“The World Belongs to Optimists”

In the world of capital markets, Dr. Mark Mobius needs no introduction. I hosted him for a conversation focusing on the "Recovery Agenda" from the current crisis. As always, he was brilliant with his unique perspective, and his key message that in the long term, governments across the world should focus on a refreshed version of the "New Deal Program". The New Deal, was a series of public work projects initiated by President Franklin D. Roosevelt in 1933, to aid the recovery from the Great Depression. 

He feels that in the short run, many Governments will follow the concept of "Helicopter Money" – dropping money in people's bank account so that they can spend. 

And most importantly: the world belongs to optimists, not pessimists. 

Here are the five big points from the session:

1. The road to recovery: Some stakeholders are beginning to feel that the cure is turning out to be worse than the disease. There are many cases of how the economic downturn and associated woes are having disastrous consequences. Nonetheless, the road to recovery is going to be gradual. He feels it will take at least a couple of months before it normalizes (July), as we see a reduction in cases.

2. Impact on Markets: Since 1987, we have noticed that bear markets last for an average of two years; and the average decline in the markets have been around 50% (though there is a wide variation, some cases have been 30%, while the most has been 80%). 

The difference, in this case, is that the crisis has been so sudden, and the decline has been so rapid that it looks like we have reached the bottom in a matter of months. Given this rapid decline, there will most likely be a rapid recovery as well.

He always hesitates to predict the end of a bear market – his advice is still to invest 50% of your surplus cash when you think it is the bottom, and the rest when you have a clear indication that the markets are on the way up (as there will almost always be a relapse)

3. Impact on Buy-side Industry: The most significant change will be the impact of technology. It is going to be a disruptor and an accelerator of growth, bringing down cost and help in the growth of products like ETF and Algo based trading. 

Algo trading is here to stay - and this is a phenomenon which will lead to more and more surprises and volatility going forward. The machines will only serve to accentuate a one-directional move further and these trends will be magnified. 

To negate this change, at Mobius Partners, they have adopted a Private Equity mindset in terms of evaluating and selecting the companies for investment.  

4. Ideas for India: It’s an opportune time for the Government of India to step up and capture the shift in manufacturing away from China. The shift happened because of the rising cost of labor, and China started focusing on high-value tech-enabled exports. India should focus on building export zones near seaports to leverage on the move.  

In terms of Portfolio investors, the Government needs to simplify regulations to make it easier for them to enter the markets. There will be a number of investors who will want to enter the markets at this stage when prices are attractive, and the Government should look to ease this process. 

Global Measures: People want safety and liquidity, and the dollar's strength will continue. The Fed has put money into people's hands as the banks are not confident about lending. However, this economic stimulus is also meaningless until businesses open up - despite an abundance of liquidity, there is a lack of spending. 

5. The Winners and Losers: In terms of the Emerging Markets, the winners will be India, China, Brazil, Korea, Taiwan, Indonesia, South Africa, Egypt, Colombia, Mexico, Poland, and Romania.

In terms of the mindset, The winners will be the ones with who have a cool head, look cautiously at the opportunities, look at history and the background but continue to look forward. The losers will be the pessimists and doomsday scenario believers who are willing to let themselves be held down.

(with inputs from Aniruddha Ghosh & Audrey Yong)