What has been carried out to make India more accessible to FDI and portfolio funding are necessary developments, however the balance of the economic system is more crucial, says Jonathan Garner.
As stock markets soar in India, ET NOW caught up with Jonathan Garner, Chief Asia, and Emerging Market Equity Strategist, Morgan Stanley to get his view on earnings revision trends in India and outlook on Asia & Emerging Markets.
“Earnings in India have been more in the middle of the pack, while earnings estimates in North-East Asia particularly in China, Korea, and Taiwan have turned more rapidly than elsewhere in their coverage universe”, said Jonathan in an exclusive interview with ET NOW. Currently, we have an equal-weight recommendation on India in the Asian markets portfolio and we could see the Sensex level of around 40,000 again if all goes well. However, they continue to have more upside particularly for China equities and one of the things that we are monitoring is liquidity and retail investor sentiment, he added.
He believes, the sustainability of the financial system is crucial and it is important for the overall economy and earnings to have a stable and persistent source of credit to business and households. He believes that Public sector banks are in better shape as there has been some action but shadow banking credit crunch in India has been partially addressed.
Jonathan added, overall EM index is about 4-5% above target and would certainly not recommend a strong buy now. Some of the risk factors that need to be monitored are US presidential elections, US-China tensions, and earnings. US markets could be weak in the two to three months running up to US presidential elections in November and while US markets have seen sharp recovery, it is important to monitor if earnings come through. The good thing is that US and European earnings cycle has begun well but US-China tensions need to be monitored closely.
‘Have been arguing for a weaker dollar particularly against the Euro’, said Jonathan. He believes that the US dollar is affected by Fed policy more than the US election cycle. Long term real interest rates (10-year maturity) are about -90bps and that real interest rates are going further into negative so that suggests the market is expecting the Fed to be even more simulative.
Momentum factors are exceptionally strong globally. Many biz models are already doing well particularly in e-commerce, internet space, select consumer business is doing even better in work from home environment. He believes that once we get a rise in real interest rates value stocks would do better than growth stocks.
Global investors have actually been reducing their underweight position in China in recent months, this is due to better economic performance and better earnings revision patterns. Investors not much concerned about US-China tensions said Jonathan.
