Citi view: Once QE ends, what will be impact on fund flows?
On the sidelines of the 6th Citi India Investor Conference, Aditya Narain, Chief India Strategist, Citi, Markus Rosgen, Chief Asia Strategist, Citi and Minggao Shen, Chief Strategist at Citi speak to CNBC-TV18’s Latha Venkatesh about the news emerging from Europe, US and emerging markets like India and China and how investors are being impacted across the globe.
Below is a verbatim transcript of their exclusive interview on CNBC-TV18. For complete details watch the accompanying videos.
Q: The worry for investors anywhere is what happens on June 22 and what happens with quantitative easing (QE)? Do you think we are going to have another burst of dollar printing called QE?
Rosgen: As far as we are concerned, QE2 will end and the world will continue. We are not particularly worried about the end of QE2. The way we look at it is if QE3 were needed the Fed would do QE3. They have told us that many times that if they believe growth is sufficient; they will continue to come out with other forms of quantitative easing.
From an equity market point of view you can say – well, the end of QE is an effective tightening of monetary policy. Across the region or PE or price to book multiple it is exactly where it always is whenever we have the first tightening of monetary policy. So from that perspective, I don’t think it will be a shock for the market.
Equally, it was well known that the amount of QE they were going to do, when it was going to start, when it was going to come to an end. You would have to really have arrived from a different planet not to be aware when it’s coming to an end. Therefore, we think it’s been well flagged, equities have reacted to it, bonds have reacted to it and so we think it’s not an issue at all for markets.
Q: Yet, people will behave very differently if they expect that more of dollar printing is going to happen. Let’s go with the scenario that you think is more likely that perhaps at the moment, QE3 will not be announced, in that case do you think fund flows to Asian equities and to commodities could decline and therefore even in advance you could see a bit of a sell-off?
Rosgen: I don’t think QE2 in itself has led to a significant bounce in fund flows to EMs or Asia. The thing that has held people back is there have been a whole number of concerns this year so inflation concerns in the first half of the year, then interest rate concerns, higher oil prices on the back of the unrest in the Middle East, the Japanese earthquake, nuclear and radiation leaks.
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