Nov 11, 2012, 10.01 AM IST | Source: CNBC-TV18

Year 2013: Goldman Sachs bets on emerging markets, India

Year 2012 has been a good year for most Asian markets. In an interview to CNBC-TV18, Timothy Moe, chief Asia-Pacific regional equity strategist at Goldman Sachs says things look a little bit better in the emerging world.

Timothy Moe

Chief Asia Pacific Strategist, Goldman Sachs

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Year 2012 has been a good year for most Asian markets. In an interview to CNBC-TV18, Timothy Moe, chief Asia-Pacific regional equity strategist at Goldman Sachs says things look a little bit better in the emerging world. "We are certainly looking in our official forecasts for the relative performance of the emerging markets to outstrip that of the developed ones," he adds.

He is looking generally at a slight firming of growth for most Asian economies next year. “Against the backdrop of a modest pick up in growth, overall, we think that should bode well for the corporate earnings environment and consequently for equity market performance,” he elaborates.

He further says sentiment for India is turning positive. "In order to become more constructive from here we need to have a bit more confidence that the industrial production cycle would indeed begin to turn up. Our economists are hopeful that it may begin to be more visible sometime in the middle part of calendar 2013, maybe around June or so," he adds

Given the fact that equity markets tend to be forward looking, it will suggest that as we go through the next few months, it might be wise to be opening up one’s hopes a little bit more towards the upside. "But we still think, right now, it may be a bit premature. As opposed to feeling that the risks as previously were lined up more on the downside, we think the risks are balanced and actually shifting towards the more constructive side as we look forward in time," he asserts.

Also read: India may surpass US economy over 'long term', says OECD

Below is the edited transcript of his interview with CNBC-TV18’s Udayan Mukherjee.

Q: How do you view 2013? Do you see 2013 being an encore?

A: Our early views are on the positive side. We have currently extended our targets to September of next year. We are just in the process of finalising our views for next year-end. But our expectation for the MSCI Asia-Pacific, ex-Japan Index, is 500 on the index level, about 10-12 percent upmove from current levels. If you add-on some dividend yields on top of that, you can get to a mid teens type of total return for the region as a whole. So, our starting premise is one which expects a further building on this year’s constructive returns to propagate into next year.

Q: Would that happen regardless of some headwinds from the developed markets or are you factoring in some kind of tailwind from those shores in 2013?

A: We certainly are endeavouring to include all our global views in our MSCI Asia Pacific views. I would say that the outlook for the developed market is bitter sweet. The bitter side is that the absolute level of growth will no be as stellar as it has been in previous years. But in terms of the delta, the change between 2012 and 2013, we do expect that many of the developed markets will be incrementally better.

For the global economy, as a whole, we are looking at 3.1 percent growth this year in Purchasing Power Parity (PPP) terms. We think that it will rise to about 3.5-3.6 percent next year. If you think about the developed world, the US, we think will grow about 2 percent. For the US, you can basically decompose that into a good private sector. But a headwind from the public sector, the much discussed fiscal retrenchment that is taking place and the fiscal cliff.

For the Euro area, we think there will be a very slim recovery from current recessionary conditions. So, this year, for the Euro area, we are looking at about minus 0.5-0.6 percent GDP growth. For next year we will have about 0.1 percent or thereabouts, just a very, very slim recovery, better in the core, still challenged in the periphery.

For Japan, next year, we are looking at just sub-2 percent growth. We have actually taken numbers down little bit in the last few days. We are still looking at about 1.6-1.9 percent around in there, that sort of level of growth. So, for the top three global economies, the picture is one of a little bit better growth year-on-year generally, but still at a subdued rate overall.

Turning to the emerging world, things look a little bit better. China, which obviously is the largest of the emerging economies, we are looking at a pick up in growth from about 7.6 percent this year to about 8.0 percent next year. That will have some good ripple effects throughout the rest of Asia. We are looking generally at a slight firming of growth for most Asian economies next year. So, against the backdrop of a modest pick up in growth, overall, we think that should bode well for the corporate earnings environment and consequently for equity market performance.

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