Courtesy : Moneycontrol
Adrian Mowat, Chief Asian and Emerging Market Equity Strategist, JP Morgan, says low central bank rates don't lead to inflation. "There is a misunderstanding with regard to this word liquidity. Just because there is cash or central banks rates are low does not mean that you get inflation. Inflation occurs when there is an excess demand for goods relative to the ability of the economy to supply those goods. At this point in time, we have got a huge output gap seen in the US, Europe, and Japan." Hence, he feels the inflation fear is overdone.
On emerging markets and currencies:
Mowat sees modest moves in Asian currencies. "You have got very large moves in the Turkish Lira and the South African Rand whereas in Asia we are tending to get much more modest moves in the currency. That's because of this anchoring effect of the renminbi that hasn't changed for 15 months." He added that JP Morgan's asset allocation in emerging markets has been driven by currency markets. "We are underweighting on Asia because of this lack of dollar performance due to the renminbi."
On gold:
Gold, Mowat feels, is not a consistent hedge. "We are in the most beautiful spot for gold. Everything is moving in the right direction today which probably means it has hit its high price. I hear a lot of statements being made about gold that are just not statistically true. It is not a consistent hedge. It is not a store of value when you look at the history of gold versus other assets and versus economic growth.
He expects the appetite for gold diminishing going forward. "I suspect that as the world becomes more normal next year, people's appetite to own an asset that doesn't give them a return and costs them money to own will diminish."
Bullish on India:
According to Mowat, JP Morgan has positions in India, Taiwan, Thailand, and the Philippines. "What you have had is this whole series of recovery trades. So, 12 months ago you had position yourself in India and China as they were recovering and then around March you were buying exporters with the expectation that the developed economy would recover which is pretty much what they have done in the third quarter. Now, we are going into some of the laggard economies such as Central Europe which had a real current account crisis, South Africa which has had a different inflation growth dynamic. So, it has been that type of rotation that we have been putting in place. Within Asia, we have positions in is India and Taiwan and some of the smaller markets such as Thailand and the Philippines."
Daniel McCormack, Equity Strategist, Macquarie Securities, feels China, India, and Indonesia are likely to post the strongest growth. "There are parts in Asia which have practically decoupled. What you want to focus on are the big domestic stories in Asia and there are three ‑ China, India, and Indonesia. These three will give you the strongest growth this year and next year in Asia. From an asset allocation perspective, we are very comfortable in playing with domestic stories in those markets. Growth is scarce globally and we would be comfortable buying things like banks in those markets."
On fund flows:
McCormack says inflows to Asia, especially China have started to slow down. He added that investors are switching from Indonesia to Thailand. "Asia saw a huge amount of inflows from foreign investors in the first half of this year. But when you look at the data, it looks like inflows have started to slow in the last 2-4 months. You have seen some interesting country developments as well. Flows into China have slowed down and you are staring to see some pretty significant outflows from Indonesia which was a star performer in the third quarter. Perhaps people are taking their money out and switching to Thailand."
Interest rates in US set to rise:
Robert Doll, Vice-Chairman and Global CIO-Equities, BlackRock, sees interest rates in the US being hiked in H2 CY10. "The consensus is late next year or 2011. I don't think it will be that late. I think middle of next year or second-half of next year. You know our starting point is not 2 or 3. It is zero. I think some statements will have to be made at some point if the economy needs to recover, albeit modestly like we think."
He foresees an economic problem if interest rates are raised now. "If we raise rates now, we will have an economic problem. We will need a little bit more time and a little more evidence of sustainability of economic recovery but they are going to get started."
Adrian Mowat, Chief Asian and Emerging Market Equity Strategist, JP Morgan, says low central bank rates don't lead to inflation. "There is a misunderstanding with regard to this word liquidity. Just because there is cash or central banks rates are low does not mean that you get inflation. Inflation occurs when there is an excess demand for goods relative to the ability of the economy to supply those goods. At this point in time, we have got a huge output gap seen in the US, Europe, and Japan." Hence, he feels the inflation fear is overdone.
On emerging markets and currencies:
Mowat sees modest moves in Asian currencies. "You have got very large moves in the Turkish Lira and the South African Rand whereas in Asia we are tending to get much more modest moves in the currency. That's because of this anchoring effect of the renminbi that hasn't changed for 15 months." He added that JP Morgan's asset allocation in emerging markets has been driven by currency markets. "We are underweighting on Asia because of this lack of dollar performance due to the renminbi."
On gold:
Gold, Mowat feels, is not a consistent hedge. "We are in the most beautiful spot for gold. Everything is moving in the right direction today which probably means it has hit its high price. I hear a lot of statements being made about gold that are just not statistically true. It is not a consistent hedge. It is not a store of value when you look at the history of gold versus other assets and versus economic growth.
He expects the appetite for gold diminishing going forward. "I suspect that as the world becomes more normal next year, people's appetite to own an asset that doesn't give them a return and costs them money to own will diminish."
Bullish on India:
According to Mowat, JP Morgan has positions in India, Taiwan, Thailand, and the Philippines. "What you have had is this whole series of recovery trades. So, 12 months ago you had position yourself in India and China as they were recovering and then around March you were buying exporters with the expectation that the developed economy would recover which is pretty much what they have done in the third quarter. Now, we are going into some of the laggard economies such as Central Europe which had a real current account crisis, South Africa which has had a different inflation growth dynamic. So, it has been that type of rotation that we have been putting in place. Within Asia, we have positions in is India and Taiwan and some of the smaller markets such as Thailand and the Philippines."
Daniel McCormack, Equity Strategist, Macquarie Securities, feels China, India, and Indonesia are likely to post the strongest growth. "There are parts in Asia which have practically decoupled. What you want to focus on are the big domestic stories in Asia and there are three ‑ China, India, and Indonesia. These three will give you the strongest growth this year and next year in Asia. From an asset allocation perspective, we are very comfortable in playing with domestic stories in those markets. Growth is scarce globally and we would be comfortable buying things like banks in those markets."
On fund flows:
McCormack says inflows to Asia, especially China have started to slow down. He added that investors are switching from Indonesia to Thailand. "Asia saw a huge amount of inflows from foreign investors in the first half of this year. But when you look at the data, it looks like inflows have started to slow in the last 2-4 months. You have seen some interesting country developments as well. Flows into China have slowed down and you are staring to see some pretty significant outflows from Indonesia which was a star performer in the third quarter. Perhaps people are taking their money out and switching to Thailand."
Interest rates in US set to rise:
Robert Doll, Vice-Chairman and Global CIO-Equities, BlackRock, sees interest rates in the US being hiked in H2 CY10. "The consensus is late next year or 2011. I don't think it will be that late. I think middle of next year or second-half of next year. You know our starting point is not 2 or 3. It is zero. I think some statements will have to be made at some point if the economy needs to recover, albeit modestly like we think."
He foresees an economic problem if interest rates are raised now. "If we raise rates now, we will have an economic problem. We will need a little bit more time and a little more evidence of sustainability of economic recovery but they are going to get started."
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