Singapore-based Mark Matthews, a financial markets veteran, has witnessed many crises. And, having spent most of his life in Asia, including in Hong Kong, Thailand, Taiwan, and Sri Lanka, Matthews in his 24-year career in the financial market has held senior research and sales positions in various financial institutions, including ING Barings Securities, Standard & Poor’s, and Merrill Lynch.

Since June 2011, Matthews has been associated with Julius Baer, the leading Swiss wealth management group which oversees assets under management (AUM) worth CHF (Swiss Franc) 426 billion. He believes that India’s lockdown to contain the Covid-19 pandemic has caused much distress in the migrant worker community, and small- and medium-sized enterprises will no doubt be hit, as the country faces its first quarter of negative growth in over two decades.

However, India’s fiscal stimulus of just 1.1% of its gross domestic product (GDP) is quite small compared to other countries, and Matthews says that it may be necessary to let the currency fall in order to do more.

India’s real economic problem remains its financial system, weighed down by under-capitalisation of state-owned banks, and lending scandals at private banks and non-banking financial companies, says Matthews. In that sense, Coronavirus could be a catalyst for resetting the agenda of financial market reforms, which has so far focussed on punishing malfeasance, rather than recapitalising the system, he adds.

In an email interview with Fortune India, Matthews shared his views on the latest Black Swan event, equity markets, and the long-term opportunities that the current distress offers. Edited excerpts:

What are your thoughts on the Covid-19 Black Swan event? How do you see India fare?

I suspect that in a month’s time, things will look much better. China proved that lockdowns work and its lockdown was less severe than India’s. China’s economy is now back to about 80% capacity.

If India is able to contain the virus in the same way, I am optimistic it can gradually reopen as China did. Mass serological tests, therapeutic drugs, and a vaccine will also help mitigate [the impact of the pandemic].

Given that a health-related crisis (Covid-19) has created a disproportionately worse financial problem, do you think both the finance ministry and the Reserve Bank of India (RBI) have to find novel ways of tackling the economic crisis?

Yes, not only in India but around the world, the virus has ushered in “Modern Monetary Theory”. We cannot rule out the possibility of the RBI stepping in sometime in the future to support the government directly.

Are we going to see a paradigm shift in government policies and measures from the RBI that we have not seen before?

The RBI or large state-owned enterprises may need to subscribe to government bonds or raise money overseas.

The equity markets saw a sharp 40% correction in a little over three months since lifetime-highs in January and posted a sizeable positive correction in the subsequent sessions. How do you read such sharp swings?

In the past, such sudden collapses in the market were followed by a bounce, then a re-test of the low two-four months later. But after that, in most instances, the bull market resumed. I know that seems difficult to believe, given what’s just happened, but in November 1987, after the 32% fall in the S&P, hardly anyone believed the bull market was still alive. In fact, it was, and it rose 60% over the next two years.

Should markets look beyond the Covid-19 pandemic and use the current correction to buy good businesses. Or, do you think there is room for some further correction in the time to come?

We think lockdowns around the world will bear fruit, and combined with progress on the medical front we look for a recovery in the second half of 2020. If we are wrong, then the recovery will be next year. For India, we see annual GDP growth at 0.5% this year, and 9.5% next year. Given the markets tend to discount economies six months in advance, from an economic perspective, the markets should start pricing in better times ahead, around three months from now.

Do you believe the current crisis, though disruptive at the moment, could provide some path-breaking reform opportunities to policymakers?

The virus has overshadowed the inability of the financial system to provide credit. If somehow it can shift reform from identifying malfeasants and punishing malfeasants to a more robust programme of re-capitalisation, especially of the state-owned banks, then that would be a positive thing. But there are no signs of it now.

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