U.S. Markets Signalling Slowdown, Not Recession, Says Mark Matthews

The U.S. markets are signalling a slowdown, though not necessarily a recession, according to Mark Matthews.

Based on current models, recession is not the base case, and there is only a 20% chance of it happening, Matthews, head-Asia research at Julius Baer, told BQ Prime’s Niraj Shah on the show 'Navigating Through Uncertainty'. "The current scenario is more of a slowdown."

Oil Prices To Moderate

According to Matthews, U.S. President Joe Biden’s visit to Saudi Arabia is likely to include discussions on oil, even though the Biden administration is claiming otherwise.

Oil prices permeate every aspect of inflation, which makes it a driving force in the current global market landscape, he said.

Matthews expects oil prices to moderate between $100 and $110. However, the Middle East will be reluctant to see it go below $100 a barrel and would want to “make hay while the sun shines”, given the potential transition to electric vehicles, he said.

High Inflation Ahead

"Inflation of 1-2% percent in the U.S. between 2009 and 2020 was abnormal," Matthews said. He attributes it to technological advancements driving down prices of durable goods and services, combined with a free trade environment.

A combination of geopolitical uncertainties, such as the Russia-Ukraine crisis, and relocation of supply chains is now "rebalancing globalisation".

"We will probably settle next summer for U.S. Consumer Price Index inflation at around the 3-5% range. That is higher than what we are used to."

Tech Stocks To Not Outperform

Growth stocks, whose earnings are in the distant horizon, will not outperform as they did during the pandemic. Tech stocks will "not be the leader" in the next 5-10 years, in the way they were back in 2011-2012, he said.

"We are now in a transitionary period where we don't see the leaders yet. We just came out of this big bull market of the last 10 years that was tech-driven."

He expects companies like Google, Apple Inc., Microsoft Corp., and Facebook (Meta Platforms Inc.) to perform in-line with the market. "We could analyze their recent performance. It could give us a hint on where the broader market is going."

Bullish On India

The global context is favourable to India, Matthews said. He termed India as “a good market” and is overweight on the country.

According to Matthews, given China's deteriorating political relationship with the west and Japan, India could stand to gain.

India was economically held back over the previous decade by non-performing assets, which were “a legacy of bad lending in the big bull years of the 2000s”, as well as reforms such as the Real Estate Act, the bankruptcy law, GST implementation, and demonetisation. All these factors slowed down small and medium scale enterprises and their level of activity, he said.

While the last ten years were "sub-par" in terms of economic growth, about a year ago, the NPAs peaked and SMEs started grudgingly accepting the reforms, Matthews said. It has led to an uptick in the stock market, domestic interest through SIPs, and a rise in the property market, he said.

Watch the full conversation here: