Published on Tue, Mar 31, 2009 at 09:36 | Source : CNBC-TV18
Updated at Wed, Apr 01, 2009 at 13:46
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Mkts to rally throughout 2009: JP Morgan
Adrian Mowat, Chief Asian & Emerging Market Equity Strategist at JP Morgan feels that investor sentiment still bearish and said that emerging markets would trade flat this quarter. However, he expects markets to move higher throughout 2009, especially Asian markets as its fundamentals are comparatively stronger.
Q: In a couple of days from now we are going to hit earnings including full year guidance from some companies, what are you expecting to hear on the earnings front both from the Asian basket and from India as well?
A: I think that we will get a mixed picture for results in Asia but the markets will view the economic data. If the economic data is improving then I will treat Q1FY09 results as somewhat historic. We would expect to see a continuation of a trend of relatively high provisioning as management incentives to give them a cleaner slate as we go into the balance of the year. The critical thing here is it is back to the end demand story. If we continue to see an improvement in economic data out of China and that broadens to the other Emerging Asian economies which we think it already is to places like Korea, look at the business sentiment survey, how that picked up, as that occurs we will treat results as historic information rather than forward looking.
Q: You were pointing out the divergence of performance that we have seen in the US market versus some of the Asian markets this year, is it time to revisit the decoupling debate again?
A: This time I think we are de-coupling in so far as emerging markets are flat. China-Asia market is up 30% year-to-date (YTD) yet European and Japanese markets in US dollar terms are down 15% and US is down 10%. So we are de-coupling, which means on bad days we will fall less and on good days we are rising with the US market. But I think you need to go back and look at what is happening with the economic fundamentals. When there was much debate about de-coupling in early 2008, it was a mute point because we had rising inflation and therefore had very little policy flexibility. Now that we have a disinflation trend, there is a huge amount of policy flexibility and that is being used very aggressively in Asia and much more aggressively in emerging Asia than we are seeing even in Latin America and certainly much more than in emerging Europe where there are structural issues that those economies are dealing with at this point in time.
Q: Is it still a clear comparison between China and India in terms of which market to pick and for a lot of people we have been speaking with election seem to be quite front of mind for them, how do you read that as a possible mood turner?
A: Social tensions in China are a strong incentive for the Chinese government to ensure that the economy continues to grow and generates prosperity and growth and employment. So there is a perversity to fearing a social unrest in China in that it helps the economic conditions through the policies that are employed. It is difficult to develop a strategy around elections in India. For half of the six elections the markets had risen ahead of that elections, the other half it fell and you get the same statistics on the other side.
What I would say is that the market's expectation for the Indian political scene is still very conservative so there maybe some room for an upside surprise. India already has a massive fiscal stimulus; in that civil servants salaries were increased and also farmer's debts were forgiven.
The Reserve Bank of India (RBI) is likely to push rates down to 4%, which will help growth. So I am not too concerned abut the political situation. If anything I think markets are under-reacting to the political situation between China and Taiwan, where relations continue to improve in a practical way both in terms of investment as well as direct trade links.
