Abby Joseph Cohen, senior investment strategist at Goldman Sachs and president of the Global Markets Institute, had predicted the bull run in the 1990s, earning her the sobriquet ‘perpetual bull.’ But even the bulls pause for breath once in a while, and Ms Cohen failed to forecast the sharp decline in the markets during the dotcom bust of 2000-01 and the 2008 crash.
Her career, which began with the Washington Federal Reserve Board in 1973 where she worked as an economist, is the subject of a Harvard Business School case study. She is also one of Wall Street’s most prominent analysts. In an exclusive interview she shares her view of which way the global and specifically the Indian market is heading.
What is your outlook for emerging markets including India?
There are growth opportunities in the emerging markets. We think India will be growing well; we have enthusiasm as well for opportunities in the economies of Brazil and China.
Has the global rally in equity markets run its course?
Our belief is that many markets have enjoyed a sigh-of-relief rally since the beginning of this year, (and) much of this is actually warranted. Now obviously, there is wide variation by market. In the US, we thought the market was 40% underpriced as of February and March. We have seen a recovery of that degree here and any future increase will depend on what happens in the fundamentals, for example, will GDP improve, will corporate profits recover? We do think there will be some additional improvement from here.
What is your view on the dollar and the strength it has shown of late?
The dollar should not be viewed in a vacuum. Obviously any currency has a relative price and we’ve seen that if the dollar in general has been rising over the past few quarters in relation to other currencies.
The US economy for all of its troubles is likely to emerge from recession before some of the other major economies, including Western Europe and Japan, so that’s been one reason for the improvement in the dollar. The other thing to keep in mind is that the dollar may not have been at the equilibrium price when this all began. We do believe that the dollar was priced too low, relative to some of the other currencies in the world.
Could the US Federal Reserve increase rates by the year-end?
Our expectation is that the Federal Reserve would like to do as little as possible for as long as possible. Basically, wait to see if the economy can take on some traction and some momentum of its own, and that being the case, we think the Fed would like to sit back and watch the data. They are also aware of the fact that here are some technical factors that could make the economy look somewhat stronger than it actually is.
Inventories in the US are now at reasonably low levels, so even if demand stabilises, inventory might pick up more quickly, production may pick up more quickly just as companies try to get back to more relationship between inventory and sales. And I think the Fed would like to make sure before raising rates or do anything else to remove liquidity from the system, that in fact the economy has got its sea-legs back.
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