Jorry Rask Noeddekaer of New Star Asset Management Company says that they manage $1 billion in Asia, but they are underweight on India at this point.
He adds that the emerging market valuations are rich but excess liquidity is contracting.
He further adds that fund flow, inflation and rate hike worries are acting on emerging markets. He also says that one may see a second round of selling in emerging markets.
Excerpts from CNBC-TV18's exclusive interview with Jorry Rask Noeddekaer:
How have you observed this emerging markets' slide and what have you been doing?
For most of this year we have been a little bit cautious on global emerging markets as an asset class. There are a couple of reasons for that. First of all emerging markets as an asset class has had a magnificent run up over the last couple of years, so valuations now seem to be relatively rich in many countries. On top of that we have liquidity, which New Star thinks is an important driver for the emerging market asset class.
We have something like the G7 industrial output, which is on an increasing trend and at the same time you have the money growth where the M2 and M1 numbers actually begin to slow in the G7 countries. So you actually have this kind of excess liquidity in the market contracting and generally that would put a bit of pressure on the flow and especially the flow going through the emerging market asset class.
So net-net we are seeing that as negative driver effecting the emerging market class right now and on top of that we have all the issues regarding inflation. I think whether inflation may increase a lot or not but as we see it long term interest rates are in the uptrend. That is generally bad for emerging market asset class as a whole.
How much money do you manage in India and what have you done with your holdings this past month?
We do not have a specific allocation towards India as such, but in total in Asia we manage $1 billion and since the beginning of this year we have been significantly underweight on India. All the way through
This of course was in the beginning of the year when India was still performing well, it gave us a relative pain, but we are definitely catching up performance wise. In the beginning of May when we saw some sell offs. So we are still relatively cautious on Indian equities.
Any specific stocks that you have sold?
Yes, primarily in the banking sector where we have sold few stocks which were getting a little bit rich in valuations. At the same time we also saw a certain trends where we saw a bit of pressure on net interest margins. That has primarily been on in the year, we have reduced our banking exposure.
Are you seeing any redemptions from your investors in your Asia fund at all?
New Star Management is a listed company and assets under management is sort of classified as being price sensitive information, so I must say that I cannot disclose 100%. But I can say that we are a little affected by what is going on. When I look at aggregated numbers from various kinds of research organizations what we see is there seems to be a certain issue with redemption and money coming out of asset class and on back of that.
What we are a little bit nervous about is that a lot of these BRIC funds and dedicated India funds that have been coming up in the last year and two, and there are a lot of retail clients that seem to be going back in asset class which normally are not investors in the emerging markets in general. It is interesting to follow the direction from these retail investors when the market volatility starts to go up.
A lot of these investors are sitting on huge gains and they have just been in this market for two to one and a half years. Whenever they open newspapers they read the scariest stories about what is going on in the asset classes. I would be nervous if people were tempted to sell out and then we could have a second round of sell down in the European market asset class.
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