Emerging markets expert Mark Matthews prefers India from among the pack of developing economies as his top investment bet, saying easing US treasury yields, dollar, and oil prices spell good news for the domestic economy.
"We believe that foreign investor inflows will start looking back at India as the three horseman — treasury yields, oil prices, and dollar rates have started to cool off,” Matthews, head of research-Asia, Juluis Baer Group, told CNBC-TV18 on November 21.
Retreating oil prices, in particular, would have a much bigger impact on emerging markets like India and its inflation reading, as the country heavily imports oil, he said.
The international benchmark Brent crude has tumbled 14 percent to trade at $81 a barrel from its peak of $94 on September 27, 2023.
The reverse trend in treasury yields also means much less competition for India, allowing the central bank the space to start cutting interest rates. “With dollar debt at elevated levels, a weaker dollar is also a positive trigger for emerging economies like India," Matthews said.
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The US treasury yields have declined 70 basis points (bps) to 4.3 percent from a peak of 5 percent touched this year.
One basis point is one-hundredth of a percentage point.
The dollar index, a gauge that measures the American currency against a basket of six major currencies, too, declined 3 percent to 103 from its peak of 106 hit on October 1.
India is also trading at attractive valuations of long-term average 19 times (x) price-to-earnings (PE) ratio after the recent sell-off, he said.
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China's economy, on the contrary, is not progressing well due to worrying signs emerging from the country's property market and sluggish manufacturing activity.
China's factory activity fell to 49.5 in October from 50.6 in September, its first contraction since July, and missed analysts' estimates of 50.8 by a wide margin.
All these factors do not make China a compelling investment case, Matthews said.
What should investors expect from US FOMC minutes?
The market will also be watching for the minutes of the US Federal Reserve’s November meeting to be released later in the day, offering investors an insight into what the rate trajectory would look like.
Matthews said the Fed was unlikely to soften stance and will continue to lean towards a hawkish tone.
"They do not want to let the market zip back again that provides a lot of stimulus. Since US inflation reading has been soft in October, I would not expect much from the Fed minutes as easing oil prices, dollar rates, and treasury yields would support a bull market ahead," he added.
In the November meeting, the US central bank kept interest rates unchanged at 5.25-5.5 percent after last increasing them in July. This was the second meeting in a row that Federal Open Market Committee left rates unchanged.
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