Bullish on water, irrigation-related and food companies: Nomura

Mumbai: Managing director-head of Multi Strategy Research Nomura, Paul Schulte is bullish on food, water and irrigation-related companies. He is also positive on Asian auto stocks. He believes the markets will continue to go higher. Edited excerpts from an exclusive interview:

There seems to be a feeling among many who watch the market that this could possibly be looking like the beginnings of a new bull market. Would you go with that?

Positive outlook: Paul Schulte of Nomura.

We have had that view for a number of months now that central banks have taken risk out of the market and they have taken that risk away from the investor and given it to the taxpayer around the world. Many of these loans out there, trillions of dollars are basically at standstill between banks and borrowers especially in Eastern Europe. What we have is basically a world where Asia is entering into this whole financial crisis in terrific shape. The banks were at leverage levels which were all-time record lows, currencies are under valued, banking systems are intact and savings are, if anything, in excess. You have firepower of dry powder in the form of equity with capital adequacy ratios of 17-18% all over the region (for banks). You have leverage levels of 13-14-15 times and 10 times in Indonesia and Thailand and you have loan to deposit ratio of 60-65% in most countries throughout the region.

We have already seen a tearing run in commodities these last few days. The CRB index has put on nearly 10% in three days. This asset inflation that you’re referring to, do you think eventually this is going to take us to an asset bubble kind of situation with crude going to $100 (Rs4,750) plus a barrel once again?

I think that is a possibility. If we talk to people in various multilateral institutions, they will say this is a possibility. Rising interest rates right now for almost any major country in the world, including Asia, would basically be politically out of the question. Unemployment is still rising in almost every country in Asia. The output gap is still very large for most countries in Asia. Inflation is non-existent. The producer price indices are anywhere between minus 4% and minus 10%. All the central banks have models which they have been relying upon for many, many decades which tell them right now is the worst possible time to raise interest rates even though we are seeing a lot of this frothiness in financial markets and in real estate. This is what you get when you have an undervalued currency with undervalued property markets and banking systems which are in terrific health. They are going to be a beneficiary of all this liquidity from the West and the only way that Asia can have a party-pooper here is if the West recovers which I think is something of a pipedream right now even though we may get growth of something like 1% in the next year or so.