Like India on falling inflation; prefer DMs over EMs: JPM AMC

From the equity allocation perspective Ben Luk, Global Market Strategist, JP Morgan Asset Management prefers developed markets over the emerging markets, particularly Europe over USA. However, within the Asian basket, he is upbeat on India, China and Japan and expects them to outperform the rest of Asia in 2016.

With respect to India he says, falling inflation has not only made India a favourable investment destination but will also give RBI room to cut interest rates.

He is also hopeful of the passage of GST and Land Acquisition bills in India in 2016.

Moreover, according to him the depreciation of the Chinese currency Renminbi is good because it would help stablise the Chinese economy, which in turn would help Asia’s economic stability.Below is the verbatim transcript of Ben Luk's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: It has not started on a happy note for emerging markets in Asia, how would you read the Chinese data? Should we see fresh reverses for equity and commodity markets in Asia?A: If you look at the Purchasing Managers' Index (PMI) number that came in, it definitely was weaker than expected but I think overall we continue to see that the servicing sectors are going to do fine. We continue to think that China is going through, there is some structural slowdown over 2016 and we do believe that the gross domestic product (GDP) number will slow down from 6.9 percent this year to 6.5 percent next year.Overall if we look at some of the other numbers that came in, last couple of days -- the retail sales numbers as well as some of the property pricing numbers, it is still okay but definitely it is slowing down. However, I think it is a good thing to see that the renminbi is depreciating. The renminbi has been appreciating too fast in the last couple of years that has slowed down exports and given that now the People\\'s Bank of China (PBOC) has emphasized, the renminbi will now be focusing on the basket of currencies rather than on the US dollar. It is good thing for lot of these exporters rebuild some of those volumes.Sonia: What is your equity allocation strategy for 2016, which are the markets that you prefer the most?A: If we look at the equity portfolios that we prefer, we definitely continue to like the developed market over the emerging markets in particular we like European equity markets the most as opposed to the US equity market. Within the Asia portfolio we like India and China and Japan in general. We think of three of these countries have a couple of positive notes definitely reform measures continues to be very positive for China and for India as well as the quantitative easing (QE) measures by the Bank of Japan (BoJ) will push earnings growth higher. So overall, in Asia perspective, India, China and Japan will outperform the rest of Asia given all the things we have seen in 2015.Latha: As an Asian market investor, how would you read the Chinese yuan depreciation?  Today the official depreciation is 0.15 percent but in the offshore markets, the yuan is trading as low as 6.61, should we worry about this?A: If you look at the offshore, we continue to see that there is 3-5 percent depreciation gap going into 2016. We think it is very important to have a weaker renminbi in order to stabilise the Chinese economy because you need to have a stabilising Chinese economy in order to stabilise the overall Asian economies because China remains to be a power house for all the neighbours around them. So it is a good news that the renminbi is depreciating. In the short-term sentiment wise it is going to affect the equity markets but in the long-term, I think depreciation is very needed in order to save China and that will also help Asia in the long run.Sonia: What is your view on India particularly because in 2015 we saw foreign institutional investors (FIIs) pull out a lot of money and the cynicism over the government's reform process has increased in the last five-six months, how would you approach India particularly in 2016?A: Going into 2016, we like India because inflations are coming down, we think the Reserve Bank of India (RBI) is now fading inflation targets which is great in order to maintain inflation at lower level, which allow the RBI to lower interest rates to stimulate growth if needed and that is something what we also expect this year to come from the RBI. We have obviously seen foreign investments pulling out but energy reforms have been there. Going forward into 2016, we definitely hope that they can pass the land acquisition reform and also the goods and services tax (GST) tax bills -- all of those are going to boost ease of doing business in India and re-stimulate some of those foreign investments back into the Indian market, which is something that we are expecting in 2016.Latha: How are current valuations looking like in India, would you buy any of the Nifty stocks at current levels of 7,900 on the index?A: If you look at the Indian valuations, the price to earnings valuations have always been higher relative to Asia. If we look back at the history right now, it is not too expensive. We still like India because on the earnings growth numbers, 2016 remains to be one of the highest at 17 percent within the Asia Pacific region. So given that the overall backdrop is quite favourable for us, we think it is quite a good opportunity to tap into the Indian market right now.