Indian stocks to do well in 2017; no global trade war: AMP Cap

Shane Oliver, Head Investment Strategy & Chief Economist, AMP Capital Investors believes Donald Trump’s invitation to Indian Prime Minister to visit US is a good sign. "Maybe he wants to show that he is not only focused on China and is looking at other countries from that region," he told CNBC-TV18 in an interview.

Oliver is also confident that whatever the rhetoric by Trump, it is unlikely to lead to global trade war because that could backfire on the US and be negative. Trump is focused on creating jobs in the US, says Oliver.

Talking about where India is placed among emerging markets (EM), Oliver says Indian stocks will do better this year after a year of underperformance. The demonetisation impact did hit economic growth but it is the strongest growing market, stronger than China. Narendra Modi’s policies too are on the right path and demonetisation over the longer-term will yield positive results.Below is the verbatim transcript of Shane Oliver's interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal. Latha: We were discussing whether it is copper prices or whether it is Japanese export data. We are seeing signs of global recovery and hence more risk appetite. Would you agree? A: I do agree. I think some commentators should have said that the entire rally in the last few months in equity market has been due to Donald Trump whereas the reality has been that it is lot more broad based than that. If you look at Europe, if you look at Asia, the business conditions have improved quite dramatically. If you look at export figures; Japanese figures today, Korean 20 day exports the other day, they are looking stronger. All those things are indicative of stronger global growth. It is not just optimism about potential stimulus coming from Donald Trump and that is why we are seeing this resilience in equity markets. It\\'s a better growth pickup, it is about stronger profits. Sonia: The other thing I wanted to discuss is what happened overnight - Donald Trump invited our Prime Minister Narendra Modi to the US. So it is interesting. He made a call to Delhi before making a call to any other big country and that shows perhaps some signs of priority as well. How would you read into that and would we have to stop worrying about a lot of these protectionism talks that Trump has made with regards to outsourcing etc? A: The protectionist fear is a valid one but at the end of the day Donald Trump is also a businessman. His key focus is generating jobs in the US and so whatever he comes up ultimately will be one that doesn't lead to a global trade war at least not a lasting one. I think he is going to drive a hard bargain with countries like China in reformatting North American Free Trade Agreement (NAFTA) in North America between the US, Canada and Mexico but I think at the end of the day he will back away from going down a global trade war path because that would ultimately back foreign and US and be negative but the fact is that he is reaching out to countries like India is a good sign. It tells us that he is not isolationist, he is not going to do things negatively; maybe he is trying to sort of say that he is not just focused on China, he wants to be more broadly focused across Asia as well and India is one country that he would like to reach out given its rising economic growth. Anuj: What is your call on India? It\\'s a market which has underperformed, of course not just the developed market but even its emerging market peers. We have seen some bit of correction in that over the last one month or so but for 2017 would it be among top emerging markets? A: I think it probably will. Indeed Indian share market for many years outperformed. It was one of the most expensive markets in Asia and it has been hit recently by demonetisation programme in India which has led to uncertainty about Indian economic growth. However, Indian economic growth is still very strong, it\\'s the strongest growing major country, stronger than China but that is underpinning profit growth and Narendra Modi\\'s policies seems to be on the right path and ultimately demonetisation programme will yield positive results in terms of tax revenue and in terms of impact on budget deficit in India. However, I do think that Indian shares would do probably reasonably well this year after a period of underperformance. Latha: Would you say therefore that 2017 is a better year for the global economy than 2016 and therefore can we bank on this recovery in emerging markets turning out to be a rally for emerging market equities? A: I think growth in 2017 will be better than 2016. A year ago we were all in a state of panic in relation to what the Fed was going to do, economic indicators around the world notably the Purchasing Managers’ Index (PMI) seem to be in freefall. So it\\'s amazing here how things turned out. However, 2016 turned out to be an okay for the global economy. This year growth will be stronger again and it is notable that the International Monetary Fund (IMF), when they released the economic forecast year-to-date, it was a good sign because for the last five years they continuously revised down their forecast. They start off with 3.8 percent for the global economy and turned out to be 3 or something like. Therefore, for the first time in many years we are seeing stability emerge and it looks to me like we are heading into an environment of stronger economic growth and certainly that is consistent with the business condition indicators we are seeing, it released in recent times around the world, business confidence has improved, monetary conditions are still very easy and the same time you are seeing the shift towards fiscal stimulus in countries like the US. Yes, I am confident that the global growth will be stronger in 2017 and that should help emerging markets. The main thing for emerging world would be if the US dollar continues to rise strongly causing debt servicing problems in the emerging world, but I am hopeful that probably won't occur; yes, it puts upwards pressure on US dollar but it won't be that dramatic.