The fact that the US economy has sustained an expansion as long as it has, makes one wonder whether the economy will eventually mean revert, Jeffrey Ptak, Global Director, Manager Research, Morningstar, tells ET Now.
Edited excerpts:
On one hand, US markets are continuously going higher. A bit of correction has set in but in the 11th year of economic expansion, the market is still going higher. Is there a case building for US correction to set in?
The US is less target rich than it was before and if you have noted a few of the reasons, it has been on a run. We are also looking at very strong earnings and earnings growth and when you look at what sort of conditions are needed for multiple compression, we also have to look at the economy itself.
The fact that we have sustained an expansion as long as we have, does make one wonder whether the economy will eventually mean revert as economic cycles are known to do. It obviously has repercussions on earnings. I do not think that the US is as target rich as certainly it was three, five, certainly 10 years ago. It is probably time for investors to ship their case abroad.
The other day Howard Marks was on our channel and he was making a case regarding his book about how to watch out for market cycles, and how risk reward is not very attractive right now. It does not mean that the market cannot go higher but the odds are not in your favour. Similarly, in Gotham Funds recent note, Joel Greenblatt, also talks about that. When you say its time perhaps to diversify, can one really reduce risk by diversifying into other geographies? When a big correction in the mother market sets in, everything goes down.
Those are very august investors perspectives and I guess I will add my voice in support. I cannot speak with the same authority but yes, I think they are making caution ones watch word. It is probably a prudent course to take.
I think that one is very well served by diversification even now. Depending on where you look at, a market that perhaps has underperformed, it could be a signal that the fundamentals there do not look particularly attractive at the moment. But they actually would be more supportive of good returns in the future or they will support downside better.
We should be realistic when markets go down. They tend to go down synchronously at least for a period of time but what we are looking for is the right mix of assets to try and take some of that edge off. One of the ways that we can achieve it is just by looking where we might not otherwise because the performance has not been there recently but that itself can help those investments to keep in good stead.
You have seen markets evolve across the world. What stage of the cycle could we be in in the evolutionary phase of the Indian market? We have become the fifth largest economy of the world now. What is the road ahead in next five, 10 years for India?
The market here has undergone an impressive professionalisation. We are seeing signs that there is a loftier fiduciary standard where the best interests of investors are being put front and centre where they belong. That is a very important development in the maturation process of a market. We can think of other markets that are nearly at the same stage as the Indian fund market. There are opportunities for improvement and we can say the same thing of the US or Canada or many other developed markets.
But Indian fund investors should feel good about the fact that they have been on a steady arch of progress and I would imagine if we have this conversation five, 10 years from now, we would look back fondly on the period that we are in. Things like expenses are coming down, advisers who are representing clients are doing a good job of putting their interest above their own, these are the things that one looks for and tries to find encouragement in a market.
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