‘Long-term equity outlook is hugely positive’

“Trump staying or not staying in office would not matter much to markets,” says Steve Brice, Chief Investment Strategist, Group Wealth Management, Standard Chartered. Excerpts:

How do you see the financial markets shaping up from here?

The global economic environment is constructive. Reflation, i.e., global growth acceleration and rise in inflation are the themes that will play out going ahead. Within equities, Euro Zone and Asia ex-Japan are favourable for us.

The dollar is expected to remain weak for the next 12 months which is a good backdrop for flows to continue coming in to emerging market assets, both equity and debt. In India, while the long-term equity outlook is hugely positive, the upside seems to have been priced in already in the short run. The overweight view has shifted to China from India.

Will markets be affected when central banks pull out liquidity?

Markets are expecting the pull-back from monetary stimulus to be very gradual and hence, there is no panic. Even when money starts trickling out from bonds, we see it going towards equity markets. As long as there are continued corporate earnings, the market can continue to do reasonably well and valuations can still go up. The worrying factor, especially in terms of the Indian market, would be the kind of money which is chasing it.

How come inflation is not going up? Do you think Trump has been able to bring in much of a change?

Partly, as there is excess capacity in product markets. Capacity utilisation is not high (this is applicable for both India and the US). Also, debt is very high in both economies as of now.

We are just expecting a 50 basis point rate hike in the coming year, which is a conservative outlook.

In the US, tax cuts won’t happen before the debt ceiling, which needs to be watched.

Our view is, Trump staying or not staying would not matter much to markets.

How soon do you see the corporate investment cycle in India picking up?

Maybe in the next quarter but not very robust. Instead, there is an expectation that government spending will pick up in a big way. In the short term, people are still trying to figure out the nuances of the GST and the complexity affecting business and slowing down productivity. This said, the sentiment abroad is very positive for India.

International investors are looking at macro-economic stability which has improved considerably. In India, just by improving the micro-economic factors, which means making it easier to do business, would reflect in growth rate.

Are markets discounting all the geopolitical tensions with regard to North Korea?

The timeline involving North Korea has been shortened after the testing of the hydrogen bomb as the quicker they are nuclear-capable, the better it is for the markets as then they would be ready to negotiate with other parties involved.

Is China still on the path to growth?

Currently, the Chinese Premier is looking to build a power base whereas he becomes powerful, his trusted aides are also gaining power. Once that is out of the way, the President will try and secure his legacy. In order to do that he has to address the debt problem and that should be priority number one. To be honest, nothing has been done yet to solve the issue. They have tried it in a minimal manner with shadow banking and few other things but they have not really succeeded.

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