Market States

Tuesday, 30 June 2015

Markets will look at Greece with risk-off perspective: Tai Hui, JP Morgan

There is a fifty fifty chance of Greece staying in the European Union, said Tai Hui, managing director and chief market strategist - Asia, JP Morgan AMC. In an interview with ET, Hui said Indian markets are likely to remain more resilient to the crisis because they operate under their own dynamics. Edited excerpts:

How are the markets perceiving the Greece referendum, and what are the chances of a 'yes' vote?

 There is uncertainty in global financial markets as Greeks vote in the referendum on July 5. The opinion polls, which we have seen so far, suggest that the majority will vote for 'yes,' which means the Greek government is likely to compromise with the lenders. However, the creditors are not yet convinced about the proposal of reforms. There are number of hurdles before Greece can get out of this tricky situation. The markets, however, will remain concerned on the potential contagion impact on the rest of the region, particularly likes of Spain, Italy, and Portugal, because of potential elections coming later this year. The markets will look at this situation with risk-off perspective. However, from a longer-term view, investors will look at the macros of Europe, which according to me are still positive. 

What are the chances of Greece leaving the European Union?
There is a fifty-fifty chance of Greece staying in the European Union. But from the European perspective, I believe there is a strong desire for Europe to keep Greece within the euroarea. In my opinion, it will be extremely messy if Greece leaves the European Union. It has become very important how Greece plays its cards, as it's necessary to bring changes, which the European lenders are demanding. And if Greece does not stay in the European Union, then they will have to go through very difficult period regarding the currency.  

Do you think Germany or France will give a helping hand to Greece, which some fund managers are betting on?

 I think it's going to be a collective agreement rather than one or two country bailing Greece out. Germany and France are two important countries in the European area, and from my perspective, Germany wants to see very solid reform agenda from the Greek government, which has been absent so far. 

For how long are we going to see market volatility?  

Volatility is going to stay around for this week as the referendum is on Sunday. And if we get a referendum that is 'yes', then the bailout funds come through. And if the referendum comes as 'no', then there is a big problem. I think we are going to see a solid 'yes' or 'no' by the next weekend. 

What kind of impact do you see in the emerging markets?  

The equity markets are going through very difficult phase; most of the emerging markets are down 2-3 per cent. India is the only country down 0.75 per cent. However, the risk-off environment is going to stay for some more time, not only in equity markets but also in bond markets. We see markets positioning for safer environment for at least a week. 

Will Indian markets remain resilient to the Greece crisis?  

Indian markets are likely to remain more resilient because fundamentally these markets are not connected to Greece as they operate under their own dynamics. But if we see some liquidity squeeze, then it's unlikely that Indian markets will be spared from the volatility. But on risk-off event, we may see some volatility in Indian markets in the short-term.


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