Mark Matthews, MD of Bank Julius Baer and Co.
While investors agonise over what the US Federal Reserve Chief Jerome Powell may indicate in terms of the rate trajectory at Jackson Hole Symposium later this week, Bank Julius Baer’s managing director and head of research for Asia Mark Mathews looks sanguine.
In his opinion, investor anguish over interest rate hikes by the US central bank may soon end. “We think that the Fed will be done with rate hikes after September,” Matthews told Moneycontrol in an interview.
His views offer sharp contrast to what money markets in the US are suggesting. The veteran equity strategist expects the US Fed to raise interest rates by a cumulative 300 basis points in the current hiking cycle. The Fed has already raised interest rates by 225 basis points in 2022.
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“Exactly what will be the quantum of the rate hike (in September) is difficult to guess but we think the August inflation number will be continued deceleration,” Matthews said. US money markets expect the Fed to raise interest rates by another 150 basis points.
Matthews believes inflation in the US most likely peaked in June after hitting a 41-year high of more than nine percent. Further, the strategist believes that global crude oil prices, a key catalyst behind record high global inflation, may slip to $ 75 per barrel in 2023 as supply starts to overshoot flagging demand.
But, Matthews’ strangest bet going ahead is that the US central bank may cut interest rates by a quarter of a percentage point come March 2023.
“It won’t be a succession of cuts unless there is a recession but even if there isn’t a recession we think they will decrease rates by 25 basis points because by that time there will be clear sign that the US economy is slowing and then they can declare mission accomplished in terms of moderating inflation,” he said.
Matthews is also confounded by the recent resurgence in interest of foreign investors in Indian equities. Foreign investors have net bought Indian stocks worth more than Rs 43,000 crore in August after having net sold more than Rs 2 lakh crore worth of stocks in the previous 10 months.
“The buying might have something to do with China. The politics and the regulation and everything in China is too difficult. We can’t be there anymore so then you look at the EM (emerging market) pecking order and then there is only Brazil and India and between the two India is better,” Matthews said.
The Julius Baer veteran said that India has had a lost decade in the previous 10 years which was a combination of the non-performing assets of the golden years of 2003-2011 and the reforms that were put in place that started around 2016 with demonetisation.
“We have had time to adjust to the reforms. I feel that there is a strong capex cycle coming in India that should translate into earnings growth,” Matthews said.
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