Many economic data indicate a difficult time for the global economy. Real Vision Group’s CEO Raul Paal said this in an interview to ET Now. Here are the highlights of this interview:
You are saying that the global recession is going to come and that there may be a bigger decline than in 2008…?
My job is to guess. I cannot guarantee anything for sure. Looking at many things, I feel that the time to come can be challenging. First America and Global talk of economic growth. Today economic growth is declining all around. Many countries have already gone into recession. America is also looking towards a recession. I believe that the US economy is heading towards a recession because of the interest rate cuts that the Federal Reserve started a year ago. With this, the problems of the global economy have increased further due to the trade war and China’s economic slowdown. We have also seen a decline in India’s economic growth.
Now the question is, can the situation become more difficult and complicated? I am looking forward to it. There are signs of this from the bond market. Bond yields are rapidly declining in Europe and especially in the US. This is a sign of slowdown.
What are the signs that there is a possibility of a recession coming soon?
I have been seeing signs of this for some time. China’s economic growth declined dramatically in March 2018. After that the trade war started and then America started to get sluggish. Here, the bond market has begun to decline dramatically. We have reached the next part of this cycle, ie the reduction in interest rates. The US has so far cut interest rates by 0.25 percent, but the bond market is anticipating a much greater decline. I feel that the Federal Reserve is not understanding the gravity of the situation and can under perform. If this happens, then the dollar and bond markets will be affected. Perhaps bond yield inversion may increase further.
I see the global recession coming and not seeing the factories that can stop it. Capital expenditure is declining worldwide. Germany is in recession and China has suffered economic slowdown. Manufacturing and global trade are showing declines everywhere. Global exports of every major country are declining. There are many indicators who are pointing to be challenging for the future.
You believe that the dollar index is pointing to risk for emerging markets in the coming times …
The performance of 80 percent of emerging markets is generally determined by the strength or weakness in the dollar. Emerging markets tend to perform poorly when the US dollar strengthens. The same happened in the last few years because then the supply of the dollar was reduced. Emerging markets perform well when the dollar is weak. Emerging markets also have different bicycles and different characteristics of different countries. I am more concerned about South Korea.
India too may be in this zone. I keep a bullish view on India in the long term, but I feel that the exposure of foreign investors in India is still quite high. On the other hand, the Indian economy has not fared well recently. I will wait for the valuation to come down to invest money here. However, I am bullish on India in the long term.
What is your perspective on different areas in India. What would you say about banks in particular?
I have been bullish on India for a long time. However, 8-9 months ago, I had finished most of my fast deals here, because then my fears had increased. I am bullish on banks, telecom companies and Nifty. I still believe that they will do well in the long term, but in the short term the stock price fluctuations may be more. It seems that there is a rotation in the market right now. Government bonds are now yielding better returns than the equity market in India. Investment in it is also safe. This is a good thing for India. I don’t have a chart yet, but I think there has been a significant decline in bond yields over time.
Will there be a slowdown in crude oil? Now won’t the price of oil go up to $ 70 or $ 80 a barrel for a long time?
Seasonally, this is a good time for crude oil. There has been some recovery in this. There is always news from Iran and OPEC. If you look at the market chart, then there are signs of deflation and global demand decreases. Looking at the oil chart, it seems that its price can go down to $ 45 per barrel. If it goes below this, as I am guessing, it can reach 30 or 20 dollars (Rs 1420) per barrel. I don’t think people are ready for it. However, this would be very good news for India, which imports crude oil on a large scale.