Visiting Mumbai to attend the Barclays India Forum, EM Guru , Dr Mark Mobius of Franklin Templeton , sat down with ET NOW's Tanvir Gill to discuss his outlook for India & the world in the coming year. Mobius believes interconnectedness of the Internet with things like Blockchain and the cloud is a huge security threat.
As we step into 2018, one is like looking for risk factors but there are not any. Yes North Korea fires the missile every odd week but that also has now dwindled as a risk factor because everybody believes there is a lot of talk there than action. So what are the risks?
There is a risk with North Korea because I believe that the US administration will want to take some some military action like shooting down one of the missiles that they put up and this could create a real massive correction in the markets globally but it could happen.
When is that likely to happen? You could time the target on the Nifty, you may perhaps time this too?
You must remember you have an administration in the US that wants to act, wants to do something. You see what is happening with Jerusalem. So, you have an administration that is going to take action because what has gone before has now worked. So, otherwise you want to call a risk, it is an event that will have a big impact globally.
The other big risk I believe we have is the interconnectedness that we now have with the internet and with things like Blockchain and the cloud. The whisk of hackers and viruses getting into the systems could create havoc globally because we are now becoming much more interconnected. A lot of people say Blockchain is the greatest thing, it is very safe, nothing will happen . Well, that is what they said with the NSA in the US. Very safe but they still have this and what I find amazing is that the governments are not coming together to attack this threat. It is a real threat globally going after these hackers and people that are interrupting the systems. I believe this could be a big big game changer for the markets going forward. Hopefully it does not happen but it is something we have to watch.
Blockchain is the format on which essentially the technology on which Bitcoin is based and that is what is driving Bitcoin currently. What do you see happening with that market? It is being considered as a commodity now and in that case, if there is a bubble, does it have systemic linkages to other asset classes?
A lot of people ask me about Bitcoin and I say look I cannot talk about religion but the thing is with what is happening globally is a desire, a need for transmission of money, of value without government interference anonymously. It is a real need. North Korea needs it, the drug dealers need it and some legitimate people need it, men who want to transfer money. This is a real requirement and what has happened is that the US treasury has been going after banks who transfer money illicitly and as they become more aggressive, the people try to find ways to go around in the system and this is what we are seeing. So, Bitcoin represents means of transfer but not means of value. When people say are you optimistic or pessimistic or negative, I say I am both because I can see the need for this transmission system but I do not see it as a store value, it is not a store value.
Many people believe that the need is actually speculative. So, that is an interesting perspective that you are offering and perhaps a bit contrarian as well to what a lot of global market thinkers have been talking about. They have just gone overboard just rubbishing the trade completely but you have said that yes it is a bubble in the making. What happens when the bubble bursts?
You see the reason why anything can happen is that we now have a generation of people below the age of 30 who believe in the internet, who take the internet as something that they live with everyday. I remember I was in Hong Kong two weeks ago. I was sitting down with my IT people and when their friends came in, I just made some money on the Bitcoin. I said show me. He had his little laptop there and he was buying Bitcoin and selling it in China. He showed me the screen. I said who is running this? He said I do not know. I mean but he has faith in this. There is something that we must understand.
Fascinating actually to say the least. But if and when the bubble bursts because it has to, you have laid out a time that may be a year or two years down the line we might see what would it mean for asset classes. How much of that is a real risk because I do not know whether there are any direct linkages with financial market just as yet unless those linkages come through in due course?
I do not think there will be much impact at this stage now. If you and I are trading on Bitcoin next year because we are convinced and so want to make money, then we are in trouble.
If more and more exchanges get Bitcoin and start trading in the futures and the market expands and gets deeper, then can it be a real threat?
Well the interesting thing is that Chinese have already tracked down on it, they have what you callIPOs, CPOs whatever it is in China and some of the governments are beginning to wake up to the dangers. Interestingly enough, the Bank With International Settlements have recommended to all central banks to create their own crypto currencies based on their own currency so that is going to be a competition in some ways. But the question is can you transfer unanimously? That is going to be the key.
Should Indians invest in Bitcoin?
No. Use it as a means of transfer. That is okay.
Liquidity conditions are going to get tighter getting into 2018. Goldman Sachs is calling for four rate hikes into the coming year. But with all that pressure on liquidity Bank of England has also hiked rates, ECB is stepping back on and moving towards policy mobilisation, the RBI has indicated that they are in a long pause mode and will be watching out for a upside to as far as inflation risks go into the coming year as well in that sort of an environment what does that do for the liquidity conditions that have fuelled asset prices for the last nine years?
What I have been trying to tell people is look at the history of interest rate just like emerging markets and the emerging markets index there is no correlation, sometimes the interest rates go up and the market goes up which is not what you would expect, sometimes it works the way it does you do expect the interest rates go down the market goes up so this is something that people got to realise that the interest rates do not determine the direction of the market on a regular and consistent basis.
If you look at the previous cycle that was the time when growth was also very strong. There was an overlapping period between 2004-2006, when rates were going up but growth was going up too. The markets believe rates are going up because the underlying economy is looking very strong, I mean economy are right now at subpar and rates are already going up?
We are now seeing a resurgence of growth globally. So you could have a higher rates.
So, you see growth coming back?
Yes, the other thing you must remember is that we really do not have a handle and we are losing the handle on money supply, because you have crypto currencies to begin with. You have all other flows that people do not really have a handle on where the flows are going and where they are.
This is another thing that we have to remember that there is plenty of liquidity around for the right projects, for the right opportunities and as the interest rates move up, banks offering a higher rate of interest more money will flow into the banks so you have that affect. Do not think that there is a lot of people that have been spending money simply because they do not see any sense of keeping in the bank, the interest rate is not higher and this is a problem that you are going to face when you are trying to measure the liquidity of the system. I am not reliant on these measures frankly. I do not think they will tell us very much.
You are very optimistic stepping into 2018 and that there are still compelling reason to buy emerging markets in India even at these levels is that the conclusions that we draw today?
Is there potential for us to double up from here?
Yes, why not? Particularly in the private sector. There are lot of opportunities there.
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