Mark Matthews of Bank Julius Baer & Co said despite the geopolitical tensions in India, the house is still bullish on the country as it has been since the election of Narendra Modi as the Prime Minister.
Despite recent geopolitical tensions in India, Julius Baer is still bullish on the country as it has been since the election of Narendra Modi as the Prime Minister.
"The underlying trend which is the very strong consumer driven by the large population and youthful population and you couple that with the civil servant pay hikes and the introduction of the goods and services tax (GST)," said Mark Matthews in an interview with CNBC-TV18.
On the Deutsche Bank issue, he said the settlement with US Department of Justice is not yet done and that it was too early to say how it would pan out.
Commenting on the outlook for emerging markets (EMs) per se, he said the data coming out of China is very good especially the PMI, the retail spending etc and this news of recovery in China is a constructive backdrop for EMs. However, the appetite for risk seems to have dimisshed a bid on back of the Deutsche Bank issue, upcoming events like US presidential elections and some geopolitical tensions in India.
Below is the transcript of Mark Matthews’ interview to Latha Venkatesh and Anuj Singhal on CNBC-TV18.
Latha: Should we say all quite on the western front?
A: It is too early to say because we really need to get a settlement from the Department of Justice and there was some speculation one was going to be forthcoming on the weekend and it did not happen. So, it is a little too early to say.
Anuj: So, how would you approach emerging markets from here on? We have seen some sign of tapering of fund flows. We have seen the non-stop rally also pausing a bit. Do you think this is just a temporary pause or are you sensing some more headwinds?
A: Certainly, over the last two weeks, the climate globally has become a bit more strange, between the escalation of tensions between India and Pakistan and the Deutsche Bank situation and now, we are really getting into the final stages of the US election with the debates between the candidates kicking off last week.
So, the appetite for risk has been somewhat diminished, but I still think that if we look further out, the most important thing for the emerging markets is that the Chinese data has continued to be very constructive. We see that over the weekend with their purchasing managers' index (PMI) number and I noticed that gaming revenues in Macau which are an interesting barometer as well for Chinese retail spending.
We are up for the second month, for the first time in two years, so the support of the Chinese economy recovering should be enough for emerging markets as well as the oil price. My inclination is that the oil price will remain quite firm as we approach the listing of Aramco next year. It makes sense for Saudi Arabia to try to get the oil price up to achieve the best possible price for Aramco. Putting that altogether, it is a constructive backdrop for the emerging markets.
Latha: But where is India in the pecking order? The border issue looks like it is something that is contained and we have got some decent auto sales numbers as well. Where are you placing India in your ranking?
A: We really have not changed our long-term feeling toward the country which has been bullish for the last couple of years since Mr Modi became Prime Minister. And I think that the underlying trend which is the very strong consumer driven by the large population and youthful population and you couple that with the civil servant pay hikes and the introduction of the goods and services tax (GST) and then in the states where the BJP are in control, like Maharashtra, the rolling out of land acquisition, it is still a backdrop which is fine to be invested in India.
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