Aaron Smith, CEO, Superfund Asset Management, in an exclusive interview:
What is the view that you are taking on India right now given that there is talk about perhaps a breakout coming in around about the 5300 mark? Are you investing in the market?
Looking at the Nifty, over 5200 the Nifty is strong. We do see an uptrend, resistance in a long term perspective could be a 5500 for the Nifty but you really have to come back and look at the US equity markets and what is happening abroad. There is going to be a very high beta. So these international markets are going to impact FII flows into India.
We see the S&P trading in a strong uptrend since we basically have free money in the US as well as strong stimulus and as long as the trend is to spend in the US and in the Western powers, that will continue to build well for the emerging markets.
The question is what will be the catalyst for a trend reversal. Today we see Nifty with RSI at around 64. The likelihood that it reaches new highs is possible and that the uptrend is intact. But the question is what sort of risk management you have in place to systematically protect yourself when there is a reversal in the market.
How do you see some of the non-ferrous metals playing out perhaps even steel and iron ore and how do you see that cycle impacting perhaps some of the resource stocks across Asia and specifically in India?
All the base metals are going to be sensitive to economic data that comes out, especially out of the Western economies in the manufacturing sector. But if you look at the precious metals, we still see somewhat of an uptrend but that is weakening. So if you look at gold for example, gold is testing its 150-day moving average right now, the RSI is down around 40. So we do not see a strong of an uptrend as we did see in the past or as what we would see in the equity markets right now.
Silver for example has broken through its 150-day moving average. So the precious metals, the upside trends have been weakening but there are still uptrends. If you have got a long term perspective and as far as the base metals are concerned, that is going to be very sensitive to the economic numbers that we see coming out of the US.
Given those economic numbers, how are you looking at the markets out there, the indices, the Dow, the NASDAQ and the S&P 500?
We would turn that long positions in equities but of course as a more advanced asset manager, we would have stop orders in place in case there is a trend reversal. If any expert can predict accurately and consistently the future, I would love to put my money with him but we certainly cannot do that. So what we do is we use a systematic trend following strategy where we put in stop orders in order to mitigate our risks. So yes, we are long on equities. We do not know when those uptrends will stop. When they do stop, we have our stop orders in place to systematically cut the position.
Where are you seeing fund flows going in Asia because we have got some pretty massive differences and valuation, perhaps India and China are looking similar but Thailand in single digit PEs similar to many other smaller markets?
The case for India is very strong. The case for Southeast Asia is very strong. Obviously China has sensitivity to US demand which probably does not board so well for China’s economy but you really have to differentiate between the equity market and the economy itself. India - from an economic standpoint - is extremely resilient because of an English speaking populous, very high education rates, very high savings rates and basically a GDP which is based on internal demand more so that exporting. So all these factors build well for the economy in India.
On the other hand if you look at the equity market for India, it is going to be really sensitive to what is happening because there is a huge correlation between Indian equities whether you work at Sensex, Nifty or any individual stocks. In India, there is going to be a huge sensitivity to what the overall world stock market is doing. So you are not going to see terrific performance in Indian stocks if the US market is underperforming and vice versa.
Talking about crude, how are you reading the movement of the commodity there at $90 or so?
Crude has been in a trading range basically for the past year between $65 to $85. $85 is really the resistance level. If there is a catalyst that gets crude above $85, I really look at that as a breakout level and then crude can certainly go above $90 a barrel.
So from our perspective, from a pure technical standpoint, crude is in a weak uptrend and there is a possibility. It is more likely that it goes to $90 than it goes to $60 for example from a pure technical standpoint but again no one can predict the future. Crude oil is trading significantly above its long term moving averages and with a RSI at 54, no one can really tell me that from a technically standpoint that it is overbought.
Give us a sense of the sectors perhaps that are drawing interest in India. Is there anything that you are particularly watching out for? Also a quick call on sugar, what is happening with global prices right now?
We are not looking at sectors in India. We are looking truly at the index for the Nifty futures. We are not looking at individual healthcare or financials. As far as sugar, that is much more important because we have seen basically a crash in the sugar market. The sugar had basically reached 29-year highs and has basically collapsed, lost 20% in the month of February and has broken through its 150-day and 200-day moving averages.
It is too early to say that sugar is in a downtrend but what we can say clearly is that we have seen a major trend reversal in sugar because of production numbers have come up and Brazil production numbers have come up in India and demand in various key markets like Egypt and Pakistan just has not been there. So basically, there has been a huge trend reversal in sugar and we are not sure exactly how far this is going to continue.
Courtesy: ET
0
comments