Nick Parsons, head of research and strategy at Thomas Lloyd, shared his views and outlook on Indo-Pak skirmish, emerging markets (EMs) and the commodities space.
Talking about the India-Pakistan tensions, he said, “It was fascinating to read the press in London and elsewhere over the weekend before I came out and the view from diplomats and government officials in London and across the European Union was a call for calm and the belief that this could be diffused with goodwill on both sides and it did appear at least that that was happening when we got into Saturday night and then into Sunday and there is no sense whatsoever of panic or alarm in Europe at the moment. So it really hasn’t been something that has been on the investors’ radar screen. Of course, it remains to be seen how it will play out over the next couple of weeks. Because as in all political events, there is plenty of scope for the unexpected and though the instant and knee-jerk reaction is to see that this will strengthen the hand of the incumbent, there is always scope for things to go wrong in this because although this seems to be straight out of any global pre-election playbook, if it were really that simple, we wouldn’t need to play the game if we could forecast it all in advance.”
Speaking about the investments in India, Parsons added, “Indian investments are already trading at somewhat of a discount. If you look at the performance since January 1 of this year, India has been a laggard. Let us compare that with a performance in 2018 where India was the best of all the EMs, in fact, one of the very best returning markets globally. There has been a sense of caution entering those markets and here we are with the Nifty and Sensex within touching distance of where they were on January 2. So as the rest of the market has had the volatility, as the rest of the EMs universe has generally tended to advance, India has been somewhat left behind in that and I think that perhaps explains its resilience and somehow a sense of calm over the last few trading sessions because it hasn’t had those speculative inflows, it hasn’t had the hot money driving the indices higher and therefore it is less vulnerable to a selloff in these times of nervousness.”
On Brent crude prices, Parsons said that “We have been calling it either side of USD 60 per barrel on average for the whole of 2019 and I still think that seems a reasonable expectation. The demand side – it would appear - is going to fall somewhat shy of consensus estimates because we have got a global economy that the risks seen tilted to the downside. The supply of energy, on the other hand, is increasing not just in oil prices but the competition for oil – we have got renewable energy and other things so we have got a change in the energy mix, which is also helping to cap crude prices and that is something which ought to be offering some support to India more generally. It is not just about the current account but it is about inflation and it is about real income growth and all those sources of things. So unless we were to see a return to the highs of last year, I think that looks unlikely then I don’t think oil is going to be the concern that it was for EM and for India in the early part of 2018.”