Carlos Asilis, the newly appointed chief equity strategist of financial services firm Prabhudas Lilladher, has a chequered career. A former chief US investment strategist at JP Morgan Chase, he has been with many Wall Street firms, both on the sell-side and the buy-side. Having advised the central bank governors of Lebanon and Egypt on monetary policy, his career spans multiple decades, market sectors and geographies. In an interview with Manoj John, Asilis discusses the changing investment environment. Excerpts:

What are the asset classes you are positive on in the short to medium term?

In the short term, we are bullish high quality equity markets (India is a case in point) as well as high-grade corporates. In the developed market world, we favour IT, healthcare and energy. Within the emerging markets world, we favour local sector plays, including consumer durables, and capital goods.

Which are the investment avenues in the overseas market that hold out hope for Indian investors?

The Reserve Bank of India has liberalised the rules for Indian individuals and institutions to invest overseas. However, Indian investors have not yet taken advantage of this opportunity in any meaningful way. Although the Indian economy and the markets provide a very attractive investment opportunity, it is never advisable for investors to have 100% exposure to one country at a time when rules allow geographic diversification. Investing in emerging markets ex-India such as Brazil, China, Korea and Russia can provide very good investment opportunities for Indian investors. There are attractive opportunities to generate superior risk-adjusted returns in the US large cap equities and US investment grade bonds as well.

Could you provide some examples of US large cap stocks and US investment grade bonds in which Indians can invest?

On the high grade bond space, I would recommend Indian investors to gain exposure via funds as individual security selection is challenging and the gains from diversification are large. In the case of US large cap stocks, I would recommend healthcare, IT and energy sectors, especially the larger capitalisation stocks within each of those sectors.

What are the opportunities available for Indian investors in Brazil, China, Korea and Russia?

The desirability for an Indian investor to be exposed to other high growth markets such as Brazil, China, Korea and Russia is predicated primarily on the gains from diversification.

For example, the Brazilian market holds several very well-run large capitalisation companies in the commodities and energy space such as Vale and Petrobras. In the financial sector, there is Itaubanco. In Russia, companies such as Gazprom and Lukoil trade at attractive valuations relative to global peers, and represent exposure to the important natural gas and oil sectors, not only in Russia but also in Europe and Central Asia.

The Russian market holds several local demand plays such as wireless telcos Vimpelcom and Mobile Telesystems, which trade at cheap valuations compared with their global peers and exhibit growth exposure not only to the Russian but also to the Ukrainian economy and others in Asia, including Vietnam. China and Korea are high-growth markets that provide multiple investment opportunities. China’s consumer space and Korea’s IT hardware, petrochemicals and financials sectors are brilliant.

We would advise Indian retail investors to

gain exposure to these markets through exchange-traded funds (ETFs) and country funds rather than direct buying of individual stocks as they might lack the expertise and time needed for constructing these stock portfolios.

How do you see the attitude of Indian high net worth individuals (HNIs) before and after the Budget announcement?

I think the attitude of Indian high net worth individuals is cautious optimism. Although the initial reaction was one of disappointment due to the lack of any major reform measures in the Budget, we think the HNIs have realised the importance of the government’s emphasis on regaining growth via fiscal stimuli. As with all the policies, the execution and implementation by the government will determine the success of such a move.

What would you recommend for them in the present scenario?

The asset allocation weightings underpinning any individual HNI portfolio needs to reflect the special financial characteristics of the Indian investor in question. At current levels, relative to a benchmark neutral weighting (say 50% stocks, 30% bonds, 10% commmodities and 10% cash), I would recommend an overweight exposure to stocks relative to bonds and an underweight exposure to energy commodities, and overweight exposure to agriculture commodities. The specific magnitude of the overweight/underweight deviation will respond to the specific characteristics of the individual investor.

What is your perspective on the global recession and the ways to overcome the crisis?

The ongoing global recession has its roots in the financial industry’s outsized growth during the 1996-2007 period. Such growth was fuelled by a combination of an overly loose monetary policy stance during the Greenspan Fed era, laxity in the regulatory and supervisory areas of the financial system, and a misguided household sector, fixed on the notion that the present and future consumption could continue to be financed by asset price revaluation into the indefinite future.

Thus, going forward, remedial actions need to focus each of these areas: a revision of the monetary policy stance in economies displaying deep asset markets; an overhaul and rationalisation of the financial system regulatory and supervisory infrastructure, and a reversal of household savings behaviour to sustainable levels. Happily, over the past few months we have witnessed action on each of these fronts. While the adjustment period is far from over, the response thus far represents a step in the right direction.

Could you explain “a revision of the monetary policy stance in economies displaying deep asset markets”?

By that I mean the need for the Fed and Bank of England to take on a more activist policy stance as regards the price momentum displayed by asset markets (including real estate and stock market).

Therefore, periods of froth in asset markets, during which real estate and stock market valuations move significantly above the norm (such as the period leading to the tech bubble of 2000 and real estate bubble of 2007), would trigger a tightening of the monetary policy stance and vice-versa.

It is our contention that the Fed’s almost exclusive focus on goods inflation, as opposed to asset inflation, has been misguided and such misguided protocol (policy stance) lies at the core of this crisis’ genesis.