We Like Stocks Tuned to the Young, Healthcare, IT
Geoff Lewis, global market strategist with Capital Markets Group of Manulife Asset Management said he is neutral on India in the short term but believes the longterm outlook remains positive. In an interview to Sanam Mirchandani, Hong Kong-based Lewis said there is still no case to be overweight on emerging markets: Edited excerpts:
Is the recent rally in emerging markets sustainable? At the start of the year, we saw a big fright over US monetary policy, China hard landing, strong dollar appreciation and collapse in commodity prices. We are now seeing that those fears were exaggerated. But there are not much signs of big improvements. We need to see an inflection point in earnings for Asia and signs that exports are starting to improve. If that happens, emerging markets can see a powerful rally. Inflows into emerging markets have been positive in the last 3-4 weeks but the sustainability will depend on whether we are moving towards a stronger global economy.
Are there concerns about the long-term growth prospects of emerging markets? In the long term, even if emerging markets grow slowly than in the past, a 3-4% (growth) in a country like Taiwan or Korea is better than a growth of one-and-a-half to 2% in the US. From a three- to fiveyear view, we place emerging markets as positive and the valuations also look good. But we are still in a situation where there is not enough growth and materially better external prospects for emerging markets. There are no real green shoots as far as the economic data is concerned in emerging markets. We will see a short term rally, then a bit of disappointment. The worst is probably over in terms of emerging markets’ relative underperformance but there is no strong case to be going back heavily overweight just now.
ON EMs’ SHOW
Where does India stand then? On India, we are neutral in the short term but the outlook is reasonably good in the long term. India has got its domestic growth sorted, inflation is under control and it has a credible central bank. We need to see signs of better earnings and investment pick-up in India.
What is your assessment of the Reserve Bank of India’s policy? The 25 basis points cut was in line with expectations and warranted by underlying inflation trends, but I do not expect a rapid succession of cuts — maybe one more in 2016.
What are the themes or sectors that you like in India? The themes we like are stocks that are tuned to the younger generation of Indian consumers, leaders in IT, healthcare and some industrials like aero engineering, plus some budget airlines. We are avoiding energy and materials.
Is the worst over for China? S&P has recently cut the country’s credit rating... China probably has done enough in terms of fiscal and monetary policy easing and the stabilisation of growth will probably begin in the second quarter although the data doesn’t really show it yet. There is not enough evidence yet that the Chinese economy has stopped decelerating but I think they are doing enough. We believe that China will stabilise in the second quarter and that would be quite important for emerging markets.
What do you think of US Federal Reserve chair Janet Yellen’s recent dovish comments? Comments from Yellen were very measured, balanced and sensible. It was misinterpreted to a degree in the media that this is a major change in the US policy to give a much bigger weight to the fragility in other economies. We have a high conviction that there is not going to be a US recession. The US is in a much better place than Europe, Japan, Russia and China.