat. Provided that continues, we may get some more outflows but if growth hangs in there then it will support the market as well and may help to justify valuations in some sense.

We are less positive on capital goods sector in India. We do not see much happening in terms of infrastructure spending mainly because the election, so reasonably timing issue is there. We think that it will pick up eventually but just for the next few months, infrastructure spending will be reasonably weak, so we are seller of the capital goods sector in India.

Latha: What are you buying in India?

A: We still like the consumer sector; its income is increasing. The consumer is less leveraged to the interest rate rise that we saw last year, so on value basis consumers is a better place to be in.

Sonia: What have you made of the confusing data that we got out of China because although the exports fell about 20 percent, a lot of economists believe that it was more a seasonal factor rather than a slowdown in demand? What would your assessment be?

A: The drop in exports was pretty sharp but on the other hand import was still growing strongly year-on-year around 10 percent. So, the domestic Chinese economy is still moving along; currently around 7.5 percent growth base. However, more fall in exports reflects the global supply chain and how that has been disrupted by the slowdown due to weather in the US. So possibly, a big part of the decline in exports that we saw in February in China could be as a result of weaker US growth at the moment but it’s been weather affected.