Markets across the world have cheered the ceasefire in the US-China trade war. As the fog lifts on US President Donald Trump’s trade policies, uncertainty, the market’s biggest enemy, has eased. To understand the impact of these moves, Siddharth Zarabi spoke with one of the world’s leading voices on emerging markets, Mark Mobius, the 88-year-old Chairman of the Mobius Emerging Opportunities Fund. Edited excerpts:
Q: With the US-China trade war entering a ceasefire, is the era of escalating tariffs behind us?
A: I like the term you use, ceasefire, because the war continues. At the end of the day, there’s no question that China was desperate to reach an agreement, because with the tariffs they are facing now, their export manufacturing is being decimated. But at the same time, Trump needed to have an agreement as well, because the market was not behaving very well. And of course, he’s keeping an eye on what’s happening to the stock market in America. So, what we are seeing now is some agreement, but it remains to be seen how it will be implemented, because there are a lot of non-tariff barriers that China must reduce or eliminate. This is going to be a continuing story, and I don’t think we can conclude that everything is sorted and that nothing will happen from here on.
Q: Has this easing of tensions lowered the probability of a recession in the US?
A: Yes, I believe there’s going to be lesser chance of a recession in the US. Of course, you must remember that Trump is now implementing many other measures, including boosting manufacturing in the US, having companies in America invest more and reducing pharmaceutical prices, which will all have a big impact on inflation. So, there are many measures being taken that will probably reduce the chances of a recession in the US.
Q: What will the consequences be for the global economy? Is it entering a more stable phase now?
A: Definitely, because more and more of these trade agreements are being signed. As these agreements are reached, stability will return and so will confidence. I think we’ll see a much more stable environment in the next three or four months.
Q: What would that mean for emerging markets like India?
A: I think one of the things that is going to be good for India, and emerging markets generally, is that investors around the world realise they cannot depend only on the US. So, you’ll see more money flowing into emerging market countries. And, of course, India is at the top of the list.
Q: Would it be fair to assume that with the US-China détente, the window may have dimmed for India?
A: Well, I think India will definitely benefit, but it must move more quickly to reduce the bureaucratic hurdles for entering the market. It’s a big challenge for the Indian government to see if they can make it easier for countries to come here to manufacture. Nevertheless, the fact that the trade barriers that China has in the US market compared to India, works in India’s favour. The tariffs on India are lower than on China. Therefore, India is going to be in a good position to export to the US and boost production of all kinds of goods and services.
Q: How significant will a US-India trade deal be from an investor sentiment point of view?
A: It will be very, very significant if they can reach an agreement. By the way, the trade agreement includes not only tariffs, but also non-tariff barriers. If India can reduce those non-tariff barriers, it will be very positive because companies that want to manufacture in India must import machinery and all kinds of other products to put together a manufacturing ecosystem.
Q: What is your assessment of the India-UK trade pact? Could some sectors get impacted negatively in India, while some could benefit?
A: That’s a very good point. I think what we have to do is now look at the agreement between the UK and US. That agreement will be a symbol for what will happen between India and the UK. I think we have to look at all three countries to see what kind of agreements will be reached. But, certainly, what the UK and US trade pact comes up with will be reflected in what’s happening between the UK and India.
Q: Are you now more bullish on China after the trade thaw and could that possibly be at the expense of India?
A: No, I’m more positive on India. China is still a question mark. There are lots of questions we have to answer as regards China. That doesn’t mean that there aren’t very good companies in China, but we would be cautious until we see how the agreement between the US and China works out.
Q: Have you begun redeploying capital, and if so, which asset classes are you considering?
A: Yes, we now have about 60% cash with our new fund. We are still waiting for approval to enter India. When that happens, we will be able to increase our India component. But we’re now looking at countries in Southeast Asia, in particular. Vietnam is at the top of the list, followed by Taiwan, and South Korea. These are countries that we’re looking at very closely. Elsewhere, Turkey looks interesting, and Brazil in Latin America. But most important, we’re looking at sectors that are innovative, in other words, countries and companies that are innovating in technology.
Q: What is your view on the US dollar?
A: I think the US dollar will strengthen. You know, it’s gotten significantly weaker, but I think it’ll probably strengthen as people begin to get more confidence in what is happening and return to the US market.
Q: What are the future opportunities from generative AI for businesses?
A: Of course, all companies are focusing on using generative AI. And it’s not only companies. Even consumers are using this technology more and more. It’s affecting the entire investment world, but you must remember, generative AI is simply faster communication, faster computation, and more information. That is going to drive growth in many of these companies.
Q: Where do you stand on the debate about the AI hype cycle and, till recently, very high valuations some companies enjoyed?
A: It’s true that some of these companies have been overvalued. Whenever you have new technology like this, it creates a lot of excitement, and you end up with some pretty crazy valuations. We have to wait and see how things settle down before we commit a lot of money to such sectors.
Q: What sectors do you hope to capitalise on in India?
A: First of all, the defence sector is something we have to look at in view of what’s happening with Pakistan. I think the Indian government will be spending more money in that direction. The second area would be in technology companies—those that are producing software not only for domestic use, but export. The third sector is housing. We believe there’s going to be greater demand for housing in India.
Q: What is your outlook on gold?
A: I have been talking about gold for quite some time, and you’ve heard me say that people should allocate at least 10% of their portfolio to gold. I keep physical gold, and I think everyone should have it. Now, the question is when to buy. No one knows what the price is going to be tomorrow, next week, or the week after.
Q: Would it be fair to say that foreign institutional investors (FIIs) are back for good in the Indian markets?
A: Yes. You must remember that there are two types of foreign investors. One is companies that are investing in plants to produce in India. The other is portfolio investing where people are going into the stock market. I expect both to increase, but the former, in other words, companies that are building plants in India, will be much, much larger going forward.
Q: What’s your sense on possible market levels in India this year?
A: I think the Indian market will go up further from where it is now and I think you’re going to have a continuing bull market with corrections along the way.
Q: What are the next possible triggers for the global and Indian markets?
A: Well, globally, peace in Ukraine, number one, and peace in the Middle East with Iran giving up the nuclear option are the two areas that are going to look good under Trump. And then, specifically for India, tensions with Pakistan will always be there, but the good news is now we have a ceasefire and hopefully we can keep things on an even keel. And if Pakistan can pull itself up economically, that would be very, very beneficial for everybody concerned.
@szarabi
