Tim Rocks, Global Equity Strategist of Macquarie Securities, expects more bad news on the US economy in the next 3-6 months. Rocks advises investors to be cautious on metals and energy stocks in Asia.
He is bullish on banks and property stocks in Asia and India. He further states that they are cautious on the technology sector. According to him, out of the technology sector, service companies should do well.
He further states that it is a nervous time for emerging markets, and the global environment look less friendly. He expects 2007 to be a good year for Asian equities. He expects a significant upside in Asian markets.
Excerpts of CNBC-TV18's exclusive interview with Tim Rocks:
What is the call now on emerging markets for your fund?
We do see it as a nervous time for emerging markets overall and the global environment is certainly looking a lot less friendly than it was earlier this year. So that is something that one needs to trade very carefully and be wary of, in country selection and in sector selection.
So one should be very careful on the most cyclical sectors in Asia, such as things like metals and energy. Instead, one should concentrate on interesting domestic stories, particularly in financials. We are looking at that across the region.
So banks, property in particular, look very good and India stands out quite well. That is well of course, because it is very much a domestic growth story. And we think telecommunications and banking companies look very strong
According to your report, you are bullish on technology, but more on hardware and SMEs. What is the outlook on service technology companies that are typically Indian?
We are still cautious on technology. We are seeing that in some sectors of the market, there is a lot of capex restraint, like in the hardware sector and in the electricity sector. And that should set up some reasonably good conditions for them over the next year.
But there are some areas that don't look quite so good, and we are thinking of the semi conductor companies, in particular. So our focus is on the concerns of the semi conductors. On the service company side, it should do alright as well.
Tactically, as a fund, how are you approaching all these markets. Do you see it as a window for opportunity where you put more risk on the table or would you be more cautious and sit on a higher degree of cash perhaps?
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Perhaps, other asset big economies could join that. 2007 actually could be a spectacular year but I am not willing to back that very aggressively now, because there are risks in the short term.
What indicators would you be looking at from the US economy to gauge whether we are in for a slow down or whether we are in for a neutral kind of path?
It is all these issues that everyone has been talking about. We know that US housing construction will be very bad. We know that the worst part for that will probably be early next year. There is still no shocking news to date. But that is what one really needs to monitor.
And if we do get through this period, if we wait till Q1 of next year, and the consumer hasn't fallen over and capex hasn't collapsed, then that is when one should really return aggressively to the markets.
What are you seeing at this point in terms of fund inflow, is there still appetite or do you think in the short term, we might be in for a liquidity pinch, given the correction in commodities?
I think that big foreign investors are on the sidelines a little bit in Asia. One can see some domestic money accumulating and waiting to go back very aggressively into these markets. One can see that more in markets like Korea and Taiwan.
So there is still massive potential for liquidity to return to these markets. If there is a little bit of some interest rate relief going on as well, as global growth slows, then that could add to it. So for the moment, fund flows are neutral, perhaps a bit negative. But that could easily turnaround very quickly.
Have you heard of redemptions in this pullback that our Asian markets have seen?
There is only a little bit of redemption after the market volatility in May and June. But actually the news is not so bad as it could have been that a lot of people were expecting at that time.
Some of that has continued a little bit, but again it certainly hasn't been so severe. So I don't think redemptions will be a major issue now.
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