ET Now: On all those counts, as far as emerging markets like India are concerned, much will depend on how the Fed moves from here as well. How do you interpret the December rate cut that we saw by the Fed by 25 basis points, how do you see that in the context of Trump’s re-election? Surely, they know what to expect from Trump. The Fed expects to see what’s coming.
Geoff Dennis The Fed has certainly already acknowledged that it has begun to factor in the potential effects of a second term of Donald Trump on monetary policy, and I think there’s a very good chance at this point that we’ll see two rate cuts this year. In fact, we may not see any rate cuts at all. Where I differ a little bit with some of your other speakers is that I really believe you’ll see the dollar very strong because I think there’s going to be a long-term key macro impact and deregulation in addition to good growth in the United States. US budget deficit will further increase due to tax cuts etc. Now, if you combine that with the margin inflationary effect of the Trump tariffs, the Fed being cautious about cutting rates too much and I think you’ll see higher bond yields once again, of course you’ll see a lot more until that CPI report comes out the next day. Watched for days. So, bond yields above 5% for the 10-year yield will likely keep the dollar strong on Fed hold for a while, and I think that will create a very challenging environment for emerging markets.
ET Now: I was looking at the IMF projection and they are raising their global economic growth forecast and this is largely due to strong US demand and they have raised their forecast for the US to 2.7% in 2025. Naturally, this will have an impact on Wall Street’s equity markets, of course, but how do you think it will play out in emerging markets like India?
Geoff Dennis: Well, first of all, can I just say that I completely agree with what Sunil just said about the dollar and the rupee. Rupee is not weak, it is much less weak than other currencies. I will be very careful about the global economy. China’s statistics are wrong. It’s not growing at 5%, point number one. Point number two, European economies are very weak indeed. So, to some extent, in terms of the bigger picture here, the US is in terms of development. It is the only game in town. And those growth rates might get a little better because of the prospect of deregulation and lower taxes. My argument this year is that once again developed markets will outperform emerging markets because as I say, I think the biggest, number one driver of markets globally this year is going to be the US bond market and I see that yield going up. is The fiscal deficit, given the inflation story of 5% to 5.5% for the 10-year yield, will keep the dollar strong, as I’ve already said, and that tends to keep money in the United States as far as I’m concerned. So, I think what we will find is that a number of emerging markets will still be relatively starved of foreign inflows. Now, despite the high oil price challenge for India and short-term concerns about growth and high valuations, I still think India is definitely one of the best stories in emerging markets and the rotation so far this year. So, last year’s big loser in Asia, which was Korea, is strongly up and last year’s two big winners, India and China, are down. So, you’re getting some rotation with Brazil and Mexico also doing well. So, once that rotation is complete, I see India being a good market relative to the overall emerging market index in 2025, despite valuations. But I still see emerging markets lagging the US mainly due to my view on bond yields on the Fed and therefore on the dollar.
(You can now subscribe to our ETMarkets WhatsApp channel)
