Market focus shifting to non-work from home stocks: Manish Singh

US has a lot of spends in terms of technology, which is what it will use to hit China, says CIO of Crossbridge Capital.

Once again the hope of a vaccine seems to be enthusing investors. But can one safely say now that the economy has started reopening, we will see some sort of a recovery kicking in?
It is going to be a positive feeling in the market for the right reason now that you are seeing the economy open up. I am not putting a lot of faith on us getting a vaccine per se. We will see how effective that vaccine is going to be. But everything we are hearing is definitely adding to the positive sentiment.

Overall, if we look at where the markets are, now I am not getting as bullish as before, because clearly the levels are getting higher and higher. Remember, I have been consistently calling for buying in this market. I do not expect any more big correction, because the base is building up strongly as parts of the economy are opening up. The fiscal support continues. The monetary support continues. Add to that some bits of good news around the vaccine. That kind of keeps the base in place and prevents a selloff. But for the rally to continue or go higher and have a new high, we will need to have right GDP growth and earnings growth. I think the market expects GDP numbers to be bad. So there will be a tempering of those sentiment. But by no means I have become bearish. I am just getting more cautious now than I was before.

You are becoming more cautious now. Does that mean you will at least hold your positions and ask all the investors watching this broadcast to just wait and watch and not invest in any asset class at this point of time?
I would say I continue to hold the things that I hold. I would say there has to be rotation away from what you call ‘work from home’ stocks, which clearly have done well. And you have seen that particularly in tech. So I am getting a bit concerned about those valuations. By no means, those stocks are bad stocks. It is just that their earnings also have to catch up, and the multiples need to rationalise. You are going to see more recovery in the cyclical and discretionary stocks, which have completely got battered. So I think there are still pockets that one can buy. That I am talking from the S&P point of view. I am sure you can apply it to other places as well. Therefore, you have to be cautious and move away from the exuberance that we have seen in ‘work from home’ stocks and other names which I think are getting overvalued. I do not think earnings are going to be delivered or the multiples are going to sustain. You have seen that in S&P, which is going up over 3,000. Probably, it will go to 3,100 in a matter of a few days, because you have seen the stocks rallying in the restaurant sector, in the travel sector, airline sector etc. Tech stocks are not rallying as much, but other stocks are. That is again pushing S&P500 higher. So you are seeing parts of stocks, which are completely battered and oversold, they are seeing a recovery now and that will push the index higher. But you are not seeing the same story all across to be very bullish from here.

Since you are more cautious at this point of time, could it also be on account of the fact that we could see a second wave of corona cases in various economies, including the US?
I absolutely believe that there is going to be a second wave, because you had second waves during all previous flu panics, and everything including SARS and others. So there is going to be a second wave. What we have to be careful about is that, of course, we have a template now to deal with it, at least we have seen this in the US, in the UK and other places that you are going to have partial lockdown or cautious lockdown, and hopefully, not a stringent lockdown as we have seen. People have learnt from that experiment. There is going to be fiscal support. There are going to be careful measures in place. You are seeing in the UK. Some people have questioned why the UK is putting a quarantine rule on people coming into the country, but that is precisely for the reason that you do not want to import cases from outside and make it a second wave. The US is also putting travel restrictions on people coming in from Brazil and other parts. Those things are going to happen. There will be a second wave because there has always been one and of different form and different strength and one has to be careful about it.

But my position is coming more from that fact that I do not see earnings getting delivered and GDP growth expectations getting met. The the 30% rally in the S&P from March 23 low was from oversold levels to fairly valued levels. Now for it to go higher and hit new high may be towards the end of 2020.

What do you make of the skirmishes between the US and China, the tensions that we saw over the weekend. In fact White House’s National Security Adviser also said on Sunday that the US will likely impose sanctions on China. Are we seeing these skirmishes just ahead of the US elections, or are we going back to should what we saw early this year or last December on the trade front.
There is an element of truth to both. The US-China tussle is a multi-year tussle, and it was never just about trade. You are seeing that spill over to Hong Kong as well, with China trying to put its own rules and laws in place over there. That is going to continue. That is going to happen throughout the election cycle. My view has always been the same: I think the US is under-estimating what it can do with China. China is an extremely powerful nation, which has had a very well thought out strategy over the last 10-20 years to achieve the status that it is. It is very well prepared to fight this out with the US. I do not mean there is going to be a war, but the US should not underestimate what China is or what China strategy has been.

That is not the case with the US, which has been a divided nation for some time now and it continues to get worse and worse and worse. If you have a strategic battle, you have to have people who are united behind the President and politics have to be united. I do not see how that is going to happen in the US. Therefore, I do not think the US has a very strong hand, but it has a lot of spends in terms of technology, by which it can hit China and cause trouble for them, which it will do. Because that is what a world-leading nation does. But the challenger is going to get better in many aspects and that is what China is doing. So this is going to continue, but I do not think the US is going to come out a massive victor in this.