One major trend that we are capitalising on is the developments in technology sector, Sudhir Rajkumar, Representative of Secy General, UN Joint Staff Pension Fund (UNJSPF), tells ET Now.
Edited excerpts:
What do you believe are going to be the repercussions of the US-China trade war and what could it do potentially to the global economy? Part of the currency weakness already playing out is not just because of trade wars but also because of Turkeys economic crisis as well. Where is this situation really headed?
The most important structural change in the global economy that is currently taking place is the reversal of quantitative easing that had been going on for the last 10 years by the US Federal Reserve System. Over the last years or so, the US Federal Reserve has started raising rates and it has also started to take out some of the liquidity that had been pumped into markets and that coupled with the strong growth in the US economy is causing some concerns in terms of potential impact on the markets.
What impact will US trade war have on global trade expansion?
At this point in time, effort are on to reduce some of the imbalances that have come about as a result of trade deficits among some of the major trading partners. The sense so far is that the trade wars might be little bit of an extreme characterisation and there is a certain amount of tension on the trade front and certain amount of negotiation is taking place. From what I understand, at this point in time, the consensus still is that these are things that will be managed through negotiations. These need to be watched carefully but one should not get too alarmed about it at this point.
The US economy is well placed compared to other economies. How long do you think this growth will sustain? How will the rise in interest rates impact the current growth environment?
Certainly, the fact that a significant fiscal stimulus was provided by the current US administration makes it much more difficult to interpret real economy data coming out of the US. At the same time, it seems that there is significant strength in the US economy and certainly relative to other parts of the world.
So far as the increases in interest rates by the US Fed are concerned, that do not seem to have had a major impact although some impact is being seeing in the interest rate sensitive sectors, house buying, cars and so on which is done on credit in the US.
It will be important to see how this plays out over the next 12 to 18 months. It is also important to remember that the full effect of the tax cuts still has to be seen. There is a fair amount still in the pipeline and we need to see how that works out over the next 12 to 18 months.
How should one approach the rising interest rate scenario? How do you think it will impact the other global markets?
It is important to remember that globally, interest rates are going higher in the US but that is not the case in other parts of the developed world and also there is no major move towards significantly higher interest rates in emerging markets.
In general, the consensus is that for the next one to two years, interest rates are going to be higher in the US and possibly marginally higher in some major markets including India, but not in the rest of the world. It is still a relatively limited move in terms of interest rates.
What view and tactical position are you taking on the global bond rates and markets?
We are fairly comfortable with global bond markets at this point in time, especially long rates. Our personal view is that long rates in the US are not going to back up very significantly from where they are now. Across the board, there is some increase in interest rates and we are marginally underweight on global bonds. We do not believe that they will rise significantly higher from the current levels.
You have 60% allocation in equity for the last three to five years. Do you have any valuation concern in the equity markets globally right now?
I would put it a little differently; there is certainly concern about valuations in equity markets. However, we are very long-term investors and since we basically have to meet our liabilities, we have a long-term real return objective, that is net of inflation or 3.5% in US dollar terms. We can only achieve that by diversifying broadly and being significantly exposed to equity markets. Although there may be some concern about equity valuations at this time, we expect that whatever bumps there may be in the road, will be okay in the very long term. When I say very long term, I am talking about 10 to 15 years.
What are your main concerns in allocating funds within the Indian region?
We are always looking for good investment opportunities and we do invest globally. We have to look at our portfolio in terms of allocations to different parts of the world. Certainly. I would not say that we are pessimistic about India, we are long-term quite bullish on India . We just need to find the right investment opportunities. We are always looking for them and we invest both in public as well as in private sectors. So, we will continue to invest in private equity, real estate, as well as public equities in India as well.
Like other pension funds are you also looking at investing in hard assets in India along with equities?
Yes, certainly we are looking at those areas in addition to equity markets.
How would you rate the earnings reforms and economic progress in the country in the last three to five years?
I would restate what I have said before, that we are long-term bullish on India. Certainly India has currently got the highest growth rate anywhere in the world among any major country or economy. The foundations are being laid for a strong future economic growth. There are certain short-term costs associated with laying those foundations but long-term, it looks certainly quite attractive.
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