• Thu. Sep 29th, 2022

Comments from Prashant Jain & John Reade| Morningstar Investment Conference

Sep 23, 2022
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Prashant Jain (ex-CIO, HDFC AMC) spoke at Morningstar Investment Conference

The Indian economy is extremely well placed and resilient to global volatilities as we have undertaken key policy reform measures in the last few years. There has been a significant improvement in business improvement in India with the work from home concept gaining mainstream acceptance during COVID phase. The reforms undertaken have unlocked lots of opportunities for India on the back of our demographic dividend which is one of the best in the world. Europe is in the throes of surging inflation and struggling with weak demographics while USA is grappling with dwindling labour productivity. Going forward, I foresee a strong professional workforce in India having not just strong software competencies but also the requisite soft skills needed to face a global competitive ecosystem.

At the same time, I feel that we should gear up our resources, both human and material, to scale up our manufacturing efficiencies on par with China. I think in the post COVID-19 world, the world has realized the importance of decoupling supply chains which were concentrated in China. The world is eager to accept and implement the China plus one model. The Indian government is very supportive of encouraging manufacturing through various initiatives. And finally, the continuing energy crisis in Europe which is likely to be exacerbated going further, will make manufacturing a challenging affair in the continent. In a nutshell, it would not be an exaggeration to suffice that given our favourable demographics, key policy reforms that have been undertaken in the country and our bandwidth to accelerate our manufacturing and service delivery capabilities place us at an advantage to become a global industrial and economic power over the next 10 years.

John Reade, Chief Market Strategist, World Gold Council spoke on the asset at Morningstar Investment Conference 

The biggest thing that affected gold in the first half of the year 2022 was the war in Ukraine. The risk and uncertainty component saw gold go up. But now six months into the war, investors have become complacent about that. They are no longer critically worried about Russia’s invasion of Ukraine.

If you look at the forecast ranges, for all of the components of gold demand, which obviously are major contributors to the price, they’re really wide. And they’re wide because of the uncertainty that has been introduced, because of the Russian invasion of Ukraine. We’re going to see lower jewellery demand this year, we believe, principally because of the ongoing COVID lockdowns in China, that had a big impact on the second quarter, probably a lesser impact in the second half of the year. Central banks, including the Reserve Bank of India, have been buying gold now for the last 12 years, and we expect that to continue this year. But there’s a huge amount of uncertainty about what will happen since Russia produces more than 300 tonnes of gold a year. I believe, based on the work that we’ve done, that gold is a unique asset because it is the best diversifier of portfolios.

If you look at what crypto assets have done to your portfolio, over the last 10 years, they have benefited that portfolio. And they’ve benefited from that portfolio, because of the strong returns they’ve given you. They haven’t benefited your portfolio, thereby reducing volatility, they’ve increased the volatility of that portfolio. So if you’ve owned crypto, you’ve done okay. But what you haven’t done is you haven’t diversified it’s the equivalent of sticking more high-risk equities into your portfolio. So when people say that gold is going to be threatened by crypto, I completely disagree. I think it’s going to probably benefit gold as well as crypto adoption, which may or may not take place.

India is a very important market for gold. 69% of demand for gold each year is driven by emerging markets. When people ask you how much gold you should have in your portfolio, there’s no one answer. It depends on what else we’ve got. In general, around the 10% level seems to be about right for India. And I find that interesting, because it’s higher than most other countries.