Stefan Hofer, MD of LGT Bank Asia, Expresses Optimism: US Recession Unlikely, India Shows Remarkable Resilience

In a recent interview , Stefan Hofer, MD and Chief Investment Strategist at LGT Bank Asia, shared insights into the current state of global markets and India’s position within this landscape.

Hofer expressed optimism about India’s medium-term investment outlook, citing improvements in infrastructure and the potential for higher GDP levels. He highlighted that India could capture a significant market share in manufacturing, particularly as investors seek alternatives to China for new factories. However, he pointed out that execution risk remains a challenge in India’s capital expenditure and infrastructure plans.

Regarding the IT sector, Hofer suggested that it is nearing a turnaround, indicating positive developments ahead. LGT Bank Asia also recommended overweighting investments in the healthcare sector due to its defensive nature and potential for exciting advancements.

When asked about the bond markets, Hofer discussed rising yields on the 10-year Treasury bond, noting that concerns about excessive economic growth were contributing to this trend. He disagreed with the prevailing belief that inflation would continue to rise, instead suggesting that the United States is on a disinflationary path. Hofer anticipated that the Federal Reserve may only need to raise interest rates modestly in the near term.

Regarding recent market indicators, such as the US selloff and an inverted VIX curve, Hofer expressed confidence that the United States would not enter a recession in 2024. He cited low unemployment and a high number of job openings as indicators of a strong economy, despite recent market fluctuations. He also noted that other countries facing technical recessions, such as Germany and Italy, have stable consumption and low unemployment rates.

Turning to India’s growth prospects amid the global economic downturn, Hofer emphasized India’s positive spotlight among international investors. He highlighted the significant improvements in Indian infrastructure in recent years and suggested that India’s potential GDP growth rate could rise substantially relative to other large emerging market economies. The recent dip in Indian markets, Hofer explained, was primarily due to profit-taking, and he emphasized that the medium-term outlook for India remains positive.

Commenting on India’s inclusion in JP Morgan’s Emerging Market Bond index, Hofer saw it as a long-term development that would enhance market participation and liquidity.

In terms of investment opportunities in India, Hofer recommended considering investment-grade Indian corporate issuers in US dollars. He also suggested the potential inclusion of India-specific exchange-traded funds (ETFs) in portfolios due to India’s growth potential.

In summary, Hofer’s preferred markets included US and Japanese equities on an international level. He emphasized India’s positive medium-term story compared to China, which is experiencing a slowdown, making India an attractive choice for growth-oriented investors.

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