Ben Powell, Chief Middle East and APAC Investment Strategist, BlackRock Investment Institute, says India's market position is strengthening due to its strategic geopolitical positioning, enabling advantageous negotiations with various global partners. The anticipated decline in oil prices, following the OPEC announcement, is expected to positively impact India's economy and provide the RBI with greater flexibility. BlackRock Investment Institute views India as an emerging market poised to benefit from prevailing global trends.
Powell says though there is likelihood of a US contraction driven by some supply constraints, they are still overweight US equities largely because of the AI mega force which is extremely powerful and driving those big companies forward.
When we interacted with you at the beginning of the year, it was the US market all the way. We did not interact with you in April when it was emerging markets all the way. Just when the world got convinced that emerging markets could come up, US markets have also made a comeback. It reminds me of a seesaw game and before you realise, the side changes. What is happening to the world?
Ben Powell: Yes, the roller coaster continues and that is something we are all going to have to get used to. So, a quick point just in passing, I think again the last month has been a reminder to us investors where we can to stay calm, tried to look through some of the very short-term noise and focus on longer-term structural changes and allocate our investments accordingly, and that is what the market has pivoted back to over the last few weeks.
We have been reminded that sure there are many things to be concerned about not least the trade tensions, but there are many tailwinds globally including the AI mega force and, of course, in India as well with what seems to be quite an encouraging combination of lower oil price, potentially some good news coming with the US vis-à-vis trade deal. So, for now, it feels like it continues to be a much more positive environment than perhaps when we last spoke.
What has changed is that the trade deals are still not in place. The US economy is likely to slow down, and the evidence that there would be a supply disruption would be felt in the coming quarter. So, in the next two quarters, it would be hard to call. What explains this comeback in equity markets, especially what we saw last week?
Ben Powell: It is earnings. Again, there are many things to worry about. As we look at actual numbers, the data continues to be quite strong in the US and globally. In the US, we are mostly through the most recent earning season and they have surprised on the upside across the board. But in particular, we have a huge concentration in the US around these tech behemoths. So global equities are again uncomfortable, but we are dependent on how well these companies are doing. The good news is for now they continue to go very well driven by the AI super boom which continues unabated.
The earnings have been strong, that is the reason why we have seen the S&P up nine days in a row. By the way, that is the first time that has happened since 2004. So, a historic rally is unfolding for the moment which is dramatic and exciting, but the reason is very normal and much more prosaic. So, earning strength and resilience is driving that upward move.
At the beginning of the year, as an institute, you were a big votary of US equities. Then, we saw this midair turbulence. As we roll forward, by the end of 2025 or a year from now, which end of the equity market or which world do you think will outperform, underperform, and will be in line with market performance?
Ben Powell: First, we think this is really a different global equity market from 5-10 years ago. At that stage, you could be risk on or risk off. We now think you need to be much more picky, much more selective, even within the umbrella term called emerging markets. They are not all the same, obviously, but we think that is really true in a fracturing world. Sadly, the world is fracturing geopolitically, trading wise, economically, and so forth.
What that is going to mean is more dispersion. We really need to be thoughtful around what we pick. We continue to like the US. They still got the universities and the ability to monetise the intellectual property they create. So, the US for now is central to the AI super boom which we think continues and the data is supportive of that, that is one.
Secondly, one emerging market we continue to like is India. India in a way is quite interesting. It was kind of ahead of the game in being worried, and had a selloff a few months ago. Now, we have got a much more interesting position in India with tailwinds potentially from the geopolitical fracturing where India is in a really strong position to carefully and respectfully negotiate great deals with different counterparties and not just the US.
Two, after the OPEC announcement over the weekend, fall in oil prices looks likely to continue. That will benefit India in aggregate, different parts of the economy differently, but in the round that is good news and should give the RBI more room for manoeuvre. I look at India as an example of an emerging market which is benefiting from a number of these mega forces. Even in a more complicated world, there are still tailwinds out there and it seems to us at the BlackRock Investment Institute that India is on the right side of a few of them.
You did say the fact that the earnings growth or the earnings visibility is the one of the reasons why you have the equity markets are rallying back in the United States and also will command more premium. We have to keep in mind what lies ahead in the future. We have not yet taken into account what could lie ahead when it comes to Trump tariffs because there is just a 90-day pause and are through almost 20 days. That has an impact on the earnings growth going ahead. Don’t you see that as a risk factor going ahead?
Ben Powell: We do and to be clear, we expect a contraction in the US economy driven by some of the reasons you have talked about. Again there are things to be worried about. The future is always a hard place to travel but it feels particularly uncertain at the moment across many different dimensions that are true and important.
But we have just got to relax and accept that right, we cannot be as confident looking forward today as we probably were 10 years ago where with hindsight I guess it turned out we were in a time frame called the great moderation where inflation was low, interest rates were low and that was then. Now, everything seems much more complicated – whether it is AI, geopolitics, trade tensions, and so on and so on. It is a long list. We just need to kind of accept that. It is uncomfortable, but just accept it and get back to the basics of investing.
For us, even though we recognise some of these significant headwinds, they are real and important, now we think they are being outweighed by the tailwinds which include artificial intelligence, an absolutely amazing technology and a historic moment in human history and now back to our kind of normal level which has important implications for markets which are still not fully priced in.
I totally understand this sounds a bit strange, but we think you are going to get a US contraction driven by some supply constraints and indeed we are still overweight US equities largely because of the AI mega force which is extremely powerful and driving those big companies forward.
Where does the emerging market fit in? The kind of flows that we have seen in India are quite impressive. Is this the beginning of a trend change for emerging markets and especially markets like India? You rightly mentioned that India has got everything going for itself. So, could India be a disproportionate beneficiary of this entire changing order?
Ben Powell: I think so. Nothing in life is perfect. We always have things to worry about. But when I look at India and some of the mega forces, its position vis-à-vis geopolitical difficulties, India should be a relative winner. It might even be an absolute winner where it can again carefully and skillfully think about how to benefit from its position, its huge size as a market, it is clearly a very attractive proposition for everyone. It seems to me incumbent on India's leadership to do the best for India's people and that is what I would expect to play out in the weeks and months ahead.
Furthermore, the relocation of supply chains is easier said than done. You cannot just click your fingers and move massive global supply chains, but it feels again that it is a global disruption, and India should be the right side of it. Then there is the very well understood domestic story.
I do not need to tell you guys or anyone on the line here but that it is still true right, so the demographic story, the amazing advances around digitalisation, the astonishing kind of on boarding of maybe tens or even of hundreds of millions of Indians into the formal financial system including equity markets and other markets, is still true and ongoing.
So, yes, there are a lot of things to pass. All emerging markets are not the same. We need to be careful about talking about too broad a brush painting with too broad a brush. But when I look more into the details of emerging markets, India stands out a bit as an economy and a market where there are multiple tailwinds that can continue to attract more global investment over time – both structurally and more short-term flows into markets – of which we are starting to see signs of in the last couple of weeks.
Powell says though there is likelihood of a US contraction driven by some supply constraints, they are still overweight US equities largely because of the AI mega force which is extremely powerful and driving those big companies forward.
When we interacted with you at the beginning of the year, it was the US market all the way. We did not interact with you in April when it was emerging markets all the way. Just when the world got convinced that emerging markets could come up, US markets have also made a comeback. It reminds me of a seesaw game and before you realise, the side changes. What is happening to the world?
Ben Powell: Yes, the roller coaster continues and that is something we are all going to have to get used to. So, a quick point just in passing, I think again the last month has been a reminder to us investors where we can to stay calm, tried to look through some of the very short-term noise and focus on longer-term structural changes and allocate our investments accordingly, and that is what the market has pivoted back to over the last few weeks.
We have been reminded that sure there are many things to be concerned about not least the trade tensions, but there are many tailwinds globally including the AI mega force and, of course, in India as well with what seems to be quite an encouraging combination of lower oil price, potentially some good news coming with the US vis-à-vis trade deal. So, for now, it feels like it continues to be a much more positive environment than perhaps when we last spoke.
What has changed is that the trade deals are still not in place. The US economy is likely to slow down, and the evidence that there would be a supply disruption would be felt in the coming quarter. So, in the next two quarters, it would be hard to call. What explains this comeback in equity markets, especially what we saw last week?
Ben Powell: It is earnings. Again, there are many things to worry about. As we look at actual numbers, the data continues to be quite strong in the US and globally. In the US, we are mostly through the most recent earning season and they have surprised on the upside across the board. But in particular, we have a huge concentration in the US around these tech behemoths. So global equities are again uncomfortable, but we are dependent on how well these companies are doing. The good news is for now they continue to go very well driven by the AI super boom which continues unabated.
The earnings have been strong, that is the reason why we have seen the S&P up nine days in a row. By the way, that is the first time that has happened since 2004. So, a historic rally is unfolding for the moment which is dramatic and exciting, but the reason is very normal and much more prosaic. So, earning strength and resilience is driving that upward move.
At the beginning of the year, as an institute, you were a big votary of US equities. Then, we saw this midair turbulence. As we roll forward, by the end of 2025 or a year from now, which end of the equity market or which world do you think will outperform, underperform, and will be in line with market performance?
Ben Powell: First, we think this is really a different global equity market from 5-10 years ago. At that stage, you could be risk on or risk off. We now think you need to be much more picky, much more selective, even within the umbrella term called emerging markets. They are not all the same, obviously, but we think that is really true in a fracturing world. Sadly, the world is fracturing geopolitically, trading wise, economically, and so forth.
What that is going to mean is more dispersion. We really need to be thoughtful around what we pick. We continue to like the US. They still got the universities and the ability to monetise the intellectual property they create. So, the US for now is central to the AI super boom which we think continues and the data is supportive of that, that is one.
Secondly, one emerging market we continue to like is India. India in a way is quite interesting. It was kind of ahead of the game in being worried, and had a selloff a few months ago. Now, we have got a much more interesting position in India with tailwinds potentially from the geopolitical fracturing where India is in a really strong position to carefully and respectfully negotiate great deals with different counterparties and not just the US.
Two, after the OPEC announcement over the weekend, fall in oil prices looks likely to continue. That will benefit India in aggregate, different parts of the economy differently, but in the round that is good news and should give the RBI more room for manoeuvre. I look at India as an example of an emerging market which is benefiting from a number of these mega forces. Even in a more complicated world, there are still tailwinds out there and it seems to us at the BlackRock Investment Institute that India is on the right side of a few of them.
You did say the fact that the earnings growth or the earnings visibility is the one of the reasons why you have the equity markets are rallying back in the United States and also will command more premium. We have to keep in mind what lies ahead in the future. We have not yet taken into account what could lie ahead when it comes to Trump tariffs because there is just a 90-day pause and are through almost 20 days. That has an impact on the earnings growth going ahead. Don’t you see that as a risk factor going ahead?
Ben Powell: We do and to be clear, we expect a contraction in the US economy driven by some of the reasons you have talked about. Again there are things to be worried about. The future is always a hard place to travel but it feels particularly uncertain at the moment across many different dimensions that are true and important.
But we have just got to relax and accept that right, we cannot be as confident looking forward today as we probably were 10 years ago where with hindsight I guess it turned out we were in a time frame called the great moderation where inflation was low, interest rates were low and that was then. Now, everything seems much more complicated – whether it is AI, geopolitics, trade tensions, and so on and so on. It is a long list. We just need to kind of accept that. It is uncomfortable, but just accept it and get back to the basics of investing.
For us, even though we recognise some of these significant headwinds, they are real and important, now we think they are being outweighed by the tailwinds which include artificial intelligence, an absolutely amazing technology and a historic moment in human history and now back to our kind of normal level which has important implications for markets which are still not fully priced in.
I totally understand this sounds a bit strange, but we think you are going to get a US contraction driven by some supply constraints and indeed we are still overweight US equities largely because of the AI mega force which is extremely powerful and driving those big companies forward.
Where does the emerging market fit in? The kind of flows that we have seen in India are quite impressive. Is this the beginning of a trend change for emerging markets and especially markets like India? You rightly mentioned that India has got everything going for itself. So, could India be a disproportionate beneficiary of this entire changing order?
Ben Powell: I think so. Nothing in life is perfect. We always have things to worry about. But when I look at India and some of the mega forces, its position vis-à-vis geopolitical difficulties, India should be a relative winner. It might even be an absolute winner where it can again carefully and skillfully think about how to benefit from its position, its huge size as a market, it is clearly a very attractive proposition for everyone. It seems to me incumbent on India's leadership to do the best for India's people and that is what I would expect to play out in the weeks and months ahead.
Furthermore, the relocation of supply chains is easier said than done. You cannot just click your fingers and move massive global supply chains, but it feels again that it is a global disruption, and India should be the right side of it. Then there is the very well understood domestic story.
I do not need to tell you guys or anyone on the line here but that it is still true right, so the demographic story, the amazing advances around digitalisation, the astonishing kind of on boarding of maybe tens or even of hundreds of millions of Indians into the formal financial system including equity markets and other markets, is still true and ongoing.
So, yes, there are a lot of things to pass. All emerging markets are not the same. We need to be careful about talking about too broad a brush painting with too broad a brush. But when I look more into the details of emerging markets, India stands out a bit as an economy and a market where there are multiple tailwinds that can continue to attract more global investment over time – both structurally and more short-term flows into markets – of which we are starting to see signs of in the last couple of weeks.
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