Prefer North-East Asian mkts over South-East: StanChart

Steve Brice, chief investment strategist, Standard Chartered Bank prefers North East Asian markets like Hong Kong as it is a way to get access to China.

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Speaking to CNBC-TV18, Brice says north Asia is preferred over south and south east Asia as investment destinations due to the fact that north Asian countries don’t have large current account deficts (CAD) and their stock valuations are less stretched. Below is the edited transcript of Brice’s interview to CNBC-TV18. Q: The emerging market crisis is now deepening and we are seeing quite a bit of fall in currencies, not just in India but some of the other currencies as well. But in specific, looking at India and the kind of dollar denominated fall that we have seen in equity markets, what is your call at current levels. Can things get worse in India?
A: The short-term momentum is strong in terms of seeing further outflows from Indian equities. If one looks at equity outflow so far, that has been high and we could see some further coming out. We are all waiting for policies to come out and improve the growth profile, reduce the risk of a downgrade and stabilising the currency and that is very difficult whenever it is focused on it. It is clear that some areas are not that focused on it. So, central banks seem to be more focused on growth now in terms of rhetoric, but we need to see that coming through in action while also trying to stabilise currency. It is a very difficult situation for everybody. Q: Where does India stand in the pecking order for the emerging market and what is your pecking order for emerging markets?
A: We still have a preference for North East Asia over south and south East Asia and that is largely due to two-three factors. Firstly, north Asia is more exposed to global growth cycle, they do not have current account deficits (CADs) and valuations are less stretched there, so all of those factors arguing for North East Asia.
If one looks at North East Asia, our favourite market Hong Kong. We prefer that as a way to get access to China. We are still very concerned about the outlook for reforms in China. In south and South East Asia, our preferred market is Malaysia.
Obviously, we are seeing significant weakness coming through there in terms of currency, but on a relative basis within south and South East Asia, we believe that Malaysia is more defensive, it has high dividend yield and all those factors should be on a relative basis preferential.