Mumbai: The US was downgraded by the S&P on Saturday. Udayan Mukherjee, managing editor, CNBC-TV18 said it is not the end of the world. "It is something that we have not seen before, but it is no Lehman Brothers. The US downgrade doesn't warrant too much of panic like it did in 2008," he added.
However, he said, it will affect sentiments.
Below is the transcript of his comments on CNBC-TV18.
It is a big morning for the stock market. Everybody is running a bit scared on Monday morning; you can see it in a lot of global markets. There is a semblance of panic. It is a very important week for all the asset classes across the world.
The US downgrade is not the end of the world. It is something that we have never seen before, but it is no Lehman Brothers. The world is very scared right now. Comparisons to the Lehman Brothers’ collapse in 2008 are quite inevitable.
The markets can certainly fall because of liquidity adjustments. But the implications of what happened over the weekend are not as dire as Lehman Brothers because the essential difference is then the financial markets froze up completely. Though this is a very material move and certainly has a lot of implications, it should not lead to a complete collapse or freeze up in the global financial system.
It has affected sentiments. But I do not think it should fundamentally trigger off the kind of collapse that we saw in 2008. So, it is a shock to sentiment for sure. But I do not think it is the end of the world and people should not read it as such.
I think a lot of policy reactions will come into play over the next few days and weeks. For the week, you should monitor the currencies most closely. You will see the first signs of which way the wind is blowing from the dollar and from all the emerging market currencies. So, it is entirely likely that the dollar actually strengthens. Fundamentally, this is bad. It might actually go on to strengthen and the emerging market currencies initially, though eventually it is positive, might actually weaken. You will get a sense of which way this liquidity pool is moving from looking at the currency markets. So, I think that is the monitorable number one right now.
You will monitor gold as well because that will tend to benefit from what has happened. So, you could see gold hitting new highs over the next few days. And that is something which a lot of investors might flock to. Equities will be interesting because the initial kneejerk reaction will be surely negative. But having seen the crisis of 2008 and having seen how smartly emerging markets bounced back post that crisis, both in terms of the market and macro performance, this time investors after the initial fall might be a little bit more leery of selling everything down the pipe in emerging markets. You will see buying coming in at lower levels.
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