The Hindu Business Line : Societe Generale very cautious on India, expects correction

Mr Christophe Lalo, Managing Director of Societe Generale Asset Management, says that they are still cautious on emerging markets going into Q3. He adds that they are extremely cautious on India, and are expecting some correction.

He also says that the US economic slowdown, and the Fed rates will be a key factor for emerging markets. He further adds that large offshore players may not withdraw from emerging markets in case of a slowdown in the US.

Excerpts from CNBC-TV18's exclusive interview with Mr Christophe Lalo:

Put it into perspective this past month in terms of fund inflows, especially to markets like India, and whether you have seen new money coming in?

This summer has been quite nice effectively after the sell off of this spring. So we do see some very interesting flows. But unfortunately, because of what we hear from the US, which is eventually having a slow down in the economy, I wouldn't be too optimistic for the future. So we have to be very cautious going into the third quarter.

As a hedge fund manager yourself and what you hear from other hedge fund managers, has the risk of large-scale withdrawal of money from the hedge fund fraternity from markets like India and other Asian markets receded a bit?

It's not the question of hedge funds. If you look at the big picture over the last three years, we have seen a very strong rally in India, almost 300 per cent. There was a correction this spring, now it is back up again.

Again there is some uncertainty in the market, we know that the Fed is not going to raise rates anymore but the question is: have they raised it too much and are we going to see a slowdown in the economy?

As such the economic figures that we are going to have in the US will be very important — beginning with the consumer confidence and at the end of this week the unemployment figures.

So I think there might be some switches from one place to another because these last few weeks, and months have been very hectic and people do not want to suffer the losses that we have seen over the last few months. Again be very cautious.

If the US economy shows some sign of a slowdown, it will impact the whole region and as such we should expect the market to go down again.

In this past rally for the emerging markets did you at all see any redemption pressures coming in as well, did investors want to pullout a little?

What we have seen actually is not so much offshore investors going to the market but much more local players. The offshore investors have been in the market for quite sometime now. There was some redemption of course.

If we have this slow down in the US, which will pull the whole economy of the world down, it should have some impact effectively, but not so much of the large offshore players withdrawing the money out of the region. It will be more of a local thing than a global thing.

Do you think India is headed back to a new high again, and as a fund manager are you positioning yourself in that way?

We really have to be very cautious. We have come back from a three-year strong rally, over the last few weeks we have had some internal and external shocks. Internal by the market themselves, external by the terrorism and all those uncertainties.

So I will be more than happy to see the market go back up again to where it was in April-May. But I would be very cautious; we should expect some correction in the near future again, if we have some slow down in the economy. So I would be happy to show you some big numbers going up, but it is better to be much more cautious as we approach the third quarter.

Are you sitting on lot of cash in some of these markets, or are you short in any of these markets?

We are not shorting anything at all right now. We are holding some cash. Again the idea is to look for some downturn correction to go back into the market at better valuations. I cannot tell you if it is going to be 10,000 or 9,000 or even below.

We have seen a lot of volatility in the currency market, in the stock market. So wait and see, it is not going to be the end of world. Even if we have some downturn, it will be a good opportunity to go back in again.

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