China slowdown to weigh on EMs; positive on India: JPM AMC

With the US Fed uncertainty on rate hike still looming large, most global markets closed in the red on Friday leading to a question mark on the outlook for global equities. However, Ian Hui, Global Market Strategist at JP Morgan Asset Management believes it is still a correction in an uptrend and not a bear phase.He is worried about the China slowdown weighing on emerging markets (EMs) and global growth but does not think India would be impacted that badly because the country does not have too many trade links with China. It is unlikely that China would reach the 7 percent GDP target, says Hui.Overall, he prefers the developed market space more than emerging markers but is positive on India. According to him, India has strong reserves and a low current account deficit and its exports to China are also less compared to other Asian markets.Although India has disappointed on the reform front, other initiatives by the government like ease of doing business etc. bode well for the country, says Hui.Below is the transcript of Ian Hui's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: On Friday we saw a lot of global markets unravel post the Fed policy, would you be worried about the global growth slowdown that the Fed alluded to? A: Yes, I will be slightly worried about the global slowdown. It seems obviously that the Fed with their latest decision also seems a bit worried. We have seen a quite a bit of volatility, especially worries about what is happening in China. With the slowdown in China, we probably don’t expect China to quite meet their 7 percent gross domestic product (GDP) target this year. We are still seeing a bit of mix of data there but with China weakening is most likely to drive down the best of the emerging markets and that will also weigh down on global growth. Latha: What are the next few numbers that you will watch out from China? Can you prepare us for something this week or next? A: For China, there is definitely looking at the purchasing managers' index (PMI) indicative or the preliminary ones that will be hitting soon but that is similar to a lot of the other data of a lot of the other countries. We still probably don’t expect it to be above 54, the manufacturing PMI indicators that is coming out next month that still might look like a slowdown but we still look for improvement in the various components such as the new orders, the employment, the prices paid and such. Latha: What about India, would you expect relative outperformance -- India had a huge rally on Friday when other markets were either tepid and were later selling off as they did in Europe and on Dow Jones, how are you looking at the Indian markets generally? A: My view on India, compared to the rest of the emerging markets is still very positive. It is a lot less related to the various trade links with China, which is the main worry. India's exports to China are a lot less than the other major Asian countries. We are also in a much better position compared to a lot of the other Asian countries which are worried about the effects of a rising US dollar. Also it seems India will be generally positive on the political reforms but I know that has probably disappointed a lot of investors and a lot of market analysts recently. I know that goods and services tax (GST) has been delayed but generally on the reform front, we are quite positive on India's attempt there to help with the ease of business, help drive investments. As I mentioned before in our view, India is probably one of the more positive when compared to the rest of the emerging markets. Sonia: Overall for global equities, what is the way forward? Is this a slowdown that could lead to a bear phase in emerging market equities or is this still a correction in an uptrend? A: I think it might be still a correction in an uptrend but I would worry about the effects on emerging markets going to the future. We at JPMorgan Asset Management we are still probably favouring our favourite markets compared with the emerging markets, Europe and the US, they are still growing probably not quite as strongly as we hope but in general, their numbers are still moving forward and looking quite positive. Emerging markets as I mentioned before China is the big issue here, its slowdown and then the effect on the commodity markets and especially since quite a number of emerging markets are so reliant on what is happening with the commodities, that will have quite a bit of negative impact on the emerging market. So for the moment yes, I think still a correction if that still worries that there is going to be a significant slowdown due to the weakness in China. more to come