With higher interest rate scenario in India, Andrew Wells, Global CIO of Fixed Income Fidelity International, believes that investors should look to investing in fixed maturity plans (FMPs) which is yielding in double digits. In an interview with Chirag Madia, Wells says that if unrest continues in the Middle East, then crude prices might further escalate. However he also feels that recovery in the global markets would see oil prices at $80-90 per barrel.
What?s your overall outlook on high inflation, which is engulfing emerging markets?
This is largely due to the commodity prices going up in the last few months. Recently, oil prices have gone up due to which we are witnessing high inflation in emerging economies. However, some emerging markets can cope up with higher inflation. We have seen interest rates picking in some emerging markets which will continue to manage the inflationary pressure.
When do you think the inflation in the emerging economies will start tapering off?
I think it largely depends upon how long the prices of commodities remain higher and low interest rate policy continues to push US assets into emerging markets. As long as that low interest rate policy is there in the US, inflationary pressure will remain in most emerging markets.
In the last few weeks, we have seen intense volatility in crude prices. Where do you think crude prices will settle?
The effect of spike in crude oil prices impacts different economies based on its extent of imports. A country like Russia actually is a beneficiary. However, Asian economies, with a mix of import and exports, suffer from higher oil prices because they need oil for fueling economic growth. However, it is very difficult to predict where the oil prices will be in future. There is too much speculation due to current geopolitical issues. But if we continue to witness unrest in the Middle East we might witness crude prices going up further and if there is more stability in the global markets it might settle somewhere between $80 and $90 per barrel. As I said earlier, with the unrest in Middle East and Japan, we might see crude prices going up.
Can investors at this juncture look at fixed income investments given volatility in Indian equity markets?
With interest rates moving up in India, we see that investors are interested in fixed maturity plans (FMPs), as their yields are in double digits. Also, with uncertainty in the equity markets at this point in time such yields look attractive. So, investing in FMPs at this point in time is quite attractive to balance a portfolio.
I think investors should have a balanced view on their portfolio and investing should also depend on their risk appetite. Whether it is equity or fixed income, one has to take a long-term view and not keep switching too often from equity to debt or vice-viersa on a tactical basis.