India good for cherry picking: Macquarie - Mark Matthews

What is your prognosis on Greece and Portugal? What is the impact it is having on the euro?

Mark: We had a lot of coordinated intervention over the weekend from the BoJ and Federal Reserve which was unexpected. I don’t think people expected those two big central banks to get involved. But I think trust in the system is still very very weak and the way markets in Asia have reacted this morning is much less of a rebound than anticipated. I would have thought markets would have been up 3-4%, but they are up only 1.5%.

So what is that telling you about equities as an asset class?

Mark: I think there is probably some short covering that needs to be done. So markets can go higher in the medium future. But longer term we already did so well last year, Asia doubled, the S&P went from around 700 to 1200 and I think even if the European crisis has not happened. Markets would still be going up very quickly today. You know China is the economic engine of the world and the Shanghai market is down about 15% in a year to-date. I don’t think markets are going to go up very much in between now and the end of the year.

Call on the euro at this point?

Mark: I think we have to read the details of the plan that is coming out to get more clarity. I don’t think the euro deserves to stage a really big rebound. Even if they do manage to contain the crisis and it doesn’t spread into other countries in Europe, the fact is that now the cats are out of the bag that they have this huge deficit. And they have to reign in these deficits by cutting spending and that’s going to mean less consumption, both government and personal consumption in those countries. And that won’t help the euro.

What does all this mean for liquidity coming into markets like India?

Mark: The interesting thing is that people are naturally attracted to the Indian market because it is one of the few large stock markets in the world where you can buy growth which is not correlated to the rest of the world because exports as a percentage of GDP are much lower in India than they are in most of the countries in Asia. But the irony is that its precisely because India’s economy growth is uncorrelated that the stock market attracts a lot of foreign portfolio money and therefore that money can easily be withdrawn when risk aversion increases as it has in the past two weeks. So the irony is that though India is a very protected economy from the rest of the world and it has very good domestic attributes, the stock market can suffer more than others in Asia because foreigners invested in it for its independent growth.