WEBVTT - UBS' Dennis Sees Rajan's Exit As Negative For Markets Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellet, dal the SMP NEZDAK. They are all rallying.

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<v Speaker 1>SMP five hundred indecks, jumping the most in four weeks

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<v Speaker 1>after the latest polls showed the UK campaign to remain

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<v Speaker 1>in the European Union is gaining ground ahead of Thursday's referendum.

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<v Speaker 1>SMP up nineteen to two thousand ninet. He want to

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<v Speaker 1>gain there of one percent. Naz stack up sixty, a

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<v Speaker 1>gain of one point three percent down industrials up one

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<v Speaker 1>d ninety, a gain of one point one percent. The

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<v Speaker 1>tenure down eighteen thirty seconds. That yield one point six

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<v Speaker 1>six percent gold down to night. He the ounced to

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<v Speaker 1>twelve nine. He want to drop there of two tenths

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<v Speaker 1>of one percent. Crude oil holding above forty nine dollars

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<v Speaker 1>of barrel up a dollar twenty right now. West Texas

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<v Speaker 1>Intermediate up by two and a half percent. I'm Charlie Pellet,

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<v Speaker 1>and that a Bloomberg Business flash. This is taking stock

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<v Speaker 1>with pim Box and kapolne Hays on Bloomberg Radio. India's

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<v Speaker 1>a sent Sex stock index gained nearly one percent today.

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<v Speaker 1>This follows easing of government's rules regarding foreign direct investment restrictions. Also,

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<v Speaker 1>this follows news over the weekend that the injury, India's

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<v Speaker 1>Central Bank governor will step down when his term ends

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<v Speaker 1>in September. Here to tell us more about India and

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<v Speaker 1>other emerging markets is Jeffrey Dennis. He is the head

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<v Speaker 1>of Global Emerging Markets Strategy from UBS Securities. Jeffrey, thank

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<v Speaker 1>you very much for being with us. Give us your

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<v Speaker 1>take on what has happened in India. The announcement, as

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<v Speaker 1>I said, of the governor of the Central Bank announcing

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<v Speaker 1>he would be stepping down, and then these changes in

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<v Speaker 1>direct foreign direct investments, well, certainly the announcement that Mr

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<v Speaker 1>Rojan is stepping down was negative surprise. Markets attorney been

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<v Speaker 1>trying to anticipate whether his term would be renewed when

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<v Speaker 1>it ended in September. But I think the unbalanced people

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<v Speaker 1>thought he probably would retain his position, and so his

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<v Speaker 1>decision to leave, I think is definitely a negative for

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<v Speaker 1>the market and in fact in our Asian strategy portfolio.

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<v Speaker 1>Today in my colleague out cut India back to neutral.

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<v Speaker 1>So we're taking a more defensive line on India in

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<v Speaker 1>the short term while we see who replaces Mr John

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<v Speaker 1>and will there be any let up in what has

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<v Speaker 1>been a very effective polity in India of being pretty

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<v Speaker 1>tight on monetary policy so you can get inflation down

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<v Speaker 1>and then of course ultimately interest rates down as well,

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<v Speaker 1>so it's negative. With any question, Jef, I'd like to

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<v Speaker 1>ask you about this because it's surprising to be a

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<v Speaker 1>couple of weeks ago, um Rabu Rajon indicated that I

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<v Speaker 1>don't necessarily want a second term past the three years

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<v Speaker 1>because prominent politicians close to Modi have been beating up

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<v Speaker 1>on him. Oh you're you're too tough on inflation, you

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<v Speaker 1>need to cut rates. And then Moody uh, he wanted

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<v Speaker 1>uh rag Ragen to stay just let them beat up

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<v Speaker 1>on him. And this is the same rag Ragan who

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<v Speaker 1>left the University of Chicago Boost School of Business to

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<v Speaker 1>go back home to India and help them out at

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<v Speaker 1>a time right inflation was high, the rupee was falling.

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<v Speaker 1>He's made a huge difference. He's the same Rau Rajan

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<v Speaker 1>okave the speech in Jackson Hall Wyoming in August of

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<v Speaker 1>two thousand six, basically warning that there are pressures brewing

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<v Speaker 1>that could bring down the financial system, which nobody listened to.

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<v Speaker 1>So this is a man of great accomplishment. Why has

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<v Speaker 1>Mody not stepped in to ask Ragen to stay? Um,

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<v Speaker 1>it's not castling that he didn't step in to ask

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<v Speaker 1>him to stay. He may well have asked him to stay.

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<v Speaker 1>And I think this looks like the city of royster

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<v Speaker 1>rajan itself himself to to not seek another term. And

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<v Speaker 1>that may well be because of the continuous um uh,

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<v Speaker 1>you know, criticism and sniping that has gone on form

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<v Speaker 1>not from Mr Mody per se, but were the members

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<v Speaker 1>of the of the government who may have just had

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<v Speaker 1>enough with that. So I think if if Moody had

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<v Speaker 1>come to him as Theremonid comes to him and said, look,

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<v Speaker 1>we really want you to stay, I think you probably

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<v Speaker 1>would have stayed. So um it reminds me a little

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<v Speaker 1>bit of when Volka La La, you know, left the

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<v Speaker 1>Federal Reserve and at seven nobody quite knew his his

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<v Speaker 1>decision or or at the time President Reagan's decision. I

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<v Speaker 1>think it's a little bit of an uncertainty. But Net

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<v Speaker 1>and Nets this was a surprise. I think we all

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<v Speaker 1>felt on balance the chances of where he would have.

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<v Speaker 1>As another term, it's a negative this indeed, as you

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<v Speaker 1>rightly saying, this is a very talented guy, who is

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<v Speaker 1>highly regarded, who's probably going to go onto other senior

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<v Speaker 1>positions in global chinance eventually, and his loss to the

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<v Speaker 1>center Bank unity is big. We just did to see

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<v Speaker 1>what policy is going to look like with his replacements. Jeffrey,

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<v Speaker 1>what about the change in government policy about foreign direct investment?

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<v Speaker 1>For example, Apple may be able to open their own

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<v Speaker 1>stores as a result of these change I mean this

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<v Speaker 1>is an ongoing process. Clearly, part of the key part

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<v Speaker 1>of the government's reform program is grantually to loosen up

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<v Speaker 1>the foreign direct investment rules in various sectors. It's been

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<v Speaker 1>a stop style process. As you'll know that there's been

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<v Speaker 1>great disappointment about the great disporce, some dis some way

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<v Speaker 1>about the speed of the overall reform program, and there

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<v Speaker 1>has been some stopping and starting previously, including for example,

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<v Speaker 1>with respect of FDI going into the retail sector, into

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<v Speaker 1>an insurance sector. I think you'll simply argue this is

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<v Speaker 1>another brick in the wall, if you like, of opening

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<v Speaker 1>up India to foreign money as it becomes more competitive,

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<v Speaker 1>as therefore its internal growth rate should improve. It's a

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<v Speaker 1>good piece of news and timed on the day of

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<v Speaker 1>Mr Roger's departure or that announcement. Anyway, I think that's

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<v Speaker 1>a pretty good piece of timing because you should view

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<v Speaker 1>it as as a positivelopment the India story generally. But

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<v Speaker 1>it's uh, it's I think it's not new at such.

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<v Speaker 1>It's just part of a process that's been ongoing for

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<v Speaker 1>a while. In other words, I think you're implying as

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<v Speaker 1>a perhaps the government wanted to put out some piece

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<v Speaker 1>in is because having Ragi Raj and say I'm washing

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<v Speaker 1>my hands of this, I'm leaving has affected the routebe

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<v Speaker 1>the ruby has bounded amounts back a bit. You even

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<v Speaker 1>said you've got more defensive on India, and you've said

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<v Speaker 1>on this show in the past, Jeff, as have others,

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<v Speaker 1>that India is your favorite emerging market investment donation. Well,

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<v Speaker 1>I mean, I think it still is a great place

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<v Speaker 1>to invest in in the long term. We're just merely

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<v Speaker 1>saying that we want to just sit back and observe

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<v Speaker 1>a little bit take more of a tactically cautious view

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<v Speaker 1>in the short term to see to what extent polity

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<v Speaker 1>could change. In other ways, if you would see in

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<v Speaker 1>the short term growth being pumped up by sacrificing um,

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<v Speaker 1>a tough monitory policy that gets inflation and the cost

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<v Speaker 1>of cappel interest right down. In the long term, I

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<v Speaker 1>think we would consider that that to be a negative.

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<v Speaker 1>But certainly it's a tad kill move. We need to

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<v Speaker 1>see what the replacement of Mr Rajon, who it's going

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<v Speaker 1>to be, and what the polity is gonna look like.

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<v Speaker 1>We we strongly believe uh the drop inflation, the drop

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<v Speaker 1>in interest rates, the very sound monetary policy, the stabilization

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<v Speaker 1>of rupee has been a critical part of the Indian

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<v Speaker 1>story in the last three years, and so as well

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<v Speaker 1>as the more conventional reforms. We need to know that's

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<v Speaker 1>going to carry on. Until we do, we're just being

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<v Speaker 1>a little bit more cautious short tone. Jeff Danis, thank

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<v Speaker 1>you so much, very much for enjoining us. He's had

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<v Speaker 1>a global emerging market strategy at UBS Securities, very interesting.

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<v Speaker 1>He and his team were defensive with the departure of

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<v Speaker 1>Ragu Rajan as the head of the world The Reserve

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<v Speaker 1>Bank of India has to watch and see how it

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<v Speaker 1>plays out. Who his replacement maybe. I'm Kathleen Hayes along

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<v Speaker 1>with him, Fox's taking Stock on Bloomberg Radio. Coming up

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<v Speaker 1>on taking Stock the Brexit vote on Thursday. Will UK

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<v Speaker 1>voters will they vote to a main part of the

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<v Speaker 1>European Union? And what happens to the pounds sterling. That's next.

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<v Speaker 1>I'm taking stock