Trade tensions have rattled emerging markets in recent months. William Poole, senior advisor, Merk Investments says the trade war will hurt most countries including the US. In an interview to Samie Modak during CFA Society India 3rd India Wealth Management Conference, Poole says India has the potential to exceed China's growth. Edited excerpts:
Good performance of US is always favourable to other countries. The Trump trade war is not good performance – it is a disaster for the US and the rest of the world.
How will the global trade wars impact economic growth?
The trade war will damage the US the most. An efficient supply chain is essential for competitiveness internationally. The trade war is the beginning to push up prices in the US and disrupt the production process. It has created what macroeconomists call a "negative supply shock."
How much more could the markets fall from current levels if trade tensions persists?
I learned long ago not to attempt to forecast the stock market. I very much doubt that the trade war will be a negative shock on the order of the US housing bust. However, we should not rule out rude surprises. For example, in January 2008 few anticipated the Lehman shock.
Within the Asia, where do you see good opportunities? How does India compare to its peers?
Everyone knows that India has underperformed China. India is a great country and has an advantage over China – democracy. India needs to sweep away impediments to growth. India has the potential to exceed China's growth, and to do so more responsibly in terms of environmental damage than China has done.
Given how the dollar is strengthening will capital flows and investments into India be hit as US-based investors will focus more on their home market?
The evidence strongly supports the view that the best forecast of the exchange rate a month from now, or a year from now, is its current level. If a reliable forecast up or down were available, the rate would already have moved. US investment at home or abroad depends on the expected profitability of investment. Every country has options for improving its investment climate. What is necessary, though, is a long-run sustainable approach. Permanent reform is what is needed. Every country needs to seek a consistent, reliable business climate under rule of law. In many respects, the US is not a good model. It has allowed its investment climate to deteriorate over the years. In many industries, the regulatory environment is problematic. Investors need to focus on what government is doing and participate, to the extent possible, in making government more honest and reliable. Let me emphasize, that the US has its own problems here and is not a model for the rest of the world.