This is an edited transcript of the interview.Q: Over the weekend there was a slight flare-up in the US-Iran skirmishes. Would you read too much into it? And your thoughts, top-down, on the US markets and the broadening out we have seen, with money moving away from tech into other sectors?A: I don’t think we should read too much into the geopolitical conflict. As we have discussed before, it’s not surprising to see fits and starts in these tensions. The memorandum of understanding (MOU) was hastily put together, and I think each side wants to test the other.
But what is important is that, despite the hostilities over the weekend, we are still moving towards halting any further escalation. I continue to believe we are removing some of the more severe left-tail risks from the table. That should allow risk assets to continue moving higher and give investors’ confidence that the decline in oil prices over the past couple of weeks is likely to hold. So, I remain optimistic on where markets are headed.The price action we saw last week in the US and globally suggests there is a bit of fatigue setting in around the artificial intelligence (AI) trade. I view any meaningful downside as a long-term buying opportunity. However, the biggest near-term challenge for US markets is what happens to the Magnificent Seven. These stocks have been a major drag on the broader indices over the past month, but the rest of the market is stepping up. That is a trend investor can lean into, and we are seeing it play out globally as well, especially if we have already seen peak US dollar strength.
Q: You mentioned the Magnificent Seven and the hyperscalers. At what point do they begin attracting investor interest again? Have these stocks corrected enough?A: It is still to be determined, Prashant. I think this week is the real test. Either these names break down further, which would be problematic for market charts and could weigh on the broader technology trade and AI beneficiaries or we see a rebound.
As you mentioned, these stocks have already corrected significantly. In aggregate, the Magnificent Seven are down about 13% over the past month, which creates an opportunity if investor appetite returns. We have also seen significant index rebalancing over the past week, and that will continue this week, which could support these names.
If that does not happen, then I think the market broadening trade has further to run. We could see more money flow into other sectors and other parts of the world. However, it would weigh on overall sentiment. We need these generals, as I call them, to perform well. I am hopeful they will stabilise and return to moderate gains going forward.
Q: Where do you see the US interest rate situation? Some expect a hike in September, some later this year, while others don’t expect one at all.A: I am in the no-hike camp. I think the market has overreacted to Kevin Warsh’s speech. Investors need to adjust to a world with less forward guidance, but nothing he said suggests the Fed is definitely going to hike rates. He simply balanced the statement.
Looking at the recent data, gross domestic product (GDP) has been stronger, personal income growth has been healthy, and inflation came in broadly in line with expectations, with the acceleration easing. That is encouraging and gives the Fed more time.
The move we have already seen in interest rates has done some of the Fed’s work. What is really important now is this week’s jobs report, followed by the upcoming Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) inflation data next month, which will help set the direction.
I continue to believe the yield curve will re-steepen. That makes us like financials, particularly regional banks. We also prefer looking lower down the market-cap spectrum, where small caps offer attractive opportunities to broaden portfolios. That should also support international markets by putting some pressure on the US dollar.
Q: Hang Seng fell 5% last week, Taiwan was down 4%, and Kospi dropped 7%. Many believe these markets needed to cool off after attracting significant foreign money, potentially allowing investors to look elsewhere, including India. Is this the beginning of that shift?A: It makes sense because Indian markets have started to stabilise. The biggest headwind for India had been US dollar appreciation against the rupee. We have seen that stop, and the rupee has even appreciated somewhat. Some of the RBI’s recent measures have also been constructive.
Among Asian markets, Korea is my biggest concern. I still have confidence in Samsung and SK Hynix, but the leverage built up in the system and the amount of margin debt could amplify market moves. It’s similar in the US, where 2x and 3x leveraged exchange-traded funds (ETFs) could become problematic if volatility continues.
India, and some similar markets, have removed several major headwinds. I have said before that India is almost the value allocation within a global portfolio because many positive developments are happening beneath the surface.
Going forward, I look at India through three buckets. Financials have benefited and should continue to do so as economic growth improves and uncertainty declines. I also like hard asset businesses—power, cable operators, energy, particularly clean energy—and even real estate companies.
If oil prices remain stable, consumers could also benefit. You are already starting to see stocks like Paytm reverse. There are many encouraging developments, and I am finding attractive opportunities in India at the individual stock level.
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