David Buik Comments: Emerging Market Demand To Sustain Mature Economies - Moneycontrol.com

European markets like France's CAC, Germany's DAX and Britain's FTSE were down 0.4-0.6%; even Dow Jones and Nasdaq futures slipped in the red after the initial upside, at the time of closing of Indian equities. Asian markets slipped further in late trade; Shanghai fell 2% and Taiwan was down 2.56%. Nikkei and Kospi lost 1.46-1.66%. Hang Seng and Straits Times were flat.

In an exclusive interview with CNBC-TV18's News Editor - Markets, Mitali Mukherjee, David Buick of BGC gave his perspective on global markets.

Q: Does it seem like nervousness is spilling back into the market or at least across European equities?

A: Yes of course it does. We are very nervous here. I think what we have seen is it's the quality of economic data right across the world including China and Japan which seems to be deteriorating just very mildly everywhere. Even though we have experienced a wonderful second quarter earnings period, the outlook for many companies going forward is not particularly bright.

With that falling economic sentiment, we have seen a huge flight to quality with an awful lot of cash either leaving the equity market or heading straight for what they call flight to quality for bunds, treasuries and UK gilts which are now seeing yields of unprecedented low levels something 0.46 for two years in the US, the ten year yield below 3% and a 10 year treasury below 2.5%. So it just shows you how uncertain everybody is about the future.

Q: What kind of money call do you think people are taking on emerging markets in that case? Are they part of the better part of the quality pack as you indicated or is there risk aversion in investing in markets like these?

A: We are praying that you keep up the excellent job that you have all been doing. India and emerging markets have excelled brilliantly during the course of the last two years. The work ethic is superb, it's the will to want to get on and bring everybody up to the required standards that is really keeping the world's economy going. We are very hopeful that the demand that is coming out of emerging markets will of course help to sustain the more mature economies of the world from falling out of bed.

But certainly from where we are sitting now demand is not as robust as we like though we are seeing from the grassroots good export opportunities for many countries. But it is reliant on free flowing trade both ways and it has shown signs of stuttering in recent weeks.

Q: In the short term though would you say there is a real likelihood that European markets or even the markets in the US see more than a token correction i.e. more than 5%?

A: Everybody has to remember that even though equities seem unattractive at the moment, you've got to remember that most of the big companies have become very mean and lean, they pay very good dividends now on the whole. Alternative asset classes like money markets pay awful rates of interest. We are constantly seeing a flow of mergers and acquisitions activity.

Huge deals such as the BHP Billiton-Potash one and I suspect that may be one of many that will come forth because valuations of companies are cheaper than they have been for some time and that it is inevitable for some sort of rationalization on a global basis will take place.

So the fact that dividends are being paid and there is M&A activity out there will I think underpin equity markets in the Unites States and the Europe and UK from falling out of bed.
 

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