Aaron Gurwitz, the chief investment officer at Barclays Wealth, expects India’s economy and its markets to win. He tells his global clients to increase exposure to emerging markets and predicts India will outperform other emerging markets. Excerpts from an interview with Sumit Sharma:
What prospects do you see for a market like India that’s growing fast in terms of the affluent and rich, but is still on a smaller scale?
It is not such a small scale. It has a billion people, which gives you scale in anything that you can think of. The prospects are excellent for both the economy and for the markets — better than anywhere else except for some other large dynamic, emerging economies. It’s not a race. Everybody is trying to grow in a stable manner but quickly. This is one of the places that’s going to come out a winner.
What amount are you managing in India and what prospects do you see?
Our India operations are relatively new. Globally, Barclays wealth manages clients’ assets of about £151 billion ($229 billion).
What opportunities do you see from India?
We started business from scratch a year-and-a-half ago. It’s a great market and is not over-banked. There are lots of opportunities.
How many wealth managers do you have now and how many do you anticipate you will need by next year?
Barclays Wealth has more than 115 employees in India, of which 40 are private bankers. We plan to increase that by 15 per cent this year. We have very aggressive growth plans globally. We acquired Lehman’s private investment business in North America.
Capgemini-Merrill Lynch wealth report shows that the rich across the world have just about recouped most of their losses. Two-thirds of the affluent come from the US and Europe, but their economies are still struggling. What is the outlook in terms of opportunities in the coming years?
In mature markets like north America, UK and Europe, the opportunity for us is to increase our market share. But the greatest opportunity for growth now, this year, next year, this decade, for the century will be in emerging markets in Asia, here and greater China, and also in Latin America. Then there is Middle East and Africa.
The confidence of some of these affluent people was shaken, especially in the US. Will wealth managers adopt a different strategy than say three years back?
We learnt some lessons from the crisis and its aftermath. There’s healthy skepticism about what wealth managers can offer and the industry needs to redeem itself in the eyes of its clients. One of the important dimensions of an investor’s psychology is belief in skills. What we have seen is a sharp decline in belief among our clients. As those who make a living by trying to be skilful, we have to prove ourselves.
Does it prompt managers to increase disclosures and be more interactive?
It should and it does. Even if they didn’t, they would have to, because governments are demanding it anyway and we are more tightly regulated and transparency requirements are greater than ever before.
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Almost all asset classes have risen over the past year. What do you recommend to your clients?
The best advice we can give is to build a diversified portfolio, consistent with your financial personality, risk tolerance, composure, and belief in skill. The strategy should go across broad asset class. Right now, we are recommending that people build portfolios that can do well in the eventuality the big global economy continues to grow, and risk assets perform extremely well.
Even with modest growth, companies are making very good profits, supporting equity markets. On the other hand, the world is on a knife edge, developed countries in particular. If growth slows or we go into another recession, there will be a situation where governments have no ammunition left to deal with the problem in the developed world. Interest rates are already zero, and can’t go any lower. The fiscal policy — tax cuts and increase in spending to support the economy — is finished for political or market-related reasons.
We could go into a slowdown without any ammunition left, with unemployment already very high, with inflation already running below one per cent in the US and Europe, and deflation in Japan. Usually there are expectations of risks on the upside and risks on the downside. That’s not the case now. It’s unlikely we’ll see okay returns, or small losses. It’s either going to be really good or really bad.
Do you see wealth managers focusing more on emerging markets and less on developed economies?
Yes certainly. Our clients around the world should have more exposure to emerging markets than they do now –equity markets, currency and fixed income. Strategically, we think it’s very important as on the returns side, these economies are growing and profits are growing too.
But on the risk side too, emerging markets used to be much riskier than developed countries. Developed countries are getting riskier as many of them have severe long-term fiscal and demographic imbalances.
What would you like to tell a 40-year-old affluent?
It depends on individual financial personality. The only generic suggestion I would give is to diversify in stocks, bonds, cash, real estate and commodities. It also means diversification globally. A good portfolio for an Indian should include assets from outside India.
Anything they should avoid?
Anything they don’t understand. We don’t want our clients to be surprised.
Is there any downside that you see for the Indian economy?
Yes, of course. It’s the global economy. Indian economy will continue to grow but it won’t be eight-nine per cent but closer to four-five per cent (in case of global slump), which for a country like India is not good. Of the large emerging markets, India is the least leveraged to global growth but it’s not autonomous. It’s part of the world. My team would say another risk is the monsoon.
Your outlook on India stock markets
Indian stock markets will give us better risk-adjusted returns than other emerging equity markets. Whether they go up or down depends on what happens elsewhere. If there is a large move elsewhere in the world, this market will go along with it. And any move in the global market will be large in either direction.