Stephane Henry

07 November 2019

Q1: Can you summarise the economic situation in the US and in Europe ?

The US and Europe are now the theatre of an exceptional situation, characterized by a growth in the balance sheet of both Central Banks ie the FED and the ECB. Mrs. Lagarde’s appointment at the Head of the ECB may change its growth-focused agenda but that remains to be confirmed in the coming weeks.
There is now a key element to consider when we forecast equity and bond markets performances, it is the political context.
In Europe, we are fully aware of the Brexit developments, although we don’t understand them all. What is less discussed right now is Italy. We believe that Italy will become a major problem for the European Union and the Euro in the coming years, even probably in the coming months.

More importantly, all eyes should focus on the US, with the upcoming election in one year’s time. If Elizabeth Warren continues to grow in the polls, financial markets are bound to become extremely volatile.
Chart 1 shows the equity market performances since 2006. Two main points: first, between 2006 and today, equity markets ex-US have remained flat. This means 13 years of European and emerging markets performance have been non-existent. Secondly, since 2011, the US equity market has had an outstanding bull run, thanks to the technology sector, which has attracted a lot of investments, while companies’ profits have materially soared.

Q2: How emerging markets are coping with these headwinds ?

Actually, there are two types of emerging markets, again dependent on the political situation. A first category, with a relative stability, like India, where Narendra Modi has been re-elected with a comfortable majority or countries like Russia or China. On the other hand, we can witness an increasing number of social unrests, like in Hong Kong, in Lebanon or in Chile. As a result, equities in emerging markets have on average dropped over the last five years.
I think there is a clear bright spot within the emerging markets universe, it is India.

India enjoys both a favorable macro and micro-economic context, as its largest listed companies are for most of them very strong performers. Chart 2 shows that forecast profit growth for Indian companies currently stands at 20%. In addition, India’s external debt is only 20% of GDP, inflation is going down and so interest rates, which support capital expenditure.

There is also a unique investment culture in India, witnessed by the 28 million of SIP accounts, which flow every month into mutual funds. This is a strong support for future market performance.

Q3: Can Mauritius achieve a 4% growth rate in the coming years?

I strongly believe this is achievable. In other words, since the average world growth rate is typically 3.5%, Mauritius should aim at exceeding the world average by 0.5%.

In my opinion, there are four elements, which should act as catalysts for the country growth in the years to come:

  1. On 10th October, the European Union has approved Mauritius as a compliant jurisdiction in terms of exchange of information. This is a key criteria to attract investments, primarily from Europe;
  2. On 24th October, Mauritius was ranked 13th out of 190 countries in the “Ease of Doing Business” survey. This is a fantastic achievement;
  3. Transport infrastructure and Smart Cities, which are burgeoning across the island, represent a definite advantage to be considered as an attractive place for investments and residence;
  4. I think financial services are on the right path. Outsourcing should continue to grow and employ thousands of skilled professionals in the years to come.