Negative rates, more easing to prop up emerging markets: Max Life's Vora

MUMBAI (Reuters) - Emerging market stocks and bonds, assets deemed as more high-risk, are likely to benefit in a world of negative interest rates, Max Life Insurance’s chief investment officer said.

“We have seen too much underperformance versus U.S. equities and bonds,” Mihir Vora, who manages $9 billion in assets, told the Reuters 2019 Investment Outlook Summit. “But a big caveat - only if the quantitative easing sustains.”

“The reality is that globally we are at a place where there is no choice but to keep perpetuating the balance sheet expansion and QE,” Mumbai-based Vora told the Reuters Global Markets Forum on Monday.

Vora was referring to the massive monetary easing by the U.S. Federal Reserve and other major central banks in the aftermath of the 2008 crisis to try to stimulate their economies by flooding financial systems with cash and depressing long-term interest rates.

That quantitative easing (QE) caused a massive rally in emerging markets that lasted until 2018, when hint of a gradual policy tightening by the Fed curtailed the rise in higher risk equities and currencies.

As a long-running U.S.-Sino trade war and tech sector slowdown sapped growth, the Fed pivoted, moving from shrinking its balance sheet by around $50 billion per month through July, to expanding it by $60 billion monthly by October.

MSCI's emerging markets index .MIEM00000CUS has risen 1.6% so far this year, but it is up a mere 1.1% since 2010.

Vora said that although the U.S. Federal Reserve may seem to be done with its “insurance” cuts, its bias to keep monetary conditions liquid continues.

“There’s an unnamed QE already on, and the Fed balance sheet is already expanding again, after having reduced for three quarters,” he said.

Vora doesn’t expect a quick end to the rally in world bond markets, as “the balance sheet expansion is so big that the direction cannot be changed any time soon.”


The sustained easing by central banks coupled with the Indian government’s fiscal easing measures will buoy the domestic markets, Vora said.

Vora’s sectoral picks in India included private sector banks, retail-lending non-banking financial companies, passenger car companies, capital goods and government-owned privatization candidates.

Max Life Insurance, a private Indian insurance firm that invests only in the domestic markets, reduced its holdings of cash to 2% from 9% after Sept. 20, 2019, he said.

He attributed the cut in cash holdings to corporate earnings’ upgrades due to India’s recent corporate tax cuts.

These were “the first concrete action by the government which put corporates and investors ahead of other considerations,” he said.

Vora also cited the announcement of privatization of government-owned companies, along with beaten down valuations of public sector enterprises and mid- and small-cap companies in India, as a factor to reduce cash.

“The hope is that finally the government will do whatever it takes to get (the economy) going.”

((This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform. Sign up here to join GMF: ))

Reporting by Divya Chowdhury; Editing by Vidya Ranganathan and Tom Hogue