There is an impending Fed rate hike and there are concerns over growth in China. Uncertainties continue in financial markets the world over. Bloomberg TV India speaks to Russell Napier, Independent Strategist and Co-Founder of ERIC, to understand why investors remain jittery and whether India presents a better opportunity.

How do you see the evolving situation impacting emerging markets?

The emerging markets in the post-great financial crisis period witnessed huge capital inflows coming in, rapid rise in foreign exchange reserves, rapid monetary policy (changes). And in the last year, it has become clear that those flows are reversing. Now, to stabilise, you need a major improvement in internal account and external account. Now if it can’t come from the capital flows, it needs to come from the current account.

You need the market to become very cheap through the exchange rate coming down or slashing wages or a real surge in demand from the developed world. The lesser we see it coming from the developed world, the more pain emerging markets have to bear to get those external accounts back into surplus – through becoming very competitive domestically, which is painful as lower costs or devaluing currency can also be a burden if you have a lot of foreign currency debt. When you take either of these two options, you raise issues of credit events. The pressure remains on the markets. There has been a belief believe since 2009 that the central bankers will succeed in reducing the global debt-GDP ratio by reducing very high level of nominal GDP growth to zero indicating inflation as negative, global growth falling. The markets were beginning to think what happens if central banks fail and that is not just negative for the emerging markets, it is negative for all growth.

What is your outlook about China?

I find myself in a peculiar situation in China, because I am optimistic but I believe I am optimistic for one reason, I think they will devalue the exchange rate. Ask anybody in financial market, they would tell you why the potential chaos that flows from the devaluation and I mean the material devaluation as much near 20 per cent or 10 per cent and potentially above 20 per cent. The negatives that flow out of that on the global economy are truly large. But, it gives China the flexibility to go for inflation.

It would be heavier inflation because there is certain tightness in the market. It will turn a major negative deflationary pulse to the world and raise that question again that what can central bankers do to create that inflation in such a world.

Where does India stand?  

My view on India is always very optimistic from an economic perspective. But they remain the same from the bottom of perspective that the market remain too expensive for what you get.

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