“While tensions remain in the Sino-US relationship, the level/breadth of tariff imposition may be peaking, helping natural cyclical recovery forces to come into play in Asia after two tough years. The US dollar has finally begun to turn (favouring EM more than Japan) and our team expects further decline next year. We think 2020 could be a year of portfolio reallocation to EM,” wrote Jonathan F. Garner, Morgan Stanley’s chief Asia and emerging market
strategist in a recent co-authored report.
Morgan Stanley has raised their stance on EM equities to equal-weight from underweight and maintains an overweight stance on Japan in a global equities context. They expect global economy to start improving from 2020 and continue this momentum in 2021. “We also upgrade Russia to overweight. Other key major market overweights remain Brazil and India. We remain equal-weight MSCI China versus EM and downgrade A-shares to equal-weight versus offshore China indices,” Garner wrote.
Those at Credit Suisse agree and also maintain their overweight stance on EMs. Global emerging market
(GEM) equities owing to worries over China’s slowdown, trade concerns, and a stronger dollar, Credit Suisse says, have become too cheap and are a good investment bet for 2020. Within EMs, India remains one of their high conviction ideas with an ‘overweight’ stance.
“We believe one of the key drivers of GEM equities is the currency. Many of the tactical factors (relative economic momentum, relative earnings revisions, a stabilisation in China PMIs, the rise in foreign exchange reserves and positioning) are now much more supportive. This is one of our top high-conviction overweights for 2020,” wrote Andrew Garthwaite managing director and global equity strategist at Credit Suisse in a recent co-authored report.
Jefferies, on the other hand, remains cautious on Indian equities given the run up seen thus far in CY19. That apart, valuation of the Indian markets
is also a concern for them amid slowing growth.
“We remain defensive, also noting that India's extended valuations amid buoyant flows also appear to price in tailwinds from announced and anticipated policy interventions like income tax cuts. Financials may continue to do well, but discretionary and staples may not. We remain underweight on both in our model portfolio, therefore, still preferring industrials and technology instead," says Somshankar Sinha, managing director and head of equity research for India at Jefferies.
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