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    You’ll never find an entry point if you wait for India to trade at a discount: Bill Maldonado

    Synopsis

    Logically, money will go out of developed markets and more into EMs such as Asia.

    Bill Maldonaldo, HSBC Global AMC-1200ETMarkets.com
    With portfolio and pension fund managers in the US under pressure to deliver returns, flows into emerging markets are set to increase. Moreover, now that the Indian economy has bottomed out, concerns over inflation are also much less. A stable currency and high forex reserves have created a nicely balanced economy, Bill Maldonado, global chief investment officer, equities at HSBC Global Asset Management told Prashant Mahesh. Edited excerpts:

    Donald Trump just signed an initial trade deal with China after nearly two years of fraught negotiations and a big trade war between US and China. How can this impact global trade?
    The phase-I deal between the two countries has just been signed. White House has said negotiations on phase II will begin immediately, which is a positive news. In 2019, investors realised the trade dispute was not economically as impactful as they feared it to be. There were all kind of predictions of its impact on the economy and those fears didn’t materialise.

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    Most of it was not a direct economic impact, but sentiment took a big hit. The impact was so much across the globe that even Indian corporates with good demand for their products and profitability were worried about this trade dispute and did not wish to invest and grow their business. As the year progressed, investors turned rational and realised the impact is not big. So, as of now investors are not discounting the worst outcome, but being more realistic.

    Are investors underestimating the geopolitical tensions between Iran and US. What could be the impact on oil?
    As of now, it looks like there is a deescalation and this is not going to be an issue. The big question for investors in these geopolitical macroevents is how economically meaningful they are going to be? Very few such event in the past have had economical consequences. From an oil price perspective, I believe the market is well balanced and there is lot of spare capacity in Saudi Arabia, Venezuala and Russia. Hence, a big problem of a sustained rise in oil price seems unlikely.

    The chances of a sustained rise in oil prices to a point that it will hurt global economy is very low. Economic growth is relatively subdued, oil market is balanced and there is capability in nations to step up production. Of all the things we have to worry about in the world, a sustained rise of oil price damaging global economy is not one a main concern. Of course, we have to continue to monitor the situation and we cant be complacent about it, but its unlikely it will be economically impactful.

    Given the geopolitical situation and trade wars, will there be a slowdown in flows to EMs?
    We are living in an age of uncertainty. There is more uncertainty today in the global economy than in the last 50 years. As an investor, I cannot invest in risk free assets as it gets negative yields. So, for me, safety assets are a no-go zone. Investors have to invest in risky assets but they are scared and going slow.

    "Portfolio managers and pension fund managers in the US are are under pressure as they have to deliver returns. Hence, we will see more flows into emerging markets this year."

    — Bill Maldonado



    They will invest in US credit and stocks as they feel that is safe. That is why we have not seen any real flows in emerging markets. India, however, has been unusual as we have seen higher FII flows. Going ahead, I think people will be more risk seeing than risk averse because of the returns they had in risk assets last year and most people who did not experience such returns missed out. Last year, they were scared to be in Asian or Indian credit. Now, they are looking at those returns. Portfolio managers and pension fund managers in the US are are under pressure as they have to deliver returns. Hence, we will see more flows into emerging markets this year. US economy will slow down a bit, but the rest of the world will catch up and somewhere it will cross. Logically, money will go out of developed markets and more into EMs such as Asia.

    US stocks have had an excellent decade? Will the winning streak continue this year?
    Yes, US markets have done extremely well and led the way, but that cannot continue forever. We believe that the rest of world will catch up and we will have a balanced picture going ahead.

    Growth in India has slowed down to less than 5%. Given this, is India attractive for global investors and are premium valuations for India justified?
    There is lot of scrutiny on corporate delivering earnings. However, India continues to look reasonably attractive to international investors. You have a market that has moved ahead of earnings, so in the next two years, we got to see earnings begin to come through. Earnings will come in initially more from financials, but that should broaden up and that will keep India looking attractive.

    The Indian economy is bottomed. You say growth is only 5% but for an outsider its very good. You have to look at the whole package. The worry about inflation is much less now, currency is stable, and forex reserves are high. I have a nicely balanced economy. India always has had premium valuations. If you wait for India to trade at a discount, you never will find an entry point for the country.

    What is one big risk according to you in this year that investors are ignoring?
    One risk people underestimate is inflation. Everybody assumes it’s dead. I am not saying it will come back, but when everyone is discounting zero inflation, that is a risk. I will be vigilant around inflation.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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