Morgan Stanley view on Indian and Global stock markets

Remain cautious on global economy, vulnerable to double dip; risky assets to be under periodic pressure; dollar could rally in short-term: Stephen Roach

Stephen Roach of Morgan Stanley said that he remains cautious on global economy. He feels that the economy is vulnerable to double dip. Risky assets will be under periodic pressure. He feels that Asian markets are not factoring in weakness in economy yet. Dollar could rally in short term. He remains bearish on dollar over long term.

“I remain very cautious on the prognosis of the economy. Having gone through the worst crisis in our 75 yers I think the markets were compalcent and overly optimistic in rallying sharply in the final nine months of 2009 under the presumption that we would have a classic vigrouos v-shaped recovery. I think the recovery is going to be weak aneamic fragile potentially vulnerable to a setback or double dip and I think there reality is starting to hit home in overly exuberant financial mkts.

Well all major crisis have one thing in common they leave countries and individuals or business with a lot of debt. And so it is not unusual to have or get driven shake out once the worse is over. I think we are going to see that for some time ahead in terms of the riskier sovereign debt for markets of Europe. We could see ongoing debt problems for American consumers and we have certainly seen over 20 years of ongoing debt problems for the post bubble Japanses economy. So this is not an immediate reaction this is not you can dismiss and pretend it was just a bad dream.

I think again risky assets are going to be under periodic pressure not constant pressure from time to time over the next several years. The world is benefited over the past year to 15 months from the biggest liquidity injection in world history. And now as the world starts to stabilise its coming on a policy makers monetary fiscal like to withdraw this liquidity and that could certainly used to destabilise responses in many risky mkts.

I think the liquidity is hard to track, dollar for dollar rupee for rupee, in such a case where lot of liquidity is going to repair the whole in consumer balance sheets. In the case of Europe a lot of liquidity is going to repair a better banking system which has certainly been the case in US as well. It is not that the liquidity is being injected in the markets to boost share prices around the world. There is so much damage that is still lingering from this crisis that the liquidity is being directed at reparing that damage rather than providing a surplus of investible funds speculators.

Well emerging markets are in general and developing Asia particular had a truly spectacular run from March 09 to the end of last year. The region however remains heavily dependent on external demand under the rest of the global economy and if the global economy remains as shaky as I suspect then I think there could be some weakness to come in Asian economy that is not really factored into equity prices at this point in time. The idea of the coupling for me has always been a joke for a region that is most dependent on the rest of the world to sustain economic activity.”

Source:  Moneycontrol.