'Asia to drive global growth, but US may surprise on the upside'

The global economy could grow above 4% this year driven by Asia, but the US economy is likely to surprise on the upside, says Christian Nolting, managing director, regional head of portfolio management & lead strategist, Asia-Pacific, Deutsche Bank in an interview with ET. Mr Nolting is bullish on emerging markets like Korea, China, India and Indonesia. But he feels institutional investors are booking profits in emerging markets because of the run-up in prices, and deploying that money in developed markets.

What is the current composition of your global portfolio? What is your outlook on equities in general?

Currently, we have almost an equal allocation for bonds, equity and alternate assets. The equity allocation has been increased from 15% a year ago to about 36% currently, including a 5% holding in private equity. If we look at different asset classes in this environment, equities are our favourite. We think that the global economy could grow above 4% this year driven by Asia, but also US should surprise on the upside. Currently, about 9% of our portfolio is invested in emerging market equities and 22% in developed markets.

What is your broad investment strategy for different asset classes?

We believe there is a need to take an asset class call in order to outperform the markets. This could only be done by maintaining an active portfolio and not through ‘buy and hold’ strategy. Investors following a ‘buy and hold’ strategy in the US generated negative returns of 9% in the past 10 years. Similarly, in the case of Asia (excluding Japan), returns were about 45% for the same period. In order to generate superior performance, there is a need for more decisive and dynamic asset allocation calls and not just ‘buy and hold’.

What is your outlook on emerging markets, in relation to developed markets?

Among emerging markets, we are bullish on countries like Korea, China, India and Indonesia. However, the run-up has been very fast over the past one year. We are seeing some institutional investors booking profits and shifting their investments to developed countries, which look to provide some good returns in the near future. Due to high growth expectations, emerging markets like India are already crowded. Hence, they are not as cheap as they were before. Money may shift to developed markets like US and Japan if this trend continues.

What is your outlook on India? Which are the key areas of concern?

We expect the Indian economy to grow at a decent rate. However, one of the major worries is high inflation. Inflation has become a major cause for concern in the entire Asian region. In the case of India, inflation is still higher. This is expected to moderate from the second half of this calendar year due to a high base and a lag impact of tightening of liquidity by RBI. Another important factor that will be watched by investors would be monsoon. If we look at historical data, monsoon is expected to be good this time.