Short-term volatility due to the Chinese yuan or the Chinese markets is likely to continue, from a day-to-day perspective, says Robert Parker, investment strategy and research, Credit Suisse.
While the symptoms of a Chinese bubble were present since end April, early May onwards, year-to-date performance of the Shanghai Composite has been up 16 percent, he says. A lot of traders as well as investors exited the Chinese market during the last rally, he told CNBC-TV18.
Going ahead, he expects the People’s Bank of China to follow an easy monetary policy.
As far as India goes, Parker says the drop in oil and energy prices is a strong positive for the Indian economy. As a result, trend inflation will be lower, he adds. However, he continues to remain cautious on the Indian markets.
Below is the verbatim transcript of Robert Parker’s interview with Sonia Shenoy and Anuj Singhal of CNBC-TV18.
Sonia: When this week began we thought that most of the Chinese devaluation worries are behind us but once again bang it comes back to haunt us today. You think this volatility will continue because of the Chinese problem?
A: Short-term volatility on a day-to-day basis probably will remain elevated. However, the big move and just to quantify that the Chinese Renminbi before this move was really stuck at about 6.2-6.24 against the US dollar. We have had a sort of 3 percent plus devaluation down to where we are now close to 6.4.
My view for the rest of this year is probably, we will now trade sideways in a range of 6.35-6.5. So, I think we will get quite a bit more volatility in that range. However if you ask the question, are we about to sell down aggressively to let us say 6.7 pr 6.8, I think the probability of that happening is quite low.
Anuj: What about contagion impact on a market like say India or other emerging markets because offlate China has become a bit of a risk factor for emerging markets?
A: If we go back to late April, early May, we have had all the classic symptoms of a market bubble in China. Remember it is after a 100 percent plus gain in the Chinese market from May 2014. Whenever we have a bubble I guarantee that, that bubble will burst and exactly that has what has happened in the case of China.
Having said that the year to date performance of the Shanghai Composite is still up close to 16 percent. Technically we do have a reasonably good floor on the markets which is around 3500. We have closed trading today at 3750 approximately. I think given the last mini rally we had in the market when we bounced off 3500 back to just over 4000, I think that actually allowed an exit point for people who were still long the market which is why we have had this quite significant correction today. So, there is a lot of technically driven trading going on here.
One point I would make is that the excuse for the market sell-off today I think is fairly spurious and there is a lot of investor comment that better than expected or less bad housing price data might lead to PBoC not easing as people think and that has been the excuse for this sell-off.
I think PBoC will continue to follow a very easy monetary policy.
To come back to your question, what is the impact on India? I think actually what we are seeing is some divergence between China and other Asian markets, some markets like Thailand and Malaysia which have got their own specific problems.
In the case of India, two points to highlight is, one, the fall in oil prices and energy prices is a very strong positive for the Indian economy and the Indian market. In turn that means that we will have trend lower inflation which has positive implications for interest rates in India.
So, the Indian market has not behaved well this year. We have been cautious until recently on the Indian market. If you look at the Indian market relative to Asian markets, the relative valuations and the economic and corporate factors actually now look more positive compared with the rest of Asia.