UBS sees shutdown shelf life at 3 weeks

The US shutdown will have a 0.3 percent impact on the country’s gross domestic product (GDP) and is likely to last for three weeks, says Ramin Nakisa, Senior Global Asset Allocation Strategist, UBS Investment Bank.

Speaking to CNBC-TV18, Nakisa says that the worst case would be if the country defaults.

Also read: So what if there's a US default? 5 things to remember Below is the edited transcript of Nakisa’s interview to CNBC-TV18.

Q: Do you think the market is getting a bit complacent. We have seen quite a bit of risk-on since the dollar index went below 80, seen quite a bit of emerging market rally as well. Is there a bit of complacency which is now setting in the equity market?
A: I am very surprised by how complacent the market has been. We have seen the S&P fall off something like 3 percent since September, so volatility is finally picking up. We have an overweight on volatility going into debt ceiling debate and also the government shutdown because every time it extends, the effects will grow worse economically and we will also start to see that move on risk assets. Q: Is it a sure shot that there could be a decision next Friday on the debt ceiling debate or what is the worst case and best case scenario that the markets are working with?
A: The worst case is there will be defaults. Our central case is that there will be some kind of possible moratorium on the debt ceiling as we saw in January 2012. Our US economists think that the shutdown will last for about three weeks and it will have a fairly minor effect on gross domestic product (GDP), something like 0.3 percent of Q4 GDP. So, overall we still think that this will be resolved and the market is pricing in that central case scenario.