Bear market | Christopher Wood: I’m wary of gathering in US and India: Christopher Wood

What is your assessment of the Indian market rally?

I think this is a bearish rally in the US. The reason to be skeptical of the recovery in America is that you have a double whammy – the tightening of higher rates and shrinking balance sheets – which is negative for liquidity. The rally is driven by hopes that inflationary pressures have peaked. Inflation may have peaked, but the key question is whether inflation has stabilized. The real question is whether the Fed will try to meet its 2% target. India is just following the United States. I am suspicious of this gathering in the United States and India. The market rally in India is closely linked to the rally on Wall Street. The oil correction also helped India. Personally, I remain bullish on oil. I want to continue to own energy stocks. I haven’t changed my vision of India. The key question here in India is how far rates go up and how far the rupee goes down.

Is the Fed likely to continue raising rates aggressively?

The Fed is talking hawkishly, but at the end of the day, I’m skeptical of the ability to stick to the 2% target. I guess inflation is around 4% or 5% in America at the end of this year. The problem of inflation in America or Europe is much bigger than in India.

Is the worst of Indian stock sales by foreign investors over?

They didn’t buy that much compared to what they sold. One of the reasons foreigners sold so much in India earlier this year was because they were putting more money into China. China was easing policy and India was tightening it, so China seemed more attractive. But in recent months, the history of investment in the Chinese economy has been significantly damaged by the continuation of the COVID suppression policy. This therefore caused investors to become less constructive towards China.

Where are oil prices going?

By the end of the year, I see oil prices rising. The main reason why oil prices are not higher is weak demand from China, which is related to the COVID suppression policy. The COVID suppression policy is negative for China, but it is positive for the Indian economy and the Indian market. I remain structurally bullish on oil due to lack of supply. The other good news for India is cheaper Russian oil. The COVID suppression policy has caused a major slowdown in the Chinese economy and weakened Chinese consumer confidence, which has led to a reduction in energy demand.

Where does India fit in your list of investment destinations?

This year, India is not the best market, due to the monetary tightening cycle. The best performing Asian market, when I last checked, was Indonesia. My biggest overweight in Asia this calendar year so far has been Indonesia. India is doing well, but India has a lot of cross-currents. Over 10 years, India is my favorite bet but not in 2022. RBI is tightening. It was behind the curve, but not as bad as before. I still believe oil is going higher. I am overweight on India, but not dramatically, only a bit overweight. India has done better than I expected at the start of the year due to geopolitical factors, the most important of which is China’s COVID suppression policy. If China didn’t have the COVID suppression policy, the Chinese stock market would be doing much better and India would be underperforming.

For India, what matters is what the RBI does. The interesting thing about India this year is the resilience of the stock market given the large number of overseas sales. In the long term, we must remain invested in India, but the risk of a correction is increasing. What the RBI does is important.

What is your outlook for the rupee?
The Indian currency will be vulnerable as long as there is a tightening. So the good news is that the RBI was way behind the curve at the start of this year. I have become less nervous about the Indian currency over the past few months because the RBI has started raising rates. I was more nervous in January and February before the trek between meetings. The problem of inflation in India is more serious than in China or Indonesia, for example. This is why the Indian currency has been weaker.