“So, on the one hand, it is expensive; on the other hand, I think that rates are going to stay high. If we are lucky, we get one more rate cut from the US but even that, I would say the odds are 50-50,” says Mark Matthews, Julius Baer.

What is your big call for 2025?
Mark Matthews: My big call is at some point during this year there will be a sizable correction in the stock market, I would say in the magnitude of at least 20%. But I cannot tell you when that will be. That, however, I am quite sure will happen at some point this year.Move into US dollar, do you think that is getting slightly crowded and everyone is on the same side of the board because emerging markets, including China, which are cheap and which have a case why flows should be coming back into emerging markets, flows are moving away.
Mark Matthews: I do agree that the dollar is a big issue and it is one of the reasons why Indian market has been quite soft recently because foreigners have been selling. Now, fundamentally, the dollar is extremely overvalued. It is as expensive as it has ever been. But on the other side of the coin, there is tremendous amount of uncertainty about the rate of economic growth and inflation in the United States because of the incoming Trump administration and as Fed Chair Jerome Powell said in his Q&A with the press last month, it is like walking into a dark room that has got lots of furniture in it or driving a car on a dark and foggy night, you have to move very slowly. So, on the one hand, it is expensive; on the other hand, I think that rates are going to stay high. If we are lucky, we get one more rate cut from the US but even that, I would say the odds are 50-50.

But what leads you to believe that there could be that impending correction in the markets?
Mark Matthews: Yes, well, the reason is, number one, they have done very well over the last two years and so they are no longer cheap. The US is on around 27 times its last year’s earnings, that is by historic standards, on the pricey side. The long-term PE ratio is around 20 times. Now, the good news is there is earnings growth. Earnings growth will be in the mid-teens, the consensus thinks, for the US this year and next year. I have no reason to doubt that, but it is something that is already anticipated.

And even if you factor that in, you are still looking at 22 times two years from now. It is not wildly expensive, but I certainly would not call it value. So, if you add the fact that the market has done so well with the fact that rates are probably going to stay high, I am not saying everything will go down, but I do think some of the things that have gone up a lot can correct and those are the things that could take the S&P 500 index down.

So, if rates they stay higher and if money will gravitate towards dollar, do you think that the outperformance in US tech stocks will also stay?
Mark Matthews: No, I do not think they will outperform. They will perform in line at best. The market is starting to realise that, a little like the internet back in the 1990s, it is happening, artificial intelligence it is happening, it is for real, it will have a hugely positive impact on efficiency, productivity, etc. Many great things will be invented.
But back in the 90s, the way people were playing the internet was through companies like Dell or Qualcomm or Oracle or Cisco. We know those were not the really big long-term winners in the internet. Those were companies that barely existed back then, like Google, or in some cases, they did not exist at all, like Facebook. And so, today, it is the same.People are starting to realise those hyperscaler, mega-cap, Magnificent 7 companies are not necessarily going to be the big winners in AI and just to give you a small example, Google, of course, they have many engines of growth, but the biggest one is their search engine, that is coming under big pressure from alternatives like, for example, Perplexity. Many other artificial intelligence chat boxes are producing superior results to Google search and with much less clutter, much less advertising.

So, cash is giving 4% return. Do you think it is a matter of time someone would say that 4% is not bad? It has been a good level for financial. It has been a good patch for gold, Bitcoin, US tech stocks. So, do you think somewhere it is time to pivot back into cash?
Mark Matthews: Yes, the problem is the situation we are in now is a very tricky one, because sometimes at the end of a bull market, the best returns are at the end of the bull market. And so, I would not want to become extremely bearish right now because we do not have all the indicators to confirm that a top is in.

But there is more and more that are coming in to suggest that. So, we have not reduced our own risk in our portfolios. But we are suspecting that at some point this year, there will be a reason to do so and so for now, no. But at some point, yes, there will be a time to move into cash.

So, for the preference in terms of emerging market, China is cheap but India is where the growth is. When do you think this interplay will be more and more evident because for the first half of last year, it was India; second half of the last year was China. What do you think would be the dominant theme within emerging markets this year?
Mark Matthews: My hunch, it is a theme that nobody really is talking about, which is that the Chinese property market will stop going down and I think that is going to happen. And if it does, it will be a tremendous surprise because nobody is expecting it to. Everybody thinks that Chinese property prices are just in an endless downward spiral.

But volumes actually have started picking up and prices in the tier I cities have started rising. So, to my mind, that would be the major thing, because 80% of Chinese household wealth is in residential real estate. And if prices there bottom, even start to rise a little bit, that will have a tremendous impact on their consumer confidence, and I would think in turn, business confidence.

What about Bitcoin because that was being pegged as a more risk on kind of trade. But where do you actually see the cryptos headed in this year?
Mark Matthews: It is a tough call. But I mean, I actually cannot hazard a guess. All I can say is that they have gone up a lot. I cannot hazard a guess on that. The problem is the valuation. It is hard to put a value on them. Up until now, the idea has been that there is a limited supply, but potentially endless demand. But I would rather not answer because I do not have a good answer, I am sorry.

But where does that leave gold, considering you are foreseeing an impending correction in the equity markets? You talked about the Chinese real estate market. What about gold? Do you see safe haven, move towards that asset class?
Mark Matthews: Well, there are two main dynamics with gold. The first is geopolitics and the second is the emerging market central banks and households in emerging markets who have been pretty consistent buyers of gold for the last few years. Geopolitics, I do not know what to say. I mean, on the one hand, I think that Donald Trump will try to create a situation where there is a ceasefire in Ukraine and I doubt the Russians would accept that if it was not contingent on unfreezing Russian financial assets that have been frozen, that would be negative for gold.

But I also hear that Putin is in no hurry to agree to a ceasefire because the war seems to be moving his way. And he is looking for actual regime change in Ukraine, not just the parts of the country that are under his control right now.
So, geopolitics, it is sort of too hazy to be able to see what the picture is there. But the demand from emerging market central banks and households in emerging markets, that I feel is pretty constant for gold and so, there is a structural case for gold continuing to go up because of those two big buyers.

This entire adjustment, which is called the Welcome Back Trump rally, whether it is in gold, whether it is in Bitcoin, whether it is in global energy stocks, do you see a shelf life in this?
Mark Matthews: I do. Actually, I think that on balance what it means is a higher rate of GDP growth in the United States and generally, we should construe that as a positive. But what I think it probably means is a broadening out of the market away from this highly concentrated market of the last two years in mega cap technology stocks into more cyclical sectors that would benefit from a stronger economy like industrials, like financials, and I would say also midcaps.

We do not really like smallcaps in America because about half of them are unprofitable, but the midcap space is very big and has some extremely good companies in it. So, I would say the Trump trade is more in those areas than mega cap tech.