EMs to suffer less if UK decides to leave EU: Credit Suisse AMC

The probability of UK leaving Europe has reduced to 30 percent as against 40 percent in early June as per polls. A shift of opinion is happening again, says Robert Parker of Credit Suisse Asset Management. Parker expects the European market to open 2-3 percent up today discounting the shift in opinion. Besides Brexit, Europe is also facing political issues currently.If UK decides to leave, global equity market will be hit. However, emerging markets are likely to suffer much less. The major damage will remain in European and UK markets, Parker says.Below is the verbatim transcript of Robert Parker's interview with Reema Tendulkar and Nigel D'Souza on CNBC-TV18.Reema: We seem to be getting the first hint of what the rally could be in the global markets if the Brexit vote does go in favour of the remain campaign which slowly seems to be gaining momentum. Take us through how you are reading the Brexit turf now?A: The first point to make is the opinion polls over the last week or two have been very confusing. What has been less confusing is something called oddschecker which analyses the probability based on betting. It is very interesting that if we go back to the third week of May, the odds of the UK leaving the European Union then was low as 20 percent.I think what worried market in early June was that the odds then rose to over 40 percent. Now what has happened in the last few days and particularly since Thursday and Friday of last week is that the odds have come down from close to 45 percent to as we talk close to 30 percent. So, I think over the last few days, literally since Thursday and Friday, there has been a shift in opinion back in favour of staying in the EU. You are seeing that discounted already in the jump in the sterling. If we have had this conversation this time last week, sterling/dollar was trading close to 141, now we are trading close to 146 and as you mentioned, the European equity markets look as they are going to be up between 2 percent and 3 percent today discounting this shift in what would appear to be a higher probability of the vote to remain in the EU.Nigel: What are you factoring in, in case the worst case scenario does play out what kind of an impact can it have on the emerging market like India? Do you expect us to be relative outperformers? Yes, the entire global markets will go on a bit of a tizzy so we cannot get protected over there but what is your take?A: I think if the UK votes to leave and if you look at what the options markets have been discounting, the options market have been discounting on a leave vote anything up to 10 percent fall in sterling both against the euro and against the US dollar. So that 10 percent decline would take us down to between 1.25 from 1.3 on sterling/dollar. Likewise the options markets and the futures market have been discounting on the leave vote, a similar move in UK equity markets.Now clearly there would be a contagion effect on global markets but most notably on European markets. One shouldn’t forget that Europe has a number of major political problems. So for example, just over the weekend, the Five Star movement in Italy has made very significant gains in local elections in Italy and the Five Star movement is anti-EU likewise next weekend, we will have a general election in Spain, there may well be a significant shift to the Left. So I think contagion risk on European markets would see a not dissimilar move in European equity markets. Now obviously global equity markets would be hit but I do think that emerging markets would suffer much less than the UK and Europe where the major damage would take place.