Fragile background sees investors desert global markets
RT: Some say it's a kick-start of another recession, what's your view on the situation?
NP:“Well certainly the risks are very much to the downside and we start from an already fragile base.In the first 6 months of this year the United States only grew 0.4%, in the last 9 months the UK has only grown 0.2%.There are many countries across peripheral Europe that are already in recession.So these market movements come at an especially difficult time, and I think the risk is that we see a lot of retrenching and a lot of retrenchment of activity through the summer months and into the autumn, and certainly the odd quarter of negative growth in some of the major economies can no longer be ruled out.It is a very very fragile background.”
RT: We're also waiting for the U.S. jobs report later today – what impact will that have on the markets?
NP:“Well ordinarily a decent jobs number out of the U.S., and by decent we are talking about creating about 100 thousand jobs during the month, a decent job number would give a lift to sentiment.I think though that investor sentiment has been so heavily hit by the 10% slide that we have seen across all major markets this week, that it would only bring very, very temporary respite.I think more likely is that markets will start to reflect that at this stage of the cycle traditionally the U.S. is creating something like 250 thousand jobs a month, and although 100 thousand is better than none, it is certainly not enough to give a lift to the consumer, a lift to spending and a lift for the entire U.S. economy.So I think the risk is one of great disappointment this afternoon.”
RT: Investors are selling, but where are they putting the money?
NP:“Cash.They are certainly not going into gold, that has not been the experience of the last 24 hours.What we have seen is that a lot of very very large losses have been racked up, many markets were down over 5% overnight.Now when you have got a losses of that scale you have got to finance them. And I think what we have seen here is that investors are selling the good bits of their portfolio in order to finance the losses in the bad, when they are faced with margin calls and so on.But I think the whole investment universe is shrinking here, and the safest place to go is cash.Yields you nothing, it will make you nothing, but actually the guy who made nothing yesterday came out top of the pile.Nothing is not a bad thing to have right now.”
RT: Is this where Russia can win out or lose out?
NP:“It is difficult to see a standout winner. There have been lots of concerns around the place about foreign direct investment into Russia, and certainly the capital markets have not benefitted during the upswing, it is difficult to see how it is going to outperform in a downturn.It might not be bottom of the pile but it is certainly not an investment vehicle of choice for many of the international investors that we speak to.I am afraid it is on the sideline here.”