Michael Preiss, director of the Asian Bond Market Forum expects more volatility in the Asian markets in the days to come.
He believes that liquidity is affected and the key issue remains the dollar.
Further, he says that a weaker dollar may see more inflows coming into India.
Excerpts from CNBC-TV18's exclusive interview with Michael Preiss:
How have you read this week for emerging markets in Asia and what are you expecting in the weeks to come?
We will see more volatility because of what is happening in the US and the difficult situation with the new Fed chief. In a sense he has to cope with slower growth because of higher rates, but even though rates are already high in the US, they still have inflationary pressure.
So the US is in a very difficult position. Nobody really knows what is the solution to this. The housing market has a lot of knock on this sector, which is why a lot of people are concerned and that is the reason we saw this major fall off across global markets in the last couple of days.
Do you see inflationary concerns permeating into A-pack economies and do you expect to see a change in liquidity inflows as well?
Yes, most probably and this is why the key issue is about the US dollar. We will see the continuation of dollar weakness. When one looks at Japan's numbers this morning, it seems Japan is growing faster than expected, 1.9 per cent on the investments. If one remembers the Bank of Japan, their low interest rate policy flooded the world with liquidity and that was good for emerging markets over the last couple of years.
But now it seems to be changing, Japan goes from deflation into the inflation environment and that explains gold being close to $680-690. Most probably it will go much higher and the dollar is also coming under a lot of pressure. But nobody knows how to live in a much lower dollar world.
Most of the inflation is because of energy cost. So raising interest rates is not the answer. Therefore we may not see an interest rate hike. Would you buy that?
Yes, definitely. But this is partly from the new Fed chief and the Fed's issue and to some extent, they have it too tight. At the same time, we saw the US numbers fall off in the last couple of days. High interest rate is already entering into the economy. Therefore, we might see 135-140 on the Euro going forward and also the Yen, most probably, will go back to the range of 102-105.
With a weaker dollar, what happens to countries like India, which are not so export dependent? Does weaker dollar mean good news for countries like India?
Too many people in the world have too many dollars. The dollar is the only commodity in the world where supply is unlimited. So it is very good news for countries like China, India and Brazil. However, in the adjustment period, where people move out of dollar to other currencies, there is a lot volatility.
How long do you expect this period to last? The key seems to rest on what the Fed might do and there is complete lack of clarity on how many more hikes we can expect and when the Fed will indeed stop?
Most probably, we will have to wait till the next Fed meeting, which is in the middle of the next month. But this is a transitionary period of about a couple of weeks, where the market is not discriminatory. We saw in the last couple of days' selling across the board, everything went down.
When we look at technical charts, the Sensex chart looks very similar to the German stock market index chart. I think in that sense, the stock market is over reacting and is not being selective enough. I think it is more of an uncertainty and panic at the moment, instead of pure investment decisions.
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