“Let us say the tightening does have unintended consequences. Let us say it has started in crypto where a lot of damage seems to have been done. What if that spills over into the special acquisition company – the SPAC companies or more of the new technology companies,” asks Andrew Holland, CEO, Avendus Capital Alternate Strategies.
What is your take regarding this entire reopening theme which has been working out well for most part of the year? Do you think the best is already behind us because there is another fresh Covid wave that the Street is worried about? Is this the right time to book out of some of those trades?
We were all hoping that there is no real pickup in Covid cases. The cases have been rising but it is not to the levels which would warrant lockdown again. The whole reopening trade will continue for some time yet. If I just look at the kind of chaos that we are seeing in getting in and out of Europe, particularly the UK, then it is just going to lend itself to saying that it is easy just to stay where you are in your own country and travel around.
What is your take regarding this entire reopening theme which has been working out well for most part of the year? Do you think the best is already behind us because there is another fresh Covid wave that the Street is worried about? Is this the right time to book out of some of those trades?
We were all hoping that there is no real pickup in Covid cases. The cases have been rising but it is not to the levels which would warrant lockdown again. The whole reopening trade will continue for some time yet. If I just look at the kind of chaos that we are seeing in getting in and out of Europe, particularly the UK, then it is just going to lend itself to saying that it is easy just to stay where you are in your own country and travel around.
So I do not see that going away. I was at one hotel last night for an event and they are saying it is not just the kind of weddings and birthday events that people are having. It is now the corporate sector starting to have more and more events. Then he mentioned one bank which has had two events in the same week and minimum revenues for this are quite high for the hotels.
I do not see that stopping. So unless there is a big increase in the Covid wave in terms of infections, I really see this reopening having more legs in terms of expenditure that we are going to make day in and day out just to get out of the house and enjoy ourselves. We will just boost earnings significantly over the next quarter or so. It is a trade which I don’t want to move out of at the moment.
What is your outlook on the rural agri theme, given that we have got the monsoon approaching and indications are that it is going to be a normal monsoon this time around? Would there be any themes that you would be betting on?
Not really, not in the short term and the reason behind that is whilst there will be themes coming from this, I am just a bit concerned for global markets in the next one quarter as the Fed starts reducing its balance sheet. That is really the key for our markets and there are many different themes in different areas but for the time being, for the next two to three months, it is still kind of battening down the hatches a little bit and see how this starts to play out globally.
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The data coming out of the US is very mixed. We have got the jobs data but share prices are telling something else at the moment. That is going to be the theme that we have to look at. It is going to be driving our markets.
Is it already factored in the price or not yet?
Let me put it slightly differently. With the Fed starting to reduce its balance sheet, the question I have is what are the possible unintended consequences of this tightening? Which asset classes are affected because the ample liquidity has been sweeping some of the problems under the carpet. We have not seen anything yet and maybe we would not and if that was the case, then I agree that a lot of the things have been factored in.
But let us say the tightening does have unintended consequences. Let us say it has started in crypto where a lot of damage seems to have been done. What if that spills over into the special acquisition company – the SPAC companies or more of the new technology companies?
The market is disregarding potential risks at the moment. What China did last year in increasing interest rates was the unintended consequences of the problems they had in the property market and a number of very large companies virtually defaulted on their loans. That is the worry I have because after all that ample liquidity we are seeing since Covid started, as soon as we raise the rates and tighten the liquidity, the next two to three months will show some of the outcomes.
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