The global economy is in a steady recovery phase, triggered this time by technology rather than infrastructure spending. In the backdrop of a modest but firm growth outlook, a gradual rollback of quantitative easing by the Fed and a strengthening dollar, BusinessLine caught up with Singapore-based Bhaskar Laxminarayan, Chief Investment Officer and Head, Investment Management, of Julius Baer in Asia. Excerpts from the interview:

What’s your take on global growth?

Globally, we are in a ‘reflationary’ phase (an economic situation of mild inflation that is still below its long-term trend line — indicating the end of a deflationary environment). But given its very nature, one cannot expect a dramatic pick-up in inflation. It is discernible not only in the US but also across parts of Europe and Asia. In China and India, there are signs of its bottoming out, with inflation gaining momentum in the last few quarters. However, the reflationary process is much more evolved in the US than in Europe. Global industrial capacities are beginning to get used up and the output gap is narrowing. In a couple of years, in the US, when capacity utilisation peaks, inflation will grow. However, for now, the expectation is of a modest inflation number.

Globally speaking, we are perhaps in a new growth phase, for decades to come. In the past, post-World War II led activities, baby boomers and the technology and emerging market growth push were the major growth triggers. However, between 2008 and now, growth has been anaemic. We believe the next growth phase will not be triggered by infrastructure spending but possibly from another round of technology and automation. However, by its very nature, it will lead to lower trajectory growth than in the past.

What’s your outlook on US growth? Is there scope for more than two rate hikes by the Fed in 2017?

There is likely to be 2.5-3 per cent growth this year, in line with consensus estimates. As regards rate hikes, we are still in the ‘two ‘camp. We expect two rate hikes in calendar 2017; however, there is a chance it could be three. Since growth recovery this time is low, the crutches can’t be taken away quickly. Quantitative easing will be rolled back in a much more ‘managed’ way. The recent comment from the Fed suggested that the rate hikes will be a gradual process. That’s why we are sticking to the expectations of two rate hikes this year. But even if it effects one more hike this year instead of early next year, it still would not change our viewpoint on global markets.

Where do you see the dollar in 2017?

The dollar is the choice currency to be in. It still holds sway in the currency market even if President Trump might want to talk down its value. The dollar continues to strengthen on the back of its (robust) economic fundamentals and continues to attract capital. It is the core currency one needs to own.

The rupee will continue to strengthen a little more against the dollar from where it is now. Remittances and FDI figures remain favourable for India. A good thing about a reflationary situation in the global economy is that investors become a little more open about investing in other markets.

This usually benefits India – given the high differentials in growth with the rest of the world and the popular perception that it has a stable central government with favourable policies for foreign investors.

India’s equity market is near its all-time high? What’s your view on Indian market valuations vis-à-vis competing Asia-Pacific markets?

India is a strategic market for us from a long-term perspective and we are currently overweight on India, China and the Philippines. Purely from a market size perspective, it stands out. What is limiting though is the fact that from a private banking perspective, this market is not that accessible. You have to jump through a couple of hoops to get there.

The Indian market has never been cheap. While it is hovering near all-time highs, equity markets globally, including in the US, are peaking. Valuations are at their peak in the US.

Being in a growth environment, where there could still be positive surprises, I would still bet on India. From a market-cap perspective, we have always been large-cap focussed. The Indian equity market is a foreigner’s favourite rather than a local one. If India continues to grow at 7.5-8 per cent annually, there are significant investment opportunities and, hence, it is smart to stay invested in India.

Besides the above three markets, Singapore also looks good this year. We are witnessing a bottoming out and some activity pick-up in the real estate and construction sectors.

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