From the CIO’s Desk

13) Decemeber 2022

In the world of volatile news, stay focussed on your financial goals

Published On: 07-December-2022

It is a delight to read cheery headlines in the newspapers these days. Whoever said ‘one reason that dogs are happier than people is that they have no newspapers’ was clearly not referring to recent headlines. Although I cannot vouch for every dog’s cheery demeanour, my morning cheer was for this headline: “It will not only be India’s decade, but India’s century”; this from the CEO of a global consulting firm (news dated Sep 2, 2022).

I refer to this headline not to pick holes in their view or to buttress their argument. For all I know they could be right and I certainly hope they are, for the sake of my children and the generations to follow. The only thing I know for sure is that none of us will be around in a 100 years to know if this prophecy came true.

The moot question is how should investors react to such views and catchy headlines? In my view, it is best to stick to your asset allocation framework that is designed to help you achieve your financial goals; through the ever-fluctuating news cycle. Do not make changes based on the sounds you hear or the headlines you read. Those emotional responses could get you into trouble.

Alternatively, you could get lucky. But that could also be the gambler’s curse. The luckier you get, the more confident you feel; till it all goes wrong on a bet size too large. The best path is the one laid out when you are calm and composed with a disciplined framework. Ideally, keep some room for flexibility in the approach but avoid emotional reactions to news flows.

News headlines and market direction often have an inverse correlation. Bad news abounds at market troughs and cheery headlines dot the blue sky at market peaks. But news is published every day and — if you hunt purposefully — you will find both optimistic and challenging news on most given days. This makes it difficult to use news updates as the anchor of an investment framework.

The dichotomy of news headlines

Many investors know the curse of the magazine cover. It often proves to be a contra indicator. A well-known economics and financial journal published a cover titled ‘Drowning in oil’ in March 1999. This was when oil was trading around US $15 per barrel. In October 2003, the same journal followed with another cover story titled ‘the end of the Oil Age’, with oil trading at approximately US $28 per barrel. Oil prices went ballistic after that and rose to US $ 140 per barrel in June 2008.

In February 1999, a US magazine led with a cover story with economist & US Federal Reserve Chairman Alan Greenspan on the cover, with the title: ‘THE COMMITTEE TO SAVE THE WORLD’. The ill effects of that era of economics left a bruising impact on the world over the next two decades, first during the dot com bust of 2000-2001 and then even more devastatingly in the GFC 2008-2009.

In the hall of fame of long-range forecasting there is a place of pride for the October 2003 report titled ‘Dreaming with BRICS: The Path to 2050 by investment bank Goldman Sachs.

Key elements of the Goldman Sachs forecast; made in 2003:

  • Over the next 50 years, Brazil, Russia, India and China—the BRICs economies—could become a much larger force in the world economy. Using the latest demographic projections and a model of capital accumulation and productivity growth, we map out GDP growth, income per capita and currency movements in the BRICs economies until 2050.
  • The results are startling. If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025, they could account for over half the size of the G6.
  • The list of the world ten largest economies may look quite different in 2050. The largest economies in the world (by GDP) may no longer be the richest (by income per capita), making strategic choices for firms more complex.

Fast forward to today! The aggregate forecast at the heart of the Goldman Sachs report is very much on track. The forecasts for China and India have followed the trajectory of the report. The 2003 forecast that India would have overtaken Japan in terms of the size of economy in the early 2030s was quite unthinkable at that point. Today, we are quite close to witnessing the forecast come true. The report also had China challenging the US in size in the 2040s, which could very well be the path, notwithstanding recent challenges in China. It is also instructive to note that the other two economies — Brazil and Russia — have not maintained pace with the forecasts of 2003 and have disappointed significantly.

The ‘Dreaming with BRICS’ report made a forecast that could be achieved based on the potential of these countries. The implicit assumption was one of competent execution. Nations that got their execution right, managed to achieve the outcomes that their potential suggested were possible 20 years ago. Those that fell short have ‘execution issues’ to blame. I suspect that Russians look back at that report as one of crushed dream. The predicament reminds me of this apt quote by Steve Jobs: “To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.”

In order to understand how listening to guidance can prove counter-productive, we need to jump across to the unusual spectre of a central bank governor apologising for a forecast having gone horribly wrong.

The Central Bank of Australia, led by governor Philip Lowe, issued guidance through 2020 and most of 2021 that under its central scenario, interest rates were unlikely to rise until 2024 or later. This in itself was not unique to Australia and neither was its aggressive monetary tightening campaign in 2022, which took interest rates from a record low of 0.10 per cent to 2.85 per cent within seven months.

But, what if somebody took this guidance seriously and acted on it? One such constituency would be homeowners in Australia. Homeowners have seen the average amount needed to service their mortgage climb from 31.2 per cent of their income in March 2020, to 43.3 per cent in September this year, as per ANZ and CoreLogic’s November housing affordability report.

In November this year, Lowe took the unprecedented step of apologising to those who may have been induced to take on a mortgage based on the RBA’s forward guidance and timeline. “Well, I’m certainly sorry if people listen to what we’d said and then acted on... what we said, and now regret what they have done,” Lowe said.


The term VUCA, which stands for volatility, uncertainty, complexity and ambiguity, defines the world we live in. News headlines are made by and written by those who live in the same unpredictable world. Avoiding emotional reactions to these elements is the best course of action. Set your financial goals, implement an asset allocation framework and be aware of changes, but do not shift with the breeze.

Author Bio

Vetri Subramaniam
Vetri Subramaniam is the Chief Investment Officer of our Company. He holds a B.Com degree from University of Madras and a Post Graduate Diploma in Management from Indian Institute of Management, Bangalore. He joined our Company with effect from January 23, 2017. Prior to joining our Company, he was associated with Invesco Asset Management Private Limited, Motilal Oswal Securities Limited, Kotak Mahindra Asset Management Company Limited, SSKI Investor Service Private Limited and Kotak Mahindra Finance Limited.