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According to him, the broader outlook for India remains positive, with strong economic fundamentals and ongoing reforms driving optimism. However, as China rolls out fresh stimulus measures, global investors may shift their attention back to China’s market, given its potential for short-term gains. While India continues to offer long-term growth prospects, the renewed focus on China could create a temporary shift in capital flows, as investors look to capitalise on the Chinese market’s recovery efforts.
Below is the verbatim transcript of the interview on CNBC-TV18.
Q: Global Markets have largely ignored all the fighting around the world, right? And there is a lot of fighting going on. There is Russia, Ukraine, there is stuff in the Middle East, but markets have made new all-time highs. Oil markets have been largely unaffected by all of it. Do you think that we had a one-day large reaction in oil and VIX etc. in the US because of the Iran missiles? But do you think markets will fade these moves very quickly? Or do you think this is different, especially concerning Iran and Israel? So far, the conflict has looked a little coordinated, right? I mean, there will be some attacks, and the other side will attack, provide an out, some face-saving for the other side. So, there was some element of coordination. This seems a bit uncoordinated if I can use that word. So, could spiral your thoughts?
A: Unfortunately, the market is getting used to this kind of event. We have entered a much more volatile environment geopolitically over the last several years. Perhaps that is a consequence of moving into a more multipolar world, US, China, tensions and all of that. And kind of under the hood, what we are seeing is historical fault lines, preexisting fault lines are coming back to the surface, Russia, Ukraine, the Middle East and elsewhere. So sadly, this is likely to continue in the years ahead, and we are going to have to deal with more and more of these episodes.
What that means, though, is the market is becoming kind of more efficient, discounting these relatively quickly and looking through them to focus on some of the other very important drivers, be that US Federal Reserve cutting, be that China stimulating. And for now, of course, the human situation is tragic, but from a market perspective, the market seems to be much more focused on topline growth globally and by different economies falling interest rates, and that combination continues to be rather positive for risk for the moment.
Q: From hereon, what would be the key triggers to track because your view is quite positive on US equities overall?
A: Yeah, we are pretty constructive. So, for the moment, of course, as investors, we are always nervous and anxious about everything. But for the moment, we would be more nervous about being under-invested than being over-invested. So, we would still be risk constructive, let’s say, in the US in particular, of course, we have this artificial intelligence mega force, as we call it, at BlackRock, the world’s largest investor, and this is continuing and broadening out. So, we have seen a lot of the excitement so far, quite reasonably has been centered around the foundational technology, the chip makers, and the web services and that is fine.
Also Read: China’s stock market boom may turn to bust as in 2015, says Nomura
But what we think should happen now is a broadening out of some of the excitement into more of the ecosystem, the architecture around the artificial intelligence (AI), so things like utilities, and energy materials because for now, AI is still a technology you can stub your toe on. It still exists in the physical world, and it needs, in particular, an energy architecture to kind of feed it the calories to think its great thoughts. So, we are nuancing our AI excitement a little bit and focusing more on that broader ecosystem, critically including energy, rather than just being focused on the big seven magnificent no doubt, though they have been.
Q: You like the US markets, but what about an emerging market like India? You have highlighted in your note that demographics are in our favour, the working population will be moving up, and we have got earnings growth as well, but at current valuations, is that a bit of a headwind?
A: There is a lot to like in India, as you guys are extremely aware. So, the combination of demographic plus productivity gains, digital inclusion, infrastructure and so forth. I think the big picture in India continues to look very favourable, but always there is nuance.
I think the short-term issue has nothing really to do with India. It actually could be the gravitational pull of China. So, as we are all aware, India has become, recently a few weeks ago, the biggest constituent in MSCI Emerging Markets, taking the crown from China. And that is great, we have all enjoyed that. But I do think China is going to follow through on its stimulus promises, which we may see as soon as next week. It’s quite likely that some of the money that global investors have put to work outside of China, be that in other emerging markets or other parts of Asia, probably gets pulled back into China.
Also Read: Money is moving from India to China, says Adrian Mowat
So, there might be a little bit of a headwind; nothing to do with India, but to do with global capital flows moving back into the world’s second-largest economy as they put their foot on the gas. So, may be a short-term kind of a challenge. Again, no fault of India, but to do with China. So, a short-term headwind is caused by this. But again, from a bigger picture perspective, a lot to like in terms of growth dynamics, reform and inflation context, which is radically different to where we were just a few years ago. So, a lot to like.
Q: Two brief questions. One, when China gets money, emerging market funds get money. History shows that all emerging markets get money. So, is it this or that? Do funds go into China, will it be negative for flows into India? Second, just to go back to the geopolitics, if oil infrastructure within Iran is hit. Do you think it will cause ripples and asset markets around the world will react?
A: So, on the first of these, I think it’s both. If I can have my cake and eat it too. I think it is both this and that. So, in the very short term, you might see a few buys of China funded by not China. So, I think that can be a slight headwind briefly, but your broader point is the right one, which is overall, and this is why we at BlackRock are overweight emerging markets strategically. This backdrop of US Fed cutting and China stimulating normally is pretty encouraging for emerging market risk written large.
So, if the big one, I guess China within the emerging market framework, goes from really being flat on its back, right, sentiment, positioning, and more broadly thinking towards China, has been extremely negative for the last many quarters. If that perks up, you are right, it should be encouraging for the broader asset class including India, an important part of emerging markets.
On the second of your question, for the moment it looks like this is a relatively, of course, we should not underestimate the human element, that is for sure but from a market perspective, the market is considering this to be something because unfortunately, a normal part of the mood music in the backdrop.
Of course, we are all watching the escalation cycle with both eyes. And if it looks like it is starting to spiral and move to a different level where perhaps other powers are getting involved, then of course, we would need to reassess. So, let’s see it isn’t that for now, if that changes, we will adjust accordingly.
For the interview, watch the accompanying video
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