Markets Sell-Off: Unwinding Yen Carry Trade A Trigger? | NDTV Profit
Transcript
00:00We've got Anurag Singh, who is Managing Partner at Anset Capital joining in.
00:04Anurag, the reading is, thanks so much first of all for taking the time this morning,
00:08but the reading is that the easing off or the loss of the carry trade that we've been witnessing
00:16in Japan and also the weaker economy than expected in the US are playing out in terms
00:23of the sell-off in risk assets and the move to treasuries. Is that what is indeed happening and
00:29how are you reading the signs right now? Alex, good morning. Look, I think it is very
00:35hard to say for anybody to what extent what factor is playing, but I think let's lay out
00:41some of the important parameters. I think you spoke about some of the data that came out from
00:45US. I understand yen carry trade is a factor which for the last like more than 10 years,
00:52I think this borrowing in yen and investing into US markets and even other emerging markets
00:59across the globe, that has been the practice. I understand with a 25 basis point hike by Bank of
01:06Japan will impact this. How much to what extent, we have seen on the margins it might do, but
01:13I don't think it's something that markets need to worry beyond a point. And I think the markets,
01:20especially in US, has already taken that correction. Emerging markets,
01:24each market behaves very differently. So I think we have to go market by market.
01:29But let's also look at, Alex, the other parameters. Now, look, US markets,
01:36you know, with 5600 on S&P and NASDAQ 1800, 18,000 plus, I think we have to keep in mind that
01:44about six stocks were carrying the entire weight of the growth in 2024. And, you know,
01:51currently we are still for the year, we are about 12% up both on NASDAQ and S&P, although NASDAQ
01:58has lost about 10%, you know, fairly quickly. But when six stocks are carrying the entire weight of
02:05the market, then I think anything wrong or anything slightly disappointing on the results
02:11and for many of these six players, you know, will jolt the markets. I think we saw this in
02:18Amazon with a very silly logic that, you know, the Trump assassination and Olympics are impacting
02:24its customers buying less on the portal. I think that's as silly as it gets. Nvidia results are
02:30fine, but I think market is worrying that, you know, is the AI story really a case of over
02:37investment and less ROI? So I think there are individual cases where, and we saw Warren Buffett
02:43sold Apple, right? Apple has, as a company has not been growing top line for the last three years
02:48broadly, right? So give and take, I think at some point, the profit booking was imminent in at
02:54least six stocks. And when that happens, the index really takes a beating because those were the ones
02:59responsible for the rise of index. Yeah. Third parameter, I think you mentioned about the
03:04unemployment and all those numbers. I think those numbers are true. But it's not that one, look,
03:09economy has been cooling down. And we all expected that. But I think that's good news, because that
03:16will prompt Fed to lower rates. And look, 10-year yields are already at 3.8%, just exactly what the
03:22markets wanted. So I think this is a turmoil, we should quickly get past this. And I think Federal
03:27Reserve should definitely now be more aggressive in cutting rates. Yeah, in fact, that is the next
03:32question, right? In fact, we're talking about the 10-year Treasury at 3.73. It's down over 40 basis
03:38points in just about a week. And people have made a killing in the bond markets, forget the equity
03:43markets. You're looking at a shift in capital. But the question is how much further and what is it,
03:48what are the bets that are currently being built in? Because if the three rate cuts that are
03:53currently being priced in by the street do not come to pass, what are the implications of that
03:58in the second half of this year? So one is the, look, everything in the bond market in US is
04:07indexed to the 10-year Treasury yield. And I think market in a way has already done that job
04:13for Federal Reserve. It's at 3.8%. So you know, well, Federal Reserve might take time to drop the
04:20rates this year. And I think they might do three rate cuts. Two were anticipated earlier, they'd
04:24be more comfortable doing three now, unless something slows down even dramatically from here.
04:30But the 10-year yield, if it stays below four, I think that's pretty much what Federal Reserve
04:37wants, that the market should do the job and help cooling off the markets. So well, that's where we
04:44stand. Look, I think, Alex, beyond a point, I don't believe so much in these probabilities of
04:50rate cuts, which change almost every week. I have maintained the stance that we can expect two rate
04:55cuts this year. Federal Reserve projection also is broadly in that direction. So I think we should
05:02broadly, you know, kind of assume that by end of 2025, which is next year, Federal Reserve should
05:10be at around 4.1%, which is their projection, which should be good news. But having said this,
05:16they're not going back to zero. So that's something which everybody should kind of
05:19keep in mind that is not pre-2008, you know, post-2008 time. So that, you know,
05:24they'll kind of stay at 3.5. All other factors remaining equal. No one could have foreseen
05:31COVID-19. And there are a lot of things that we can't foresee right now. Anurag,
05:36thank you so much for taking the time for speaking to us this morning.
05:38I appreciate it, Alex. Thank you.