Emerging markets, developed economies to face bigger challenges in 2013: Jim Walker

12 December 2012 06:30 pm Views - 2538

Excerpts:
ET Now: Do you think given the kind of policy measures the Government of India has recently announced, Indian economy could once again reclaim levels of 6% to 7% GDP growth?
Jim Walker: Some positive developments are going on now with the approval from Parliament on the retail trade. We still need to see it implemented, but it is at least a step in the right direction.
    The government at last seems to have got some of the messages that it needs to be doing and is actually creating the environment for faster economic growth either through foreign direct investments or accelerated investment spending.
    We can get back to 7% to 8% growth, but certainly not in 2013. So what we are likely to see in India next year, if we are lucky, is growth between 4% and 6%.



ET Now: Inflation continues to be sticky in India, industrial growth is sluggish, and current account deficit is out of control. Can we expect the Reserve Bank to be more accommodative when they meet mid-month or easing can only be expected in 2013?
Jim Walker: The RBI is still in a very hard place at the moment as regards policy decision-making. The economy is clearly sluggish, which worries them, and inflation has been somewhat sticky upwards and the current account position is bad.
    We still have the government claiming that it is going to fix the fiscal position, but it has really not done anything yet. So the RBI is going to be on hold in December. It is going to wait for some real concrete action from the government before resuming interest rate cuts in early 2013.



ET Now: Do you think inflows to emerging markets are here to stay for the year 2013 as well?
Jim Walker: There is argument for more quantitative easing around the European world and the US is losing some of its force.
The fact that this monetary madness has not actually produced real economic activity is beginning to raise big questions with politicians, increasing number of economists and lead investors.
    So in 2013, we are likely to see a continuation of very loose monetary policies. There is a much bigger struggle for both emerging markets and developed country markets next year.



ET Now: How do you see the fiscal cliff situation panning out?
Jim Walker: Unless the US government comes to a decision by the end of next week, the US economy will basically fall off that fiscal cliff because they do not have time to draft the legislation before Christmas and before the New Year holidays. So we need to get there pretty quickly.
    At the moment, I do not see any reason for either side to agree on anything because if they fall over the fiscal cliff, then taxes will go up and spending will come down and after that point, it will give Congress a much easier route to compromise somewhere down the line because Republicans will be able to claim a victory in lowering taxes after they have gone up and Democrats will be able to claim a victory in raising spending after it has gone down.
    So we probably are headed over the fiscal cliff in America and with it will come a pretty negative reaction in the markets.



ET Now: If we indeed fail to call off that fiscal cliff, do you worry that there could be a meaningful correction in global markets?
Jim Walker: In the initial stages, if we do not come to an agreement, equity prices will go down and they will go down sharply. Thereafter, the markets will actually work out that going over the fiscal cliff was the excuse required by politicians to actually get something from each other and that would then be taken quite positively. But the first reaction in risk markets would be very negative.




ET Now: What about the Eurozone? Is the worst behind or do you think it is yet to come in 2013?
Jim Walker: The adjustment process has barely begun there. When we look at the overall private credit, they are down a mere 5 percentage points over the last five years. They are probably going to fall at least another 15-20-30 percentage points as a percentage of GDP. That is ahead of us for the next 5 to 10 years.
    The European problems are not going to go away. They did not go away in 2012, and they are certainly not going away in 2013. So the crisis continues into 2013 and might get worse.



ET Now: On China, there is mixed opinion on what course the economy could take for the year 2013.
Jim Walker: No, China is far from the woods. There has definitely been loosening in some government spending and in some of the credit numbers that has lifted economic activity slightly over the course of the last two months, but Chinese companies are in terrible financial stress. The banking system is not circulating capital the way it should be given.
    Actually it would be a much slow growth year than 2012 and optimists are reading far too much into a very minor increase in fiscal stimulus which will probably go away as soon as the new government is in place in March 2013.



ET Now: Looking at these factors, would you have a different investment approach for the next year?
Jim Walker: Yes, we have been relatively negative on Europe for this year and that has not worked out that well. The German stock markets are up over 20%. That makes no sense in terms of the economic fundamentals. So we would tend to be very short on equities in Europe.
    We would be short equities in North Asia, Korea, Taiwan and China still and long on equities in Southeast Asia, the ASEAN countries in particular. We are pretty neutral on India given that it has run so far over the last 12 months.
    A lot of good news is priced in, might not be forthcoming, but relative to a fixed income and gold, we would be always long gold as long as we have people like Bernanke. So we would be long on gold, energy, agriculturals and real estate.
(Courtesy Economic Times)