Herald Van Der Linde, HSBC expects the US Federal Reserve to begin tapering in its policy meet that kick starts Tuesday. He is a bit more cautious on the 2014 outlook for the emerging markets and all Asian countries.
According to him, the valuations for India are neither low nor extremely expensive, but it is definitely not cheap anymore. He is also cautious on India due to high inflation and the increased interest rates.
Below is the verbatim transcript of the interview
Q: What is your base case expectation from the Federal Open Market Committee (FOMC) policy?
A: There is a 50:50 chance that they are going to implement something. I think the market has comeback from an argument that maybe it is going to happen in March and they pushed it forward over the last couple of weeks. In essence, we know that this is going to happen now; either this week or it is going to happen in next couple of months, the markets must start to look beyond that as well and so, we just await the decision. We think there is reasonable chance it happens this week.
Q: What about emerging markets; India in particular? Do you think they have already adjusted to a bit of taper and once the actual news comes, would you still expect a bit of disappointment from markets like India?
A: Two things. Firstly, when it happens, it will still be negative for emerging markets. We still feel there is bit of a wobble and over the last week or so when markets came off, you could see that part of that wobble was already priced in.
If you then look at the performance of the key markets throughout this year, initially in the beginning of 2013 there was Japan rallying, taken over by the US, eventually outperforming, later on the European markets did very well. Some of the key questions people are asking are, is 2014 going to be the year for emerging markets and I am a bit cautious on that as that might not be the case. So, we are a bit more cautious on 2014 outlook for emerging markets and all of Asia as a region.
Q: What is your expectation on India then? Do you have any view with regards to the upcoming elections? Do you think we could possibly carve a niche for ourselves next year based on the elections?
A: I am not a political analyst. I will leave that to other people. There are thousands of people trying to predict the Indian election outcome but I am just looking at the overall marketing impact therein.
The Indian markets are running a bit ahead of expectations of the elections. They are expecting Modi to win. It will be good for business, the reform will come soon and that will be positive for gross domestic product (GDP) growth. So, a lot of optimism is being priced in and I suspect that we are going to be in for some disappointment at some point in time that maybe not all expectations will be met.
Valuations for India are not low, not extremely expensive, but it is definitely not cheap anymore. It is well-owned by most mutual funds, so I am a bit cautious and particularly with FOMC meeting this week and potential of issues with inflation in India along with increased interest rates.
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