Singapore-based head of investment strategy for Asia at HSBC Private Bank, Arjuna Mahendran, expects the Asian markets, including India, to decline further in August.In an interview with Mehul Shah, he says hedge fund redemptions and margin calls on leveraged investors will trigger further selling.
Edited excerpts:
Most Asian markets have corrected between 2-4 per cent on Monday after S&P's downgraded US AAA credit rating. Do you think global investors have priced in the event after today's correction or there is still some more pain left for Asian markets, including India?
There is probably some more downside till we test key support levels on the major indices: 1,150 for the S&P 500 in the US and 4,777 on the Nifty in case of India.
Hedge fund redemptions and margin calls on leveraged investors will create more 'sell into strength' sentiment for the rest of August.
Besides, the unfinished policies in Europe - giving the European Financial Stability
Facility more capital to buy bonds in the secondary market and achieving greater fiscal cohesion - will keep markets wary about the danger facing European banks with sizable euro-area bond portfolio exposure, both direct and indirect.
How are you viewing the Indian market after the recent sell-off? Do you think India is better placed compared to other export-focused Asian countries?
India has traditionally been a defensive market during financial crises because of a large domestic economy.
However, as its linkages to the US and European economies have grown, the correlation with their stock markets has also grown.
It entered the current downswing in markets with analysts especially pessimistic about the earnings outlook for most Indian companies, when compared with their peers across Asia.
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