Betting that the liquidity rush will continue in the short term, Geoff Lewis of Manulife Asset Management expects the US economy to pick up in the second half on the year. Strong jobs data is keeping the US markets in a good shape, he told CNBC-TV18.Lewis, however, said that he doesn't expect an interest rate hike by the US Federal Reserve until December. A rate hike in September would come too close to the US Presidential election in November, he said.Lewis said he's bullish on emerging markets with strong domestic growth. In Asia, his picks include India, Indonesia and Philippines.Below is the verbatim transcript of Geoff Lewis' interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: We have been discussing the amount of money that has come into emerging markets, the outperformance of those markets. Do you think this gush of liquidity continues?
A: I think it is likely to continue in the short-term, in fact much better news on the global economy particularly from the US with the jobs data but also industrial production and it now looks as if the US economy is going to pick up little bit in the second half and we also had good news from China in terms of gross domestic product (GDP). Therefore, I think the emerging markets have been out of flavour for quite some time. So this is probably going to continue for a while.
Sonia: What is your pecking order now? In the emerging market space what do you prefer for the rest of the year?
A: We particularly like those that have strong domestic growth story, so in Asia that would include markets like India, Indonesia and Philippines. We are looking for stocks that have been oversold in the previous pessimism and we are expecting, not fireworks, but we are expecting that returns should be somewhat better in the second half of the year than they have in the first.
Latha: We have seen a fairly big rally in Indian markets but of course other emerging markets have done even better. Is there any valuation discomfort in India at current levels?
A: India has always traded at something of a premium to the other markets in Asia and we have seen something of disappointments on the earnings front. It has taken a long while for the earnings situation in India to improve and the data on industrial production, capital spending etc also has been somewhat disappointing, but India is still a good story from a longer term secular point of view and it is notable also that the foreign institutional investors (FII) money inflows seem to be stickier in India's case. So, it still looks good.
Sonia: So, what is the expectation from the next Federal Open Market Committee (FOMC) meeting? You did mention that the strong jobs data is keeping the US markets in a healthy position. So, do you expect to see any news on the rate hike in the next meeting?
A: It is quite unlikely that the Fed will move before December. The market expectations are picking up a bit now. It is unlikely that the Fed will move in September because that would be too close to the November presidential election but the market expectation has now given a 40 percent chance to a 25 bps rate hike in December.
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