Why Julius Baer’s Mark Mathews likes both IT and cyclical sectors

The coronavirus has accelerated a move towards fiscal stimulus in the western world which will probably continue throughout the better part of this decade, says Mark Matthews, Head of Asia Research, Julius Baer.

What would you attribute the volatility or the nervousness on the Street to?
Simply, there are a lot of things that can go wrong. Coronavirus is rising again in Europe and there is the upcoming US election. Both are big things. The market is high, stocks are expensive and there are some big events on the horizon. That is why the reason markets are nervous.

Do you feel that perhaps a bigger slide is in the offing or is this just jitters?
We are probably capped here until the election. People will be spending their time looking at elections but that does not mean we are going to go down a lot. Thursday was a relatively decent day by the end of it and markets in Asia are firm today. So, we are probably capped here barring really superb earnings in the third quarter and actually the banks results were good and if they are followed through by beats in other sectors, that would be definitely something that markets would like to see.

What would be the right strategy for the moment?
We still like technology for a bunch of reasons. One, it has momentum and so the technical forces behind that sector are still positive. Two, it benefits from the coronavirus and the low interest rates that have been a consequence of the coronavirus. I could say there is a long-term structural trend. Just like the industrial revolution in the 19th century, we are in the midst of a digital revolution today. It will persist well after the coronavirus goes away.

The technology sector is moving into so many other sectors and it will continue to do that over the next 10 years. We like technology. Having said that, we like some of the cyclical sectors as well. Our preferred one right now would be the material sector because it correlates best with improvement in the Chinese economy.

I am nervous about the market but I am not nervous about China. China looks better and better and materials are the best proxy on China but they would also be a proxy for more government stimulus from the western world. The coronavirus has accelerated a move towards fiscal stimulus in the western world which will probably continue throughout the better part of this decade. That means governments in Europe and America and elsewhere will try to spend more money because there is a big income gap now between the rich and the poor in the west and if they do not spend that money, there will be more social unrest.