Market optimistic about Fed taper but dollar could be indicating risk-off: Bank Julius Baer

The US Fed has indicated that it will at some point this year taper its purchases of bonds. It has spooked the markets; global equities fell 3-4 percent yesterday. The dollar index has strengthened at 93.5 and crude has seen a sharp dip to $66/bbl. Mark Matthews of Bank Julius Baer & Co, discussed what should be the approach of investors.

He believes that the market is not worried about taper and that in a sense worries him. “Because it is always the things that we are not worried about that take the market down,” he said.

: Taper tantrum back, but this is still a bull market; buy quality on correction

“Right now, the market is very sanguine about the taper, we all know it is coming but we think it is probably going to be slow and spread over a long period but you never know, maybe the dollar is giving us an early indicator of more of a risk-off state. So, I think it is an issue. Is it enough to warrant leaving the market like India? Absolutely not. If there is weakness in the Indian market induced by the taper, I don’t think it will last very long because there are lots of other positive stories that would outweigh it,” Matthews shared.

Also Read: Indian market to remain volatile, expect correction of 5-10%: Avendus Capital

“If there is a correction in the Indian market, I would buy,” he further mentioned.

The major problem with India is that it is expensive. “With the exception of 2009, it always has been. Good things are expensive,” he said.

Also Read: Trade Setup for Aug 20: Will Nifty move further away from record high? Check key market cues before Friday’s session

HDFC Bank raised a billion dollars in the offshore Additional Tier 1 (AT-1) market. “I imagine that other banks will follow because that is a very good rate and so if banks can recapitalise at low rates, that is good for the banking sector,” he said.

According to him, a higher dollar will put pressure on commodities. He further said that he does not expect commodities to do well right now.