At the same time, global growth is slowing. Kapteyn said lower growth in China, Europe, and the US is hurting many economies, including India. However, he also pointed out that these conditions may allow India to cut interest rates. “One of the places where we think there is basically scope to cut more is India,” he said.
Kapteyn expects global growth to stay weak over the next few quarters. “We do have a slowdown,” he said, adding that governments are not offering much support through fiscal spending. The slowdown is mostly seen in exports, while domestic demand remains more stable. But recovery may take time. “It will take until the middle of next year before we start to climb out of this uncertainty,” he said.Also Read | India’s market rally driven by earnings, not hype: GQG’s Rajiv Jain
Kapteyn warned about rising debt levels in the US. Even with current policies, he said the US deficit will stay above 6% of gross domestic product (GDP), and debt will grow by 3% of GDP every year. “We are on a clearly unsustainable trajectory,” he said. However, he explained that the impact on US debt prices is mixed with broader market trends, such as global investors reducing exposure to the US due to policy uncertainty.
He also pointed out that recent movements in US bond yields are not due to falling foreign demand. “It is, to some extent, the domestic demand that has fallen off,” he said.
Kapteyn cautioned that even if tariffs are removed, uncertainty may remain. Many companies may still hesitate to invest or place large orders if they believe tariffs could return.Also Read | Enam’s Sridhar Sivaram Sees Golden Phase For India
On US interest rates, Kapteyn said the US Federal Reserve may cut rates if tariffs slow the economy and unemployment rises. “We have about 100 basis points (bps) in cuts penned in for the second half of the year,” he said. But if the labour market stays strong and inflation continues, the Fed may hold rates steady.
Labour markets, for now, are still tight. “Vacancy, unemployment ratios are coming down… but they are more or less back at 2019 levels,” he said.
Kapteyn compared today’s situation to 2018–2019. In 2018, he said it was safer to hold cash or gold. In 2019, investors returned to risk assets. He believes markets are not ready for a shift yet. “It is too early. Hasn’t repriced yet,” he said.
For now, UBS is cautious on US assets and is focusing on fixed income and select emerging markets. “Stay away from equity,” Kapteyn said. Once conditions improve and rate cuts begin, he expects a rotation back into equities and credit.
For the full interview, watch the accompanying video
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