Russia-Ukraine crisis: Mark Mobius says conflict a side show to US Fed rate hike

As most shares globally traded lower with investors remaining cautious against Russia-Ukraine tensions, market guru Mark Mobius on Tuesday said the geopolitical crisis is a side-show to the interest rate hike scenario.

“What is happening in Russia and Ukraine is a side show to the whole interest rate environment because the Fed is going to raise interest rates…if you look at interest rates and the stock markets, there is really little correlation but there is a big correlation with the fixed income market, the bond market,” the Founder of Mobius Capital Partners said in an exclusive interview with CNBC-TV18.

Mobius is of the view that the US Federal Reserve is a little late in announcing the interest rate hike because, according to him, if the central bank thinks CPI is a good indicator of inflation, it is not the case.

“If you see inflation in America at 7 plus percent then you know that central bank is going to raise rates maybe even higher than that in order to give people real rate of interest. So we are really in rough water now,” he said.

Commenting on the trend in the market, he said the Fed rate hike has not been fully priced in yet and more volatility and downside are likely along the way.

“If you compare the S&P versus the MSCI India index they are almost the same, the Indian market has performed just as well as the broad S&P 500. The S&P 500 includes companies that depend a great deal on emerging market sales and manufacturing. So in some ways, the US market is sort of a reflection of what is happening in emerging markets,” the market veteran said.

Also, Mobius said if cryptocurrencies go down, the markets will be affected as well because millions of people feel rich as a result of the “so-called” money being made with cryptocurrencies.

“When cryptocurrencies go down then they feel less rich and they are more likely to bail out of stock markets or other markets that they are into. So keep an eye on cryptocurrencies. It is also one of the reasons for volatility in equities,” he suggests.

Reflecting on the Indian markets, Mobius said, growth prospects continue to look up and that Indian equities are still in a long-term bull market. He, however, advised investors to keep some cash levels that can be deployed if there's correction, which he predicts won’t go beyond 10 percent from the current levels.

At a time when stocks of most new-age companies are witnessing a sell-off, he cited lack of profits as the key reason for the underperformance. He suggested getting out of high debt firms or those that don’t have near-term prospects of profitability.