Submitted by Taps Coogan on the 17th of December 2019 to The Sounding Line.
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Mark Mobius, Mobius Capital Partners founder and emerging markets pioneer, recently spoke with the Economic Times of India about what is driving the disconnect between record global equity prices and mediocre economic growth, as well as his outlook for the global economy, and India in particular.
Some excerpts from the discussion:
Question: “How would you dissect the global environment? On one side we have low economic growth and we have high equity markets. In India, the economic indicators are at a decade low, yet Indian stock markets are at an all time high. What I’ve learned about financial markets is… that markets ultimately will map earnings. If earnings are not there, why are markets going higher?”
Mark Mobius: “It’s very simple. Interest rates around the world are… in some cases in negative levels. In Europe, you’re talking about negative interest rates. Switzerland, negative interest rates. Then in the US, Trump is talking about going negative as well. So, you are seeing a continuous decline in interest rates around the world. Here in India, you’ve seen a decline in the interest rates and, interestingly enough, the currency is not effected. The Indian Rupee (has) actually stabilized and gotten a little stronger. So, you are in a situation globally where people are desperately searching for yield, which is why equities are interesting, particularly companies that are paying dividends… The problem is, in the US, with lower and lower interest rates, the opportunity for getting really good yields is becoming less and less possible. I know myself, I have some funds which are so-called ‘high dividend’ funds. What is the dividend yield? 2% or 3%. So, you are seeing a lot of this money now begin to search in India, in China, in other parts of the world for this higher yield. So, that is the reason why you see this strange situation where economic growth may be slowing down a little bit, not that much, but you’re seeing the markets continue to go up.”
“…One of the problems we have in emerging markets, is that if we look at the emerging markets index, it really doesn’t reflect what is really happening. For example… tens of millions of Indians are using Whatsapp. Is Whatsapp (Owned by Facebook) an emerging market company or not? We really have to consider this going forward, because if you look at the MSCI or the Financial Times emerging markets index, these multinational companies are not included, whereas many of them are becoming emerging market companies.”
There is much more to the discussion, so enjoy it above.
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When you consider the huge number of boomers coming up for retirement being forced into the markets,any downturn will be a national disaster ! That will apply for the next 30 years so something will give sometime we all know that! I see a major disaster on the horizon and with current federal debts & deficits there will be no fall back ! Low interest rates will be the cause of a catastrophe exactly what they were supposed to avoid !
Very true. But by my count, something has already ‘given’ two or three times since the Financial Crisis and the Fed and other central banks just printed their way though it. IMO only when they start to be constrained by inflation will things truly go haywire. But inflationary recessions are very different from the ones we’ve had for the last 40 years.