2024 midyear outlook: Is it time to rethink, reset and refresh? Takeaways from our webinar

Chinese stocks have performed much better in recent months. Do you think we’ve seen the bottom for Chinese stocks and how are you positioned within Chinese stocks?

Raymond: We have seen the bottom already. In fact, November last year was the bottom for policy.

Ever since then we’ve seen more and more positive policies being issued. The real economy has been weak but as expected, resilience in exports will lead to a gradual recovery in China’s GDP.

Our portfolios have been positioned for growth. We’re looking for good growth companies. Specifically, we are focusing on two areas of growth.

The first area is about Chinese companies’ participation in re-globalisation or in other words, in the reorganisation of global supply chain. We’ve identified several companies that are expanding their market share globally as well as domestically.

The second trend is about what we call the ‘electrical revolution’ – new forms of energy that have emerged like solar and wind etc, as well as electric vehicles (EV). We’re seeing this from supply side and the demand side, as well as datacentres.

All this together puts very high demand on the grid. We see grid investment as a key investment for the next decade, so we’ve been picking stocks in this area as well.

As someone that focuses on India are you worried that if flows return to China, they will be funded by outflows from India stocks?

Shekhar: Well, the short answer is, not so much. But your observation is right that in the last few months, we’ve witnessed close to about $3 billion that foreign investors as institutional costs have withdrawn out of the markets.

But look at it this way. In November 2023, India's market cap was close to about $4 trillion. Last week, it hit $5 trillion. So, despite the flows Raymond highlighted, the Indian market cap and the overall market has increased significantly in the last six months.

This has happened because of the emergence of a new, domestic investment class. We’re witnessing significant change, particularly on a structural basis, and so Indian domestic savers have begun funding equity or capital markets.

For any domestic player to participate, two things are needed. The first is a bank account and second is dematerialised (demat) account to participate in capital market. In around 2018 or 2019, pre-Covid, the total outstanding in demat accounts was close to about $30 million. Today this number is getting close to $160 million. That’s 5x in the last five or six years.

These are the new emergent, young Indians. They’re aspirational, they save less, invest more consume more. They’re the ones who are investing and perhaps providing liquidity. On its own, India will do well because awareness on both the global and local level has increased meaningfully in the last few years.

Are political factors weighing on the Fed? And with debt sustainability a hot topic now, does a Trump win make you worry more about the fiscal situation?

Tom: To the first question, we have not seen a politicisation of the Fed under the current regime. I think Jerome Powell would like nothing better than to cut rates, but they've held very firm on this subject and focused very much more on the inflation data than on labour markets. While it’s not a risk now, perhaps it could be in the future. It would depend very much on who the next governor was.

To the second question, the Biden administration has been far from stingy, so I think the US fiscal position is likely to worsen whatever happens in the election in November. At the same time, it's going to depend heavily on whether there’s a divided government in the US or not.

If Congress and the White House are controlled by different parties, it’s likely that there’ll be less spending. But if there’s a unified government (whichever party it happens to be) I think it probably has positive implications for economic growth. But I do not think that the US fiscal position is going to do anything but worsen over the next few years.

We’re hearing lots about higher returns in private credit. What are you seeing there?

Raman: Historically, investors looking for higher returns in private markets focus a lot on opportunities, using private equity as an example. But broadly that asset class, is facing far more uncertainty given higher rates etc. In terms of opportunities that benefit from the macroeconomic environment, we’re seeing that there's a significant opportunity in the higher returning space of private credit.

Why? We’ve noticed that corporate borrowers, particularly smaller companies, they borrowed a significant amount of capital in a very different macroeconomic environment. Rates were far lower. Many of these companies were financing pre-COVID, and for smaller companies having to endure the macroeconomic challenges of COVID, rising input costs and then facing rising rates, they're in a situation where their capital structure is not really sustainable in the current world.

It means there’s significant opportunity for investors to provide recapitalisations of these businesses. The equity owners are essentially subsidising these positions. Through credit-like arrangements, investors have the chance to get to the high end of credit returns as well as equity-like returns, but with less downside risk.

We’re seeing a lot of interest in this capital solutions and special situation space. It’s a really interesting strategy in portfolios today among those seeking high returns.