World mkts to rise, India to buzz on growth in '13: AMP Cap

Shane Oliver of AMP Capital Investors explains to CNBC-TV18 that with the fiscal cliff in the US nearing resolution, economically healthier emerging markets and the presence of stimulus halting the crisis in the euro-zone, global markets are set to rise all through 2013.

Oliver adds that Indian markets will gain momentum on improvement in growth and increased inflows as overseas investors start to focus on equities again. Below is an edited transcript of the analysis on CNBC-TV18 Q: Will there be a resolution to the fiscal cliff by the end of December that global markets will react to?
A: The discussions between politicians in the US led by President Obama and House Republican leader John Boehner seem to be progressing. I think there is a reasonable chance that there will be a deal by the end of next week which will allay investors’ fears about a recession in the US. Q: This has been a good year for equities. Do you foresee a pullback in global equities in January or is the momentum strong?
A: I think there certainly is a risk of a pullback in late January-February. Often the seasonal pattern that we see in share markets is after a sort of correction sometime usually around the September quarter but it could go into November, then there is a rally through December and the strongest period of course is around Christmas and New Year in western calendars which is called the Santa Claus rally.
In January, the markets are reasonable, but in February the markets get softer and that would coincide with the Italian election which will probably cause a little bit of uncertainty and the need for Spain to seek assistance bailout funds from the ECB.
So, yes there might be a bit of a correction sometime around February, but by the same token I think the fact that tail risks or risks of extreme meltdown globally are gradually receding. There is a lot of monetary stimulus and the emerging markets are starting to look somewhat healthier. All of these factors suggest that markets will continue to rise through the course of next year. Q: What is your expectation from 2013 as a year for equities and how are you positioning yourself in terms of the big bets that you are taking for next year?
A: Interestingly, the year 2012 despite all the worries, was a year of double-digit returns whether it is the emerging markets or Europe. Believe it or not, Europe, in terms of actual returns after adding in dividends, was one of the markets offering the strongest returns. There were good returns in the US market too. So, most markets have done pretty well over the last year and I think we will see the same thing next year, probably a bit lower, but overall, I would say offering reasonably good returns.
However, markets certainly are not as cheap as they were at this time a year ago. Price-to-earnings multiples have increased by 1 to 2 points. In other words, it has increased from around 10 times high to around 11-12 times. So markets have gone higher and valuations have become more expensive.
But by the same token, the liquidity backdrop has become very easy and I think during the course of the year, increased confidence will see profit growth start to pick up whereas during the course of 2012, profit growth slowed down. So I think there will be another year of reasonably good returns on offer.
Probably seeing the emerging markets and European markets continuing to outperform because they are amongst the world’s cheapest, with the US probably still doing well, but I think the US has been a star performer over the last couple of years and it might start to take a bit of a backseat. Q: What about the expectations in terms of flows for next year?
A: Yes, the flows will be interesting. Obviously, during the difficult period in 2011, the flows that went to emerging markets dried up and investors in the US and Europe kept their money at home and of course where I administrate, a lot of that money went simply into bank deposits.
I think if we moved to an environment where the global recovery continues albeit at a relatively subdued rate and where share markets are still on a rising trend, then some of those flows should start to return and to become more portfolio-based as investors start to become a bit more confident. So I think the flows will become more positive in the emerging world over the next 12 months, including India. Q: What is your prognosis on a market like India then going into next year?
A: The Indian share market is doing reasonably well. It is certainly not the cheapest market in Asia. You have probably got to head north in Asia to find cheaper markets such as China and South Korea. So the valuations are not quite as attractive. The growth pick-up will probably gradually start to come through.
There should see a bit more momentum through the course of the year, with growth sort of picking up to around 6 percent and I think that should underpin reasonable gains out of the Indian share market. But in the global context, I would probably put it around average. I see global emerging markets returning somewhere around 15 percent and I think there will see a fairly similar returns from the Indian share market.