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    Threat of Greek contagion contained; Indian stocks have done well on monsoon, soft inflation: Mark Konyn, Cathay Conning AM

    Synopsis

    One of the good aspects is markets are digesting the uncertainty in terms of equities and bonds, says Mark Konyn, Cathay Conning.

    ET Now
    In an interview with ET Now, Mark Konyn, CEO, Cathay Conning AM, shares his views on markets. Excerpts:

    ET Now: How are you reading the latest developments? The statements coming in from Greece seem to suggest that they are more willing than the others to reach what I call a truce?

    Mark Konyn: We are getting mixed messages from Greece - one message to the creditors and another message to the voters. So, it is really difficult to understand what the strategy is. Many market analysts and participants are concluding that there is a strategy, it has been managed minute by minute and therefore it is difficult to predict how this will play out. One of the good aspects is markets are digesting the uncertainty in terms of equities and bonds. It seems as though the threat of contagion has been well contained at this stage.

    ET Now: What is the sense that you are getting about what is going to happen on Sunday with the referendum?

    Mark Konyn: The referendum is being profiled as a referendum on staying within the Euro because these austerity measures will effectively call the game up on how the negotiations go with the creditors. So, it is very much seen by the market as a referendum on continuing with the Euro project in its current form with all the current members present.

    It is hard to see that referendum is going any other way. It is very difficult to see how the people can rally around any other outcome.

    ET Now: What if Greeks want to exit the European Union, do you think that will have implications on financial markets?

    Mark Konyn: A lot of the issues that connect the banking system across the continents and the Eurozone have been unravelled. So, it is very much a Greek issue going forward, but at this stage contagion will be pretty well contained and it really is a question of how lifeboats can be launched to support the Greek economy at a very difficult time clearly with capital controls coming to the fore.

    ET Now: What is happening with China, because while the rest of the globe seems to be digesting all the Greek data, the Chinese government on the other hand is trying to stabilise the markets with interest rate cuts but the market is really taking it on the chin on a daily basis?

    Mark Konyn: Yes, it has been rather erratic in terms of the way the market has tried to interpret some of the actions over the last several days from the authorities there and a number of measures that can still be put in place to try and stabilise the market but what we are seeing now is the run-off of what has been a rampant bull market. Others would call it a bubble driven by speculation and huge amount borrowing coming in from margin accounts.

    The IPOs in China are sucking up a lot of liquidity and I do not think it is necessarily an issue of valuation at this stage. The market is still not at the levels that we have seen in other bubbles driven by sentiment and liquidity and the market could start to recover.

    However, with the sensitivity to these policy adjustment, which seems to be coming fast and furious at the moment in an attempt to stabilise the market, it is very difficult to read in as to how investors are going to respond to each and every new announcement.

    ET Now: What about India? We have had a really good rally from the lows?

    Mark Konyn: India has done very well. Monsoon in June ahead of expectations has helped, but overall the fall in inflation has helped significantly. We are seeing big government front-loading of the capex programme and that has been supported by a significant increase year-on-year in government revenues.

    So, these are very positive signs but a word of caution is that we are still in the throes of earnings downgrade and that is going to continue, albeit at slower pace with no added point as to where we are going to see improvement. It is difficult to see how this improvement in sentiment and in prices can be sustained at the same pace.

    The Economic Times

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