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Euro advantage not fully priced in: Lakefield Partners

Exporters can make hay from the weak euro, which went down quite a bit in the last few months, says Bruno Verstraete. This can take European markets higher.

Exporters can make hay from the weak euro, which went down quite a bit in the last few months, says Bruno Verstraete, Partner, Lakefield Partners. Since this is not fully factored in, there’s a scope for moreket to go up. He says leakage from the European QE is going to be limited to commodities and emerging markets where India sits on top of the preferred-destination list.

Below is the transcript of Bruno Verstraete’s interview with Ekta Batra & Reema Tendulkar on CNBC-TV18.

Ekta: How much higher do you think European equities can go after yesterday’s trading session and today’s opening session and how much lower can the euro go?

A: The market still has some leeway to go up as we speak because what has not fully been priced in is of course the advantage of the euro which went down quite a bit in the last few months. And that is something that the exporters are going to benefit from. How much more it can go up is difficult to say because in the end it is going to be the economic fundamentals that are going to talk and that is what needs to be shown now. Of course they want to pump up the inflation, the yields are going to go down but it is going to take a bit of time before that is disclosed into the economic numbers and that depends on the fundamental value of the market. There is still a lot of room for improvement on that.

Reema: Do you think European equities will outperform the US equities at least for the next 12 months?

A: I think they are because on the notable they were already cheaply priced and US had a nice run. We will see a bit of regional rotation away from the US into Europe and that might already be starting as we speak. So we do believe that Europe is going to help from the US.

Ekta: Do you think that out of fresh flows that might come from funds, how much of it would be allocated to the European market, how much of it would be allocated to emerging markets. Would the pie for emerging markets reduce because of the possible upside in European equities and where would India stand within that emerging market pie?

A: I think those are two completely different investments we are talking about. If we look at the investors in the US for example, they might allocate to both because QE has proven to be beneficial to both. Although I do believe that the leakage from the European QE is going to be relatively limited. It is going to be limited into commodities and into emerging markets. So I do not know how the proportions would be, but I can imagine that based on the fundamentals and the fact that the emerging markets did not perform well in the last few years, although they have economic growth, one might start allocating to emerging markets again. Of course India would be on the top ranking of those.

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