For CY20, brokerages bet on EMS
But have mixed views on India: Morgan Stanley and Credit Suisse are upbeat; Jefferies and CLSA cautious
Emerging market (EM) equities have emerged as the preferred investment destination for global brokerages for the calendar year 2020 (CY20).
Easing trade tensions, they believe, is likely to reduce business uncertainty and improve the transmission of policy stimuli enacted through 2019. Besides, they expect corporate confidence to stabilise in 2020, preventing companies from moving into the labour retrenchment mode.
These, coupled with accommodative monetary policies, make EMS a good investment option.
“While tensions remain in the Sino-us relationship, the level/breadth of tariff imposition may be peaking, helping natural cyclical recovery forces 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 EMS,” wrote Jonathan F Garner, Morgan Stanley’s chief Asia and EM strategist, in a recent co-authored report.
Morgan Stanley has raised its stance on EM equities to equal-weight from underweight and keeps an overweight stance on Japan in the global equities context.
They expect the global economy to start improving in 2020 and continue with this momentum in 2021. “We also upgrade Russia to overweight. Other key major market overweights remain Brazil and India. We remain equal-weight on MSCI China versus EM and downgrade A-shares to equal-weight versus offshore China indices,” Garner wrote.
For India, Morgan Stanley sees double-digit local-currency returns for the S&P BSE Sensex in 2020 with a comprehensive policy easing effort underway to address the deep slowdown in growth and stress in the nonbanking financial sector.
Those at Credit Suisse agree and 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 its “high-conviction” overweights.
“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,” wrote Andrew Garthwaite, MD and global equity strategist at Credit Suisse, in a recent co-authored report.
CLSA, however, remains selective within the EM pack. It retains its overweight stance on South Korea and Taiwan, maintains neutral on China and Australia, and is underweight on India, Indonesia, Malaysia, the Philippines, Thailand, Hong Kong, and Singapore.
Jefferies, too, is cautious on Indian equities given the run-up seen thus far in CY19. Besides, the valuation of the Indian markets is also a concern.
Easing trade tensions is likely to reduce business uncertainty and improve the transmission of policy stimuli