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Shane Oliver, Head Investment Strategy of AMP Capital Investors said that he expects most markets to retest January lows. However, he added that though markets are in a bearish phase; it may not last for long. Oliver told CNBC-TV 18 that the current inflation driven by high oil and food prices. He estimates that the next 4-6 months would be a difficult time in the financial markets. Asia would benefit from the easing monetary policy around the world, he said. India’s exposure to the US is low as compared to the other Asian countries, he said, Oliver feels that India shows good growth opportunities. Indian markets would see positive trend in H2CY08.

Excerpts of CNBC-TV18’s exclusive interview with Shane Oliver:

Q: What’s your sense? Will global markets go back and retest January lows or do you think the worst is behind us?

A: Currently it’s going to be a bit of a rebound in the markets. I guess basically investors around the world have become too bearish too quickly and so we are due for a bit of a bounce. We seem to be saying that at the moment, it’s not overly strong moment, it could get on for a little bit longer. But I would think that, before we get to the middle of the year, we will see a retest of January lows.

Basically, I think that the flow of data coming out of the US would get worse before it gets better even though the Fed is cutting rate that will help, maybe later this year. But in the meantime, the poor economic data coming out of the US ongoing promising credit markets, I think will result in a retest of the January lows in most markets.

Q: What do you think is happening with most equity markets right now? They seem extremely coupled on the way down. Is that the trend you think that will remain for the next few months?

A: I think basically we are in a bear market. Most of the markets around the world have had falls of 20% or more. Of course they have recovered some of their losses over the last month or so, but I think the broad trend now is done, we are in a bear markets. The bull market which was underway from round about 2003 to the high last year, is over and we are no longer saying that that steady pattern of rising high and rising lows which characterised as a bull market.

By the same token now, I don’t think this bear market will be long and extended one. My feeling is that, because of quick action by the Fed, the fact that most emerging countries are in pretty good shape and I guess Europe is also in reasonably good shape, suggest to me that the economic downturn we are seeing this time around will be relatively short and mild. Also, through the second half of the year conditions should start to improve. But for now, unfortunately we still are in a bear market.

Q: What do you make of this kind of policy action which is coming in, particularly given the expectations of more serial rate cuts going forward juxtaposed against rising inflation and high commodity prices across the board?

A: It’s certainly a high risk situation. The normal cyclical player, I guess this is what Ben Bernanke and other Fed governors are playing on, is that, as economic growth slows, that eventually takes the pressure off inflation. So the fact that inflation figure in the US, and around the world, is still elevated at the moment doesn’t disprove that phase. My feeling is that by the time we get at the end of the year, inflation will have slowed.

The main risk to all of that is that a lot of the inflation we are seeing at the moment is been driven by high oil prices and high food prices. The risk is that those two factors remain high and therefore, we don’t see the normal fall in inflation. So that’s certainly a risk and it’s going to result, I think, in a fairly rough ride over the next few months because we have got the combination of factors, slowing economic growth, but at the same time bad inflation numbers coming through.

A lot of investors will be questioning whether the Fed is doing the right thing? At the end of the day, I do think the Fed is doing the right thing. I think slower growth will rather take pressure off inflation, but I do think that the next four-six months we will see a fairly rough time in most financial markets.

Q: It comes with a lot of risk aversion as well towards the equity markets. If your case is that we go back to test the lows we had in January, how do you think money will trade that. Will that be an opportunity to start buying into equity again or not that soon you think?

A: I think that would be an opportunity to buy into equity markets. So I would tend to think that the next six months are going to throw up great opportunities to buy into markets because I don’t think this will be a longdrawn bear market or economic downturn.

So consequently, as valuation improves, and it’s already looking quite attractive compared to the situation three-four months ago, then the next few months will provide a good buying opportunity, particularly I think in Asia as it will benefit from an environment where easy monetary conditions around the world. Then, as global growth starts to pickup again, maybe towards the end of this year but certainly in 2009, then the Asian share markets and economies will be key beneficiaries of that. Also, as liquidity conditions are becoming easier and easier, I think the Asian markets will take off again.

Q: What’s the prognosis on India from here?

A: Right now, at the current juncture, the India share market has had a decent correction. It’s off about 15% or so from its high last year. But it hasn’t come down as much as other Asian markets and I guess the main thing play against Indian shares at the moment is the valuations are still relatively unattractive on some of measures I look at. The Indian share market is still the most expensive market in Asia outside perhaps of China’s A-shares.

The big thing going in favour of the India though is that the economy is in reasonably good shape. There is not much exposure to the US as compared to the rest of Asia, Indians export exposure to the US economy is fairly low compared to many other Asian countries. On top of all of that, India has one of the brightest prospects in terms of an earnings growth.

So when you try and weigh up all those factors, my feeling is that investors need to be, at least index weight on India. I wouldn’t necessarily be overweight, but I don’t think this is strong case to underweight either, given the stronger earnings outlook.

So overall, the Indian share market will do well, it will probably be dragged lower again over the next four months along with other global markets, but it should have a good rebound through the second half of the year

Source: Moneycontrol.com