Yesterday, Greece missed another deadline for debt deal. Adrian Foster of Rabobank doesn’t think there will be a very tidy conclusion to the Greek situation soon.
According to him, liquidity is going to continue to be a positive backdrop for equity markets, for risky assets around the world.
However, he expects equity markets to be flat in February and March. “Investors will remains cautious even with the generous liquidity backdrop that has boosted confidence,” he adds.
Below is the edited transcript of his interview with Latha Venkatesh and Reema Tendulkar.
Q: Is the Greek situation beginning to look extremely troublesome now? Will we have a clean solution at all or will it remain a lot of toing and froing?
A: A lot of toing and froing is certainly the most likely outcome. I do think that if we talk in a year’s time, we will probably still be talking about Greece. I don’t think that in over one to two year timeframe, there will be a very-very tidy conclusion to the Greek situation.
It’s easy to understand that Greek policymakers might have a vested interest in shifting the burden of Greece adjustment onto some of the foreign creditors. Ofcourse foreign creditors don’t think that’s a very good idea at all. So, there is this continuing negotiation around each bond redemption that falls due for Greece. I do think that’s something which will stay with us.
Q: From a stock market point of view, will they continue to disregard the stalemate on Greece, focus on liquidity and move higher, something that we have seen over the past few days?
A: There is a view that liquidity is not the main game, fundamentals are the main game. Ofcourse in a broader sense, in a bigger picture sense, fundamentals are particularly important. But in a tactical sense, liquidity can be very, very significant. I think it has been over the last six to seven weeks, since the ECB’s three year LTRO in December of 2011.
Liquidity is going to continue to be a positive backdrop for equity markets, for risky assets around the world. As we get into February, I think the markets essentially re-priced that liquidity positive. So, I do think that February, probably March will tend to be a bit of a flatter trajectory rather than what we have seen more recently.
When we look back at the end of 2012, my view is that we will see assets, equity markets higher than where they currently are.
Q: What would smart money chase or what would you advice as the top three asset classes in terms of performance in the next six months?
A: I do think investors will remains cautious even with the generous liquidity backdrop that has boosted confidence. I think the single factor, which should propel risk appetite to a remarkably higher level would be some further evidence that the Euro zone economy is showing resilience to these troubles, other periphery challenges.
It is pretty clear that Euro zone economy contracted in the Q4 of last year, likely there is contracting in the first quarter of this year. But a rebound in the Q2 will set the same in conjunction with ongoing growth in the US, around 2% growth rate. I think China 8-8.5% growth rate.
I think when the Euro zone economy rejoins the growth platform, that’s going to see investors broadly speaking with more entrench sense of optimism. I would like to overstate that, but I do think that’s going to be the factor which propels markets higher. My take is it will be pretty broad base rally.
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