Global equity markets not pricing in a severe downturn just yet

The real question is whether we are looking at a covid-style shock... We don't think that's likely. Rig Karkhanis Head of global markets, Nomura

- Gopika Gopakumar & Dipti Sharma

The global equity markets are not pricing in a severe downturn just yet because a covid-style shock looks unlikely, even as there is a risk of a mild recession in the US, according to Rig Karkhanis, head of global markets at Nomura.

Any progress on a US-China settlement could calm market nerves and potentially trigger a turnaround—especially in non-US markets, said Karkhanis. "I think regions like Europe and India could see a significant wave of inflows and investor interest in that scenario."

Karkhanis flagged some selling of US assets—both equities and debt—as investors begin shifting towards Europe, Japan and emerging markets (EMs), especially China after its fiscal stimulus announcement. He noted that while inflows into India are starting to pick up, the trend is still in its early stages. Overall, he believes the outflows from the US have not been significant. Edited excerpts:

Let's begin with the big question that's on everyone's mind right now—the growing fears of a global recession. The IMF (International Monetary Fund) has also flagged potential risks on that front.

How do you interpret these concerns, particularly starting with the US, and what kind of ripple effect could this have on global markets?