Sydney: Macquarie Securities Ltd’s chief economist Richard Gibbs speaks in an interview about his reading of the markets. Edited excerpts:
How high would you rate the chances of a rally going on for some of these global markets over the next few months?
I think there is still some...prospect of a large rally in these global markets. As we come into this new week, we are looking at whether or not we are starting to see a realignment of global capital flows. Certainly after the (National People’s) Congress meeting in Beijing last Thursday and Friday, some soothing comments are coming out from the leadership in China. Growth dynamics of India and Malaysia continue to improve .
Focus on risk: Macquarie Securities chief economist Richard Gibbs.
So we are starting to see a realignment by global portfolio managers of their capital. This is going to start once again in these high beta (highly volatile) emerging markets where the growth uplift and uplift in earnings offer the most promise at this point in time.
Is there a year-end target that you are working with for a market like India? Do you think it will be extremely volatile while getting there?
I think it will be volatile... the focus is back on risk. Risk premiums and sovereign risks are leading that.
As far as Sensex is concerned, I am still targeting in the near-term over 17,500. In the year-end, we could certainly see 18,500 reached and consolidated in relation to that index. For Nifty, I am looking at 5,200 in the near-term. So it will be rocky and volatile, but it will continue to be around this rising trend.
What are the chances that this turns out to be a not-so-great year for emerging markets such as ours and actually stronger for the developed lot?
For the developed lot to be stronger, it really needs to see a surprisingly robust recovery in the US. We would certainly need to see stabilization in the euro area ...This is not in the offing at the moment or it doesn’t have a high probability. The smart money is going to be on way the global growth leaders allocated and that really still is India and China in terms of the major markets.
My suspicion is we won’t see the developed lot coming to the fore and outperforming in that regard. It will only be on a desperation trade, if that happens, it will really be on a big turnaround in terms of risk aversion...
What is your call on commodities? Do you see the possibility of crude heading to $90 or $100 per barrel at some point in 2010 because countries like India would be watching such developments very closely?
Yes, I do... Suffice it to say that most people who have known my commentary would know that I am actually bullish on that (commodities) front...I do see the prospect of a move towards $85-90 per barrel. I have seen that for some time.
The news of China beginning to replenish or rebuild strategic stockpiles of commodities is an important signal in relation to the support we are going to see in the commodity markets as we move forward. The strength of the emerging markets in greater Asia gives us a very strong underpinning. So the awareness that is going to emerge in commodity markets is that the world is moving on beyond the issues in the US and Europe. Therefore, the base demand for commodities is unlikely to be dragged down as a consequence of that continued meandering in those developed economies.