Robert Parker, vice chairman of Credit Suisse Asset Management states that markets will remain under pressure till April-end.
Credit Suisse states there are no reasons to warrant an improvement in trend. They see all global markets improving by May.
They believe that the raising of interest rates by central banks and weak US data have been the reasons for meltdown. Credit Suisse predicts that the US economy could start to see strong figures May-June onwards.
Parker comments that the pressure on dollar is also causing lower risk appetite. Also, the unwinding of risk has only partially corrected, he opines.
According to Credit Suisse, further unwinding of risk is seen over March-April.
Excerpts from CNBC-TV18's exclusive interview with Robert Parker:
How have you read the past two weeks for markets like ours and do you think the poison is out of the system?
I think the markets, actually for the rest of March and probably for April as well, will remain under pressure. At the moment, I actually can't see any particular reasons why we should see an improvement taking one-two months beyond markets.
As we go into May-June, I think once we have seen this market clearance, which I would argue we are partially through at the moment, then I think markets could form a base and for the rest of this year we will have a similar pattern to last year, whereby last year markets recovered really and if you look at the Sensex it was very much in line with other markets. We saw this strong rally from June last year. I didn't think we are going to see quite a stronger rally as we saw last year, but come May, I think we are going to see a better footing for all global markets including India.
Why do you think it will continue to be sticky for the next couple of months? Is it that maybe a little more adjustment needs to be made by global funds to factor in higher risk or something else?
I think there is a number of factors and coming back to what's happened in the last 10 days, it's not just one single factor that's resulted in these market downturn, it's a confluence of factors. But if one looks at the next month or two, first of all, there are global issues, a number of central banks are going to be raising interest rates and probably today, the European Central Bank will raise rates. So I don't think that's a positive factor.
Secondly, and probably more importantly, we are going to get temporarily weaker data out of United States and obviously over the past ten days we have seen poor ISM numbers, the survey number and the housing data has been weak. Although, I think the US economy could start to see stronger figures from May-June onwards, be prepared for weaker data during March and April. That is going to pressurize markets.
The third factor, which is always unsettling for markets, is probably some downward pressure on the US dollar against the European currencies and against the Yen. And that downward pressure on the dollar could result in investors taking a lower risk profile and I think that the final factor, which I would mention, is that if you look at risk positions investors have taken, it doesn't matter whether its retail investors or institutional investors, our survey has showed that in the beginning of February or in the middle of February, investors were taking quite significant risk positions, they were fully invested in markets. That unwinding of risk is only partially corrected and as a result during March and April, I think a further unwinding of risk is likely.
How bad do you think the situation might get for the US markets and do you think markets across the world have adjusted to that or even prepared for that sort of a situation?
Here I am just taking a short-term view or March and April, but I do think that, it would be entirely possible to see the US markets by, let's say mid-April, down another 3-5 per cent. We are not talking of a crash here but we are talking about a further quite significant correction.
If one looks at other markets, I would also highlight the Chinese market where valuations are still quite stretched and let's not forget, back in mid February the price earnings ratio in the Chinese market was above 30 and that's a very stretched position. With a correction, its now just come down to slightly less than 30.
When I was in China earlier this week, I think that another 10 per cent correction in China over the next one-two months is possible. If one looks at the Indian market I would argue that probably the correction over March and April wouldn't be as severe as that but I do think there is clear downside risk in the near-term before you have a recovery from there onwards.
How did you assess the situation in China because that's where it all started going wrong, first the market collapsed and then the authorities spoke about further tightening. Do you think one should be worried about the kind of news, which might come through from China in the next month or two as well?
Lets try and divorce market action and the economic fundamentals. One point, I would emphasise is that particularly in the case of both India and China, growth prospects remain very strong. Our forecast for the Chinese growth for this year is of the order of 9 per cent. We still think the Chinese economy will be one of the fastest growing economies in the world and I make the same comment about India. Indian growth this year, I think, could easily reach 9 per cent.
So point number one is the economic strength is still there, point number two is the corporate earnings growth in both India and China remains very powerful indeed and corporate earnings growth in 2007 in both India and China could be close to 20 per cent growth and that compares with the corporate earnings growth slowdown that we are going to get later this year in America, where corporate earnings growth could be as low as 5 per cent.
So the fundamentals are still very positive, the problem we have is obviously the market came technically very overboard, in China we have had this as you mentioned correctly, some official intervention to try and calm the markets down. I think the Chinese authorities ideally would like stable markets for sometime. I think what they want to try and do is try and remove what one could describe as almost the bubble like conditions one had in the Chinese market. In the case of India, clearly one isn't going to have that official intervention that one sees in China.
But the economic fundamentals are very positive for the Indian market. One just has to question whether the valuations back in mid February got stretched and I think they did, and that's why we are having this correction now.
So even as earnings growth keeps clocking in for the Indian market, do you think we will have to live in a lot less liquidity and you manage some money across emerging markets as well. Tactically what would you do with the Indian market now?
You mention liquidity, that's a fascinating subject, because I think one feature of the market reversal over the last 10 days is that in equity markets, liquidity actually has remained reasonably good. Where liquidity has tightened up and it has become a problem actually, has been in credit derivative markets. That doesn't really impact the Indian market at all but I would highlight liquidity for example in the sub prime debt market in the United States.
Over there, there are major liquidity problems, that doesn't affect the Indian market, I would have assumed that Indian liquidity and the Indian equity market actually wouldn't be that adversely affected with the possible exception of the more volatile areas, perhaps the small cap sector but if one looks at large cap sector in India, I think liquidity is fine, I don't think investors should worry about that.
In terms of where the Indian market goes, I do think its further downside in March and April, then a gentle recovery over the longer term if one assumes that Indian growth if going to be maintained at current levels, taking a 1-3 years view, if one assumes that corporate earnings growth in India is going to be maintained. Now even if the corporate earnings growth decelerate, lets say 10-15 per cent over the medium to long term, that makes the Indian market a very attractive place to invest as a global investor.
