New York Now, which tells you how to invest in the global market. Today, we prepared an interview with John Mayer, Global X Chief Investment Officer.
CIO Mayer is an expert with 25 years of Wall Street experience. He has worked at Merrill Lynch, Bank of America, UBS, etc. and has been working for Global X since 2017.
I had an interview once in December of last year. The market has changed a lot this year. I think it would be good to compare how the perspective on the market has changed compared to last year’s interview.
▶I had an interview last December. At the time, I also asked regarding the market outlook. From a macro-environmental point of view, isn’t it significantly different from the situation at the time? So let’s start with that. You mentioned in the interview at the time that liquidity will support the market. The stock market has been falling sharply this year. Both the Nasdaq and the S&P 500 entered bear markets. What might have contributed to this unexpected bear market?
“It is definitely different from the situation at the end of last year, and the market is struggling with various problems. First of all, inflation has skyrocketed. In my last interview, I said inflation would peak at around 6%. Line inflation is close to 8% For now, a tight labor market is causing wage inflation, and the war in Ukraine is also exacerbating food inflation. High energy prices are impacting the entire ecosystem. High energy costs It puts more inflationary pressure on consumers, all of which has to be addressed by the US central bank (Fed). In fact, it has been slow in tackling inflation until now. Recent announcements have hinted at the possibility of a rate hike above the neutral rate to tackle inflation. Markets are also responding positively to the news as they want to catch inflation. This is the current situation, let’s look at the outlook following interest rates rise. When interest rates rise, the cost of capital rises and the price of risky assets falls. A great deal of uncertainty has been created in the market. War and other inflation problems overlap. “It’s definitely a different situation than it used to be. Contrary to what was believed to be temporary inflation, it has proven to be a persistent and deep-rooted problem. These are the circumstances that have caused the bear market.”
▶The next question must be regarding inflation. According to what you said in the last interview, you said that inflation will stabilize by the middle of this year as the imbalance between supply and demand is resolved. As you can see, inflation is still a serious problem. You mentioned earlier that the war in Ukraine was also the cause of the current situation, but what is the reason for such a high inflation?
“The world has not yet entered the post-pandemic era. Most of the Western countries are trying to get back to their old lives, but still some supply chains are forced to depend on other parts of the world. There is still a corona epidemic in China and Shanghai has been under lockdown for nearly two months, and Beijing may be under lockdown, which has made supply chains worse, while demand is rising. People who have been out of the house for a while are only recently starting to lead a normal life. The demand for goods is now shifting to the service sector, but supply chain problems and energy costs are rising due to the Ukraine war, which is a major factor driving inflation today. It’s trying to cut demand, because the Fed can’t affect the supply chain, but it can potentially control demand. If interest rates are high enough, consumers will feel pressured to buy less. And the tight US labor market is causing inflation. “The U.S. currently has very low unemployment, and the Fed is trying to raise it, but the problem is still serious.”
▶Then, when do you think the price will stabilize?
“It’s a very difficult question. It’s definitely going to be later than the mid-2022 I mentioned before.
It is difficult to predict the exact time. The Fed has just started raising rates and so far has only raised it by 75 basis points. So I think it will be around 2023.”
▶The next question is regarding technology stocks. How much more will it fall? I think everyone is curious. Tech stocks, which were once soaring to the benefit of the pandemic, are continuing to plummet in 2022. You saw tech stocks positively in the last interview, but are you still thinking the same thing?
“I think it depends on which sector of the technology stock is. Solid technology stocks such as Apple and Microsoft are currently down regarding 20%, but I think these companies are much less affected by the capital market. They are already capitalized enough. So you don’t have to worry regarding high financing costs. Also, you have the ability to pass on some of the increased production costs to the end consumer. These companies have an advantage. They may experience short-term declines, but quickly in the long run. It’s very likely to recover, compared to companies that are highly dependent on capital markets. A brief market downturn doesn’t mean technology and innovation will stop. Of course, you’ll run into some problems. It may stop or slow business growth, because when interest rates are high, it may be difficult to obtain smooth and affordable capital. I think the lucrative tech stocks will do well going forward, not just in the next few months, but over the years. In the long run, I think quality tech stocks will prosper and continue to grow.”
▶Then, do you see this as an opportunity to buy high-quality technology stocks at low prices?
“It’s hard to say it’s a cheap buying opportunity. We’re in a bear market right now, and there’s the potential for further declines. There’s plenty of room for further downs. Looking at some tech stocks, there are still a lot of stocks above the pre-pandemic level and potentially down. The possibilities are still there.”
▶ Various experts made similar predictions. The stock market was strong in the first half of this year, but following the Fed raises interest rates, it was expected to be weaker than before. As you can see, the market in the first half is not very good. What are your predictions for the second half of this year? You also predicted that the S&P 500 would rise 8-12% by the end of the year. Do you still think so?
“I don’t think so. I think the market rebounds rather quickly following going through an overcorrection. But it’s hard to be sure if the market has already bottomed out. In general, looking at the selling pattern, institutions like hedge funds will start selling first. When institutional investors sell, so do individual investors, but at the moment there is a lot of short selling by both institutional and individual investors, which can be interpreted as a sign that market participants don’t think the bottom has come yet. I will not comment on the year-end S&P 500 outlook in detail, but I believe that an uptrend is highly likely following a further decline, as the market always moves forward and interest rates have only risen by 75 basis points. suggested that it plans to raise 50bps each over two meetings, and I had been looking at the market reaction before I started my interview today, and it seems they have reacted positively to Powell’s speech. We look forward to the future in ~9 months, but I do see the possibility of further declines.”
▶Then, do you think there is a possibility of a recession or stagflation?
“The risk of a recession is growing, but I think it’s still around 30%. If GDP grows by 3.1% as predicted by the US Congressional Budget Office, it’s not a recession. Negative growth for two consecutive quarters is considered a recession. Negative last quarter That said, some numbers have been distorted by some numbers. We expect positive growth in Q2. Recession risks are rising and we think growth will slow. That’s what the Fed intends. And in the end, it is directly related to growth.”
▶ The stock market is experiencing tremendous volatility. It looks like this volatility will continue for a while. How should investors respond to these market conditions? Also, are there areas in the market that you are paying special attention to, positive or negative?
“Interestingly, I don’t think the volatility of the current securities market is as great as I thought. The current VIX (fear index) is regarding 29. Compared to the pandemic situation in March 2020, the VIX index at that time was in the 70-80 range. The stock market is not very volatile, but interest rate volatility has been high and is in a downward trend. I expect the trend to slowly change over time in the future. I think the market has been somewhat ahead of its time. As you know, a stock price is a cash flow for future earnings. It’s only natural that stock prices are falling as the sector’s performance is declining. We give the same advice to our clients, but in the future, we should invest in quality companies. These companies have gone through the same sell-off. Actual returns are a little less than growth stocks. It may be crazy, but I’ve experienced a sell-off like any other stock, and it hasn’t changed my mind at the beginning of the year looking forward to 2022. Investors should focus on companies with high performance potential and high profitability. A company that can pass the burden on to consumers is good. The less reliance on the capital market, the better. We will have to look for companies with these characteristics.”
▶Global X also operates themed ETFs. What themes are you interested in?
“The war in Ukraine reminded me once more. Europe’s dependence on Russia for energy was very high. During that time, Europe had been supplied with 40% of its energy from Russia. It is absolutely impossible to sustain this in the long term. It became an opportunity for the nation to think regarding the importance of energy independence. In order to achieve energy independence, we have no choice but to rely on clean energy. Not only clean energy technologies such as solar and wind power but also electric vehicles will receive attention. Lithium, one of the raw materials for batteries Lithium used in batteries for electric vehicles is currently in huge demand. The price of lithium has nearly quadrupled in the past few years. So I think it is good to invest in raw materials such as lithium. Electric vehicles are spreading rapidly and this trend will continue to happen in the future, as various automakers around the world are also transitioning from internal combustion locomotives to producing electric vehicles.”
▶The last question is regarding cryptocurrency. In the last interview, you mentioned that volatility is very high, but it is a noteworthy area. Are you still thinking the same thing?
“That’s right.”
▶ How do you view cryptocurrency?
“The volatility of cryptocurrencies is already well known. You must have seen the price of Ethereum or Bitcoin plummet. However, what I am paying attention to in cryptocurrency is the technology called blockchain. It is questionable whether cryptocurrencies can be used as money due to their volatility. Even stablecoins that were thought to be stable have shown instability. I came to realize that they are not stable and reliable than I thought. Cryptocurrency continues to evolve. It needs to be done, but it’s playing an important role in the financial technology sector, and I think it’s going to be an area to watch out for, but at the same time it’s also very volatile.”
▶ Because of blockchain technology, you see the cryptocurrency market positively.
“Because technology does not disappear. Some currencies may disappear, but Bitcoin is not going away.
New York = Correspondent Youngyeon Kang yykang@hankyung.com
