The Hindu Business Line : `Emerging markets: Buying interest by year-end'

Allianz Global Investors runs $9 billion from Hong Kong in the Asian markets and some of that is invested in Indian stocks as well. CEO at Allianz Global Investors, Dr Mark Konyn believes investors are still going to be fairly cautious given the higher volatility in emerging markets. But he also confirms that the company has reduced equity exposure in emerging markets to some extent.

He explains, India's current account deficit is discouraging international investors. Discussing emerging markets, Konyn expects them to see buying interest by theyear-end. Excerpts from CNBC-TV18's exclusive interview with Dr Konyn:

What is your sense of where emerging markets are now?

I think investors are still cautious. Actually the kind of big run up that we saw towards the end of last year and the first quarter this year and the capex, where flows have reversed as a result of which volatility has increased, along with concerns about inflation, global growth. Due to all these reasons, I think investors are still going to be fairly cautious in this environment of higher volatility.

Is money slowly leaving some of your funds as investors are withdrawing money or has that withdrawal sort of stemmed in the last few weeks?

What we have seen in the markets is that the pullback in terms of international capital flows has been due to the short-term money that reversed the trend that it set late last year or earlier this year.

So, tactically, what are you doing after the Fed has spoken and before the Bank of Japan speaks?

We have stayed pretty much true to our position overall and have taken some of the risk off the table and probably reduced that equity exposure somewhat. But we actually see this perhaps in certain stocks as a longer-term buying opportunity.

Anecdotally have you heard of what the Japanese investors have been up to and whether or not there is likely to be more outflow from that market in particular?

Absolutely. In the last two years, there was a big rush into China-related investment funds and China-theme investments. Last year, one saw huge outflows from Japan into India as the latest hot topic or hot investment theme.

The market obviously is adjusting and in Japan, we are concerned about the rising yield on the JGB that could possibly crowd out other asset classes or other securities, because as we know, Japanese investors tend to be quite cautious. What is your take on India? You did speak about current account deficit, but what have you been doing with your holdings in this region in the light of what happened in the last month or so with prices?

Within the context of a broader portfolio in the region, India for us represents sort of an opportunity outside of the main streams and that is how a lot of our investors consider the exposure in India. We have taken the opportunity to firm up some of our positions, where we like the companies. But in terms of the broader picture, international investors are concerned that the fiscal monetary policy at the moment is very accommodative and in the context of a potential global slowdown, this will have further impact on the current account situation in India.

What are the stories you like about India at this point?

Our overall view is that both India and China are emerging as asset classes in their own right and so a lot of what we are seeing is the shorter-term cyclic effect. So it would be wrong to draw any conclusions that these markets or emerging markets will go cold for an extended period of time.

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