SHOWS: HONG KONG, CHINA (March 26, 2013) (REUTERS - ACCESS ALL)

ANDREW FRERIS, CHIEF INVESTMENT STRATEGIST - ASIA, BNP PARIBAS WEALTH MANAGEMENT

1. REPORTER OFF CAMERA SAYING:

'What is your assessment of the Cyprus bailout, its last-ditched solution so to speak?'

2. ANDREW FRERIS SAYING:

'Answer has two parts. Part number one was the so-called shock to the system by the European Union saying that bank depositors are not now immune. They're not going to be shielded or protected. And if banks need rescuing then bank depositors will also have to pay. I must admit, I think that was a long, long delayed announcement that had to be made because somehow depositors are somehow sacrosanct. Now, of course one doesn't want the old age pensioners, the widows, and orphans (in inverted commas) to be had. And there is a solution to that and that is an insurance policy on bank deposits up to a particular size. Where the European Union has failed rather badly is to implement quickly, now, a European-wide insurance system whereby small depositors will be guaranteed that they're not going to lose their money. Big depositors, they're going to be in the same boat like bond holders. And frankly, I don't see anything wrong with that except as people will say - well this might create uncertainty and panic in the banks. Now the case of Cyprus was very, very different. Because, bank deposits aside, was where completely dependent on one particular source. And that was offshore Russian money. And which a lot of people, including the European Union and the Germans, had very, very significant doubts about it and didn't like the idea of German taxpayers' money being used to effectively rescue a part of the Russian banking system. So in a way, the Cypriots paid by having a slightly lopsided offshore banking system, whereby they relied exclusively on one single big depositor. Now of course it was very easy to single out the Russians and make them pay in order to rescue the Cypriot banking system. Now, we will have to wait now until the Cypriot banks open again. And I'm sure the government would have put in place capital controls so that people cannot withdraw deposits, neither they can remit them abroad until the situation stabilizes. Whether it will stabilize or not, it will depend on what depositors perceive to be the risks on their own deposits given that the government has said only the depositors in Laiki and only their uninsured depositors in Laiki are going to lose their money. Not anybody else. So all the rest of the banks in Cyprus are, in a sense, safe and sound, on the assumption of course that people believe that. As I said, this will show quite a significant game-changer in terms of attitude. And the European Union, now having increased the uncertainty, will have to balance it out by producing quickly a pan-European insurance system. And incidentally, there is no other reason whatsoever why the system could not include provisions to cover all deposits, however big the size is, by simply asking people to pay more insurance money for that. Governments force people to have third-party motorcar insurance. And there's no other reason whatsoever if you're a bank depositor, you have to pay for insurance for your deposits. And if you're a big bank depositor, possibly you'll need to pay more. Very straight forward, very simple. And if this is guaranteed by the government through a centralized deposit scheme, deposit insurance scheme, then there is no other reason people should believe it. In other words, the insurance of deposits will never go bankrupt.'

3. REPORTER OFF CAMERA SAYING:

'How does that impact emerging markets?'

4. ANDREW FRERIS SAYING:

'To the extent that it's releasing some of the uncertainty of the Cyprus situation from the equity markets, then this yes will have a collateral impact on emerging markets because those are hugely directional with what happens to the S&P, the Euro Stock, and the Nikkei. So to the extent that this might relieve the pressure, yes this is good news. To the extent that Asian banking system have zilch connection with the Cypriot banking system, that wouldn't affect us in the first place at all. But as I said, we're talking about collateral damage as opposed to direct damage.'

5. REPORTER OFF CAMERA SAYING:

'Given the global economic environment, how do you advice clients to position themselves? Which asset class would you recommend?'

6. ANDREW FRERIS SAYING:

'Surprisingly enough, in fact we still continue to like United States - A. because monetary policy's going to stay loose until the end of year 14, B. in a relative, I underline that, in relative terms, the American economy is doing much, much better than the Japanese and the European economies. And therefore we do like sectors in the European equity markets. We like some shares in the European Union purely in terms of valuation. In other words, we look them at valuation place, but not macro place. And of course, when we come to ASEAN, we still favor China and India - the two of the biggest equity markets. More China, rather than India where our expectations were a little bit doused with cold water, following a nondescript budget. In other words a budget that didn't really contain anything that would've boosted either the economy or for that matter the equity markets. And of course the smaller ASEAN markets which are difficult to invest because they're very, very small for them to form a significant percentage of any balanced portfolio - Philippines, Thailand, and Indonesia. And the problem with that - that's a nice problem - all of them they are performing year to date not less than 10% in U.S. dollar terms which is a spectacular return. But as I said, they're very small and they have to be, let's say approached in a balanced manner.'