Hans Goetti, director, Citigroup Private Bank, shares his perspective on how things are likely to shape up in Asian and Indian markets. He says that liquidity is strong in the region, and large amounts of risk appetite are still prevalent.
He says that petrodollars to the tune of $600 billion per annum are looking for investment. He says that yen carry trade is still in force, and is expected to continue.
Talking more specifically about India, he says that strong earnings may support higher valuations, and that an earnings upgrade is on the cards.According to him, the Budget is not as important as it was a few years ago.
CNBC-TV18 shares with domain-b Goetti's perspectives on the forthcoming Union Budget:
What do you make of the liquidity right now for the basket of countries that you look at?
Liquidity remains strong and there is a large amount of risk appetite, which is reflected in positive trends still in Asian markets in general.
If one looks back year-to-date, we have very strong performances in Malaysia, Singapore and also in India, over the last two weeks India has been very strong.
So I think that's partially driven by global liquidity and also from a result of a strong outlook fundamentally.
Any observations on the yen carry trade or petro-dollars and how things are flowing from those two quarters?
The yen carry trade is still very much in force. Unless the interest rates in Japan go up or the yen increases markedly for other reasons, the yen carry trade will still be there.
As far as petro-dollars go, we have about $600 billion per annum that is coming from that region with oil prices down the amount maybe reduced by $100 billion or so but it is still very sizeable and that money is looking for a home.
So a lot of it is still going into other currencies into some Asian investments and even into gold as well.
How concerned is all this money about the run up that's happened in the Indian markets, do you think we can reasonably expect the flow to continue for the next two months?
We think so; if one looks at the post earnings seasons in India the earnings momentum is very strong.
We had a 46 per cent increase in non-oil earnings in India and the expectation was about 34 per cent. So even increased expectations were exceeded and we see this momentum continuing.
So based on that, we think the Indian market could be heading higher. Valuations as always are a concern, but given the strong earnings momentum we think that the market can trade higher even from these current levels.
There is a blitz of activity in the primary markets as well - anything that foreign
Probably, but we are not so much into that. But for the funds that we are managing, we are looking at the largecap space in general and we are still invested in capital goods, in consumer plays, in banks, in telecoms and so on. These are where we are overweight on.
Any problems with hedge funds fraternity at all and where that money is headed? Do you see any Red Kites blowing up in the face or are things pretty stable?
We hope not, but of course with energy prices down, with oil price down from $78 to somewhere around $50-$59 or so, some people have highlighted the fact that there may be some problems out there.
We are not seeing any at the moment and again global liquidity remains very strong. Against this backdrop we think there probably wont be any major issues. More so, you can say that the risk today is much more spread widely over many players as it was in 1998 for instance when Long Term Capital Management (LTCM) had their problems.
The risk here has been greatly reduced and probably much less than they were about 8-9 years ago.
Tactically what are you doing ahead of the budget - are you sitting on a little more cash across your funds or are you largely invested?
The Budget in our opinion is important, but it is less important than it was a few years ago because most of structural tax law changes in India have occurred over the last 15 years and the trend seems to be towards simpler tax structure.
So that means lower exemptions; that is something we have to focus on in this Budget.
We are also looking at some industries like cars where we are probably going to see a reduction in excise taxes for small cars, and probably some measures to address the froth in the housing market.
But we are not changing our strategy; we stay bullish on the Indian market.
From a seasonal perspective what do you expect? Will the market rally on through the Budget into the end of the first quarter or you expect any kind of correction to be induced around this time?
Probably not. As I mentioned before, the earnings momentum remains strong and we can look forward to probably some earnings upgrade and that should ensure continuation of this bull market.