What is your assessment of the market reaction so far to the West Asia conflict?
The market has reacted in a quite logical and contained manner. We have not seen any signs of panic or capitulation. The question mark is when the market will start to become more worried, and we will see some radical shifts or risks happening. It is not yet the case. I think the market today is still pricing a resolution in a matter of weeks, not months. And it is what we see when you look at the oil market. When you look at long-dated oil futures on Brent, you see backwardation (future prices lower than current prices). If you look at the end of the year, January ’27, the market is pricing $75, while summer contracts are between $80 and $85 – meaning still a scenario where the situation is going back to some normality in the next weeks.
Some in the market are comparing this to the Russia-Ukraine war in terms of limited market reaction. Do you think markets are underestimating the risks this time?
First, for me, the parallel between Ukraine and Russia is not the same situation, to be clear. It is not the same kind of conflict and impact. For Ukraine and Russia, the main impact was on Europe, on natural gas, and that was very contained.Here, the markets are also learning from history. The consensus is still that there will be a kind of resolution in the next few weeks. When it happens, you will have a big mean reversion and the market will go up.Markets have not corrected enough to say it is a buy opportunity for sure. But markets have already corrected, and maybe it is too late to sell. It is a question of sequence. If markets go down another 10 or 20%, then it will become interesting to buy. But we are not yet there. It is too early.
Wars are often seen as buying opportunities. Do you think we are at that stage, or is it still too early?
If you are already invested, I think it is better not to do anything.If you have cash or short-term bonds or less risky assets, then you need to predefine some levels where you will be happy to put back risk. For example, to buy one-third at minus 5% and another third at minus 10%, just to average the price.But you need to have this discipline because when markets are very volatile, because it can go very fast.Just to give you an example, on the Nifty 50, I put some buy orders through ETF at the 23,250 level. I believe at such a level, 23,250 is really interesting in terms of valuation. And on India, I continue to believe there are good long-term prospects. As Indian equities have departed from their long-term corridor, it is quite an interesting opportunity if you are medium-long term.
So, is the right stage for global asset allocators, who have been bearish on India, to come back?
So our advice is: if you are not invested in India, it is a good moment to start being invested. Historically, Indian equities have always had a premium because earnings growth was superior. Now, for the first time, Indian equities are cheap. This kind of window will not happen very often.Given the price action, we think now it is an interesting window of opportunity for people who are not invested. Nifty was at 26,000 not that long ago, and now we are at 23,000. It is a big drop for an economy that is still healthy.And we are more constructive on the currency, and we believe the Indian rupee has been too much hammered. When we look at fair value models, we find the Indian rupee too cheap. That has been one of the issues for Indian equities: the weakness of the rupee. Now, one of the key features of our interest is the view that the Indian rupee will stabilise or even firm a little bit.
Has the war masked concerns around over-investments in AI and valuations, or do those risks still exist?
The biggest risk is disruption. Software and other sectors can be hit, impacting both equity and credit, because if your model is disrupted, it is difficult to pay back the debt. I am monitoring the credit segment because crises can come not only from geopolitics, but also from credit issues. Second, we will see a massive shift of wealth, which could create deeper social and political issues, including the risk of more populist governments. It is more medium- to longterm, but it can be frightening.
What is your outlook for the US markets?
The US market is very concentrated, with a few big winners, and US tech or mega-caps are pretty highly valued. For now, they are still seen as a safe haven and are very heavily held, so there will be dip buying. The real adjustment will come when earnings start to go down. We are not there yet, but it is a key risk. So it depends on your time horizon. Short-term, you can play the dips. But long-term, it is important to diversify. Today, global indices have two-thirds in US equities, while India and China combined are around 6%. For strategic allocation, that does not make sense. So we advise lowering dependence on US assets, diversifying into Europe, Asia and India, and reducing US dollar exposure. We remain under weight on US dollar.
If the dollar declines, where will the money flow?
I think gold will continue to perform, even though it has already performed a lot. And people will also move into what we call real assets — capital-intensive assets — in Europe and Asia, including Japan, China and India.
What kind of returns do you expect from gold?
On gold, our base scenario for this year is around a 10% return, meaning gold at $5,600. We could see $6,000, maybe more, next year. But this is in US dollars. So if you are Indian or European, you need to factor in the exchange rate.
A 10% return in US dollar can translate into a lower return in local currency if the US dollar softens. That is one of the issues in the gold investment case.
Is the recent stress in credit funds an isolated issue or a sign of deeper liquidity risks?
What we have seen is, in a way, predictable. The private debt space has grown a lot, especially in semiliquid formats with a mismatch between assets and liabilities. In the US, strong inflows led some managers to deploy capital too quickly, with less discipline on collateral and due diligence. So there have been some deals that were not good deals, and even a few frauds. Some would have been unavoidable, as some basic checks were missed. What we see is that more aggressive players are suffering, while more disciplined ones do not have these issues. So there have been excesses. But, I do not believe it is systemic.