India is a highly promising macro-restructuring case: Christian Gattiker

witzerland-based CHRISTIAN GATTIKER, chief strategist and global head of research Julius Baer
It has been a choppy few sessions for the markets, which saw a runaway rally post the cut in corporation tax rates but later witnessed profit booking at higher levels. Switzerland-based Christian Gattiker, chief strategist and global head of research Julius Baer, tells Puneet Wadhwa that he has a neutral view on the Indian equity market for now, given the rich valuation. Edited excerpts:

What is your view on global financial markets amid recession fears?

We are constructive on risk assets as a broad global recession will likely be avoided; monetary policies are supportive and fiscal stimuli are likely. We see little potential in long-duration safe haven bonds as they are trading at extremely high valuation levels. Unless there is a major relative repricing, equities are the more attractive asset class over the next 12-24 months. 

Should investors stay in cash until there is a clear indication where the global economy is headed?

No. We recommend investors to stay fully invested. There is always a reason to wait and see. However, investors get paid for taking risks. Investing is attractive when risk gets rewarded against cash and safe haven bonds generously, as is now the case.

What’s your view on how the US–China trade spat has played out?

The trade tensions were an absolute sentiment killer, especially in the manufacturing space. By no means the financial markets are immune to that, but the desperation has somewhat eased since policy response is in place, ie monetary and fiscal stimuli.

Globally, the money is moving towards which assets?

There has been a panic move into safe haven bonds and other crisis assets, such as gold. Flows into equities has been rather sluggish so far. Yet, the overarching topic remains innovation. Therefore, technology disruptors in all industries and private equity are well bid.

How would emerging markets fare going ahead? 

The emerging markets, and in particular equities there, had a hard time as the tightening dollar supply triggered capital flows out of these markets. While the recent rate cuts in the US have brought some relief, we do not see a major turn in the US’ monetary policy yet. Our focus is on emerging market bonds, rather than stocks for the time being.

 
How have major central banks responded to recent developments? 

Central banks have responded adequately but their ability to drive the economy on their own has declined. The statements by central bankers, in particular for Europe, point to increasing importance of fiscal policies to support the economic cycle. Central banks are no longer the ‘only game in town’. 

What has been your investment strategy thus far in CY19?

We have not gone for major swings in our investment strategy and held the course for most of the year to date. Most recently, we started to increase some of the more cyclically sensitive assets, such as materials, industrials and energy stocks, and upgraded the US small-and mid-cap space. Currently, we do not have strong regional convictions. Rather the regional allocation is a function of the availability of the sector where valuations are attractive or there are stocks available that have an edge.

How does India look as an investment destination now? 

India is a highly promising macro-restructuring case. It seems as if the government is repositioning India as a production hub for the global economy. This is quite unique, given the size of the economy and growth potential.

What is your current exposure to India and do you to plan to alter it?

We hold a neutral view for now given the rich valuations in stock markets, but are looking for an entry opportunity. Global investors are best advised to access the market via broad-based investment vehicles.

What is your interpretation of the recent policy announcements? 

We view the recently announced corporation tax reform as a real game changer for India. If persevered, this will give a lot of momentum to economic activity. That said, the markets have run ahead of fundamentals, and that is quite usual. Whenever credible policies are put in place, the market gives them the benefit of the doubt.

Can RBI be aggressive with rate cuts?

­We do not see a high likelihood of an aggressive rate cut on a standalone basis for India. Yet, if the deflationary environment persists globally, this will give the RBI the means to follow the overall global monetary expansion trajectory. On a positive note, inflation rates at home are quite subdued, which gives policymakers some leeway.



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