Home / Business / Money / FII party to go on in 2015, fat ECB QE dodgy: JPMorgan

FII party to go on in 2015, fat ECB QE dodgy: JPMorgan

Global cues seem to be the key trigger for the markets this week with a lot of events lined up. Geoff Lewis, JPMorgan AMC speaks to CNBC-TV18 about the significance of these events on world markets. The first event is GDP number from China, and Lewis believes it will be in the expected range of 7-7.5 percent.

The next event is ECB meet where analysts expects Mario Draghi to announce a QE package that will stem the fall of eurozone prices. Lewis however feels that Draghi won’t announce an aggressive QE scheme. Most analysts fear that if the size of QE is not sizeable, then eurozone may enter a deflationary spiral from which it would be tough to wriggle out.

He sees huge inflow of foreign money into Indian equities in the coming days, despite headwinds like appreciating dollar and the trickle down impact of weak commodity prices. Lewis says India will not face the wrath of global liuidity crunch primarily due to the domestic economics (that is on the mend) and a take off in US economy.

Below is the transcript of Geoff Lewis’ interview with Ekta Batra & Anuj Singhal on CNBC-TV18.

Ekta: What is pressuring the Chinese market today and how important is tomorrow’s gross domestic product (GDP) data from China?

A: The GDP data is important in that the market will be upset if there is a sign of too rapid a slowdown – that is quite unlikely that would be a tail risk. What would also surprise the market, if there were signs of a pick up in growth, so the consensus is that the Chinese authorities are managing to stabilise GDP growth pretty much in the kind of range that they want to, somewhere between 7 percent and 7.5 percent. It has taken them a while to achieve that but they do seem to be engineering a soft landing in that sense of the word. So my expectation is that the number will be much inline with consensus and will not have a big impact on the market one way or the other.

Anuj: What is the expectation from the European Central Bank (ECB) policy this Thursday?

A: I think we will see a scheme in terms of sovereign quantitative easing (QE) of 500 billion euros announced. I do not think it will be quite as aggressive as the market would like but it is quite likely that it will also be accompanied by a number of measures to make the bank lending side of unconventional monetary policy in the euro zone more aggressive and that could take the form of extended maturities and long term refinancing operation (LTRO) loans. It could take the form of reducing the spread of cost. I think there are quite a lot of things he can do in addition to just a sovereign QE. In terms of sovereign QE, he is having to drag the Germans along behind him, he seem to get green lights from the European court in terms of whether the proposed measures were in contravention of EU treaties. The answer to that is no. I think he has got the green light to go ahead with sovereign QE but will he be able to announce a programme in sufficient size. I think that is what the market is wondering.

Ekta: What will this possible QE from the ECB mean for Indian markets in terms of flows and say a reaction to the Indian rupee as well. Is there any risk?

A: In terms of Indian market, what we are seeing is that 2015 is not going to be a year of global liquidity crunch. There still is going to be a very easy monetary stance overall. Do not forget the Fed, whilst it’s no longer purchasing bonds under QE, it is not running off the balance sheet. The balance sheet is enormous, which will have a downward impact on US bond yield as well. So the liquidity environment is good for emerging markets.

True there are headwinds, commodity prices are weak and that’s bad for emerging market universe overall including an appreciation of dollar. But when we look at the fundamentals, we are looking for scale, we are looking for economies with domestic growth drivers and on both those accounts India and China look attractive at the moment. So once this current risk off episode is over — we have seen moderate outflows from emerging markets from India — I think we will see return of investor interest and increased foreign institutional investors (FIIs) portfolio inflows before too long.

Anuj: The talking point last week was the Swiss Franc. What has been the impact of its appreciation against currencies and has the impact now been factored into market?

A: I think it probably has been factored in. I do not think it has huge implications for Asian currencies. A lot of the Asian currencies are very well supported by fundamentals in terms of low external debt, in terms of low inflation and significant current account surpluses.Look at the Singapore dollar or Korean won, these currencies do not have liquidity to make themselves attractive safe haven, so at the margin, they probably now looking more favourable. But I do not think there are big implications for Asian currencies per se. What we are seeing is that a lot of financial institutions bet on the continuation of the Swiss Franc pack and some of those institutions are now paying the price for having made those bets, now that the central bank has changed its policy.


Check Also

Rupee recovers 6 paise to 67.01

The rupee today recovered some lost ground by rising 6 paise to ...

Notes ban to have positive impact on economy

NEW DELHI: The government’s demonetisation move has led to widespread adoption of ...