Gold, Silver, AI, and Indian Stocks: Joanne Goh on Where Value Lies Now
The Impact of an India-US Trade Deal on Market Sentiment
An India-US trade deal is poised to elevate market sentiments, curtail policy uncertainties, and act as a catalyst for capital flows. Amidst global market volatility, fluctuating rate expectations, and evolving growth narratives, investors are reevaluating their asset allocations across commodities, equities, and AI themes. In a discussion with ET Markets, Joanne Goh, Senior Investment Strategist at DBS Bank, provides insights into the current landscape of gold, silver, and Indian equities.
Gold and Silver: Precious Metals Maintaining Momentum
Are we witnessing euphoria in the silver trade?
– Silver remains more volatile than gold, with potential wild price swings. However, are we at the onset of a multi-year bull run, or has excessive optimism cut this cycle short?
– Our perspective on gold and silver remains optimistic, as key structural drivers continue to support precious metals:
1. US fiscal concerns and monetary debasement risks
2. Ongoing macroeconomic uncertainty
3. Central banks’ persistent buying and reserve diversification
Short-term catalysts also bolster gold’s appeal, such as:
– A weaker dollar
– Geopolitical tensions
– Potential further monetary easing
With a price target of USD 5,100/oz by 2H26, the outlook for gold is promising. Silver has also gained traction as investors turn to real assets to hedge against monetary debasement. According to the World Silver Institute, silver demand has consistently outstripped supply for three years due to:
– Supply disruptions
– Wide-ranging industrial applications (solar panels, medical equipment, etc.)
Navigating Asset Diversification
What to consider in asset allocation?
Asset diversification has faced challenges as many investors succumb to FOMO (fear of missing out) amid the precious metals rally. Here’s what to keep in mind:
– While we remain positive on gold’s risk-diversifying role, it’s essential not to let short-term fluctuations drive asset allocation decisions.
– Regular portfolio rebalancing is vital. It’s advisable for investors to align their holdings with strategic long-term financial goals.
Periods of strong performance, like the current precious metal rally, can lead to deviations from target allocations, automatically increasing risk. Adhering to predetermined allocations helps prevent panic selling or excessive risk-taking.
Examining the AI Boom
Is the AI boom becoming unsustainable?
While the AI sector shows signs of froth, leading companies are notably profitable with strong cash flows. For instance:
– Data from Meta suggests AI-driven ad tools could generate USD 60 billion by end 2025.
Instead of fearing a significant crash like in 2000, we might expect a consolidation phase in the next 1-2 years:
– A bifurcation will emerge as genuine AI value creators are rewarded while less efficient companies face corrections.
Investors can engage with the AI trend without overexposure by exploring industries outside tech. Corporates leveraging AI to enhance efficiency offer promising risk-adjusted opportunities. Emphasizing large-cap companies, which possess more capital and data, enables better scaling of AI adoption, creating a widening productivity divide.
The Outlook for Indian Equities
What’s the status of Indian equities and foreign investments?
Despite recent earnings downgrades—revising 2025 growth estimates down from 17% to 11%—we foresee gradual improvement driven by:
– Full implementation of 2025 policy measures (GST cuts, RBI’s interest rate reduction)
– Strong domestic liquidity and continued participation in equity mutual funds.
Indian equities currently trade at a premium, often around 50% above Asia ex-Japan averages (forward P/E basis). After a period of underperformance, this premium is now resettling, signaling a potential return of foreign investments, especially in consumer and banking sectors.
Looking Ahead: Trade Deals and Tax Adjustments
Will the India-US trade negotiations influence FII returns?
The Indian rupee faced depreciation amid significant global and domestic pressures, yet ongoing discussions over an India-US trade deal could shift market perspectives by:
– Reducing policy uncertainties
– Catalyzing capital flows
As the annual Budget approaches, potential tax incentives for foreign investors may arise, including:
– Possible reductions in Long-Term Capital Gain (LTCG) tax
– Adjustments to tax-free LTCG thresholds
Such measures could further enhance the allure of Indian equities to foreign institutional investors.
Conclusion: Where to Find Value
In the wake of fluctuations in gold, silver, and the booming AI sector, along with evolving Indian equities, investors are encouraged to maintain a discerning approach. By understanding the structural factors at play and recognizing the implications of policy decisions, investors can strategically position themselves to harness emerging opportunities across precious metals and promising markets like India.