It is just a temporary lull; the crisis in Eurozone countries has still not been averted, feels Jim Walker, founder and managing director of Asianomics. According to Walker, major banks in the European Union need to lower the debt on their balance sheets considerably. Speaking to CNBC-TV18, Walker the market was currently witnessing a relief rally, but one that is likely to end soon. There are far too many macro-economic headwinds for the equity markets to be able to sustain the current uptrend.
Walker expects the US economy to slip into recession by the second half of this calendar. Negative newsflow out of China could resume post the Chinese-New Year. On India, Walker feels FY13 GDP growth could be between 4-6%, much below what most top Indian officials are expecting it to be. Walker feels the rupee had overshot on the downside, and that forex losses on overseas borrowings would hurt Indian companies. Walker expects the RBI to start cutting interest rates, but gradually.
The main thing that you would put it down is relief that 2011 has finished. It was an awful year for everybody in the markets. The bulls had a good time in the first half of the year, bears took over in August-September and then the bulls ruled in October and again the bears took over in November. There was volatility and people were just relieved to see the back of the year. But has anything fundamentally changed? Apart from some slightly better news in the US over the course of November-December, everything is pretty much in the same boat. I really don't know whether the people are taking on board how deep the recession will be in Europe
We have actually got a slightly different timeframe. I think January can be a decent enough month because I see a relief rally and people are relieved that 2011 is gone. It is possible that the rest of the Q1 isn't too bad because a lot of the market moves towards a much more negative view are already in the price.
Our view is that the second half of the year will be much more worrying and the timing we have got for the yield curve, we use an adjusted yield curve for trying to time US downturns.
We expect the US to go back into recession during the second half 2012. Europe, by that time, will be deep in recession. I think people are perhaps ignoring it because between the Western New Year and Chinese New Year, China is slightly off the radar screen.
When it comes back on the radar screen after the Chinese New Year, I think the news will be bad - both in terms of what was happening in terms of economic activity there and the banking and property sectors, small and medium sized enterprises, and exporters and at that point, from an Asian perspective, I think the risk of trade will start to take effect again.
