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Last Updated : Aug 25, 2015 06:28 PM IST | Source: CNBC-TV18

Overweight on DM stocks but also like India, China: JPM AMC

From a 6-12 months perspective Ben Luk, Global Market Strategist, JP Morgan Asset Management is overweight on developed market equities like US and Europe and underweight on emerging market (EM) equities. However, amongst the EMs, he is still positive on India and China.

Ben Luk, Global Market Strategist, JP Morgan Asset Management in an interview to CNBC-TV18 said it is important that investors stay composed in these volatile periods and long-term focus on fundamentals.

Most equity markets according to him have already priced in the concerns with regards to slowdown in China because the economy has been weakening for many months now and not just last couple of weeks.

From a 6-12 months perspective he is overweight on developed market equities like US and Europe and underweight on emerging market (EM) equities. However, amongst the EMs, he is still positive on India and China.

While for India although the earnings season wasn’t so good, but that has been factored in. The country is also likely to see further structural reforms and cleaner current account deficit, which makes it a positive story. With regards to China although it is seeing slower growth, the structurally concerns are improving, property prices are picking up and consumption is at higher levels now.

Foreing investors are keenly watching if PM Modi can go through key reforms to lift private investments, which will give a boost to the Indian economy, said Luk.

Below is the transcript of Ben Luk's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: Are we going to see a lot more of treacherous moves in the market or have the market now discounted that China is little slower than they thought and the worst is priced in?

A: We are seeing that the overall equity market has priced in a lot of the concerns. The Chinese economic data didn't just been weak in the last couple of weeks but it has already been weaken for many months already.

However, what we are seeing right now is that the commodity prices at least the oil price have chopped already close to USD 40 per bbl, so the extra room for further deterioration is no limited.

The another concerns that we have would be -- a lot of investors are worrying whether or not the Fed rate hike is going to affect further capital fly away from the emerging markets. Given what we have seen prior to the rate hike, when we are seeing emerging market economies and exchange rates are adjusting, we do not think this is going to be a continuation. Therefore, a lot of investors right now, if they stay compose at the short-term volatility but stay on the long-term, focus a lot on the fundamentals.

Sonia: What are the top preferred equity markets to invest into for the next 6-12 months?

A: Overall, we definitely still remain overweight and positive on the developed market equity story. The very good number that I would like to highlight is if we look at 1980 to 2015, over 35 years when you were investing in the S&P 500 - in those 35 years despite the fact that every single year we saw intra year decline, from the top point to the bottom point level over 10 percent, a drop in every single year but out of those 35 years, 27 years have ended positive, so there is still 77 percent percentage wise of a positive market.

Therefore, the overall corporate fundamentals remain solid, the overall economic stories are also improving. We definitely like the US equity market on European basis as well European growth is slowly pulling up. We are seeing stronger credit growth from the banking sector, so both of the markets are the ones that we are focusing on. On the other hand, emerging market (EM) equities would be an area where we will still remain an underweight for now.

Latha: You may be overall underweight on EM, but is there a pecking order in which you may be a buyer in some markets? Would India figure there at all?

A: Overall, when we look at the EMs, Asia remains to be a favourable prospect for us within this space. Definitely one of the strong standing overweights that we like would obviously be India as well as China.

In China, we are seeing slower and slower weakness but the structural concerns are slowly improving. We are seeing property prices picking up, we are seeing consumption still at a high level.

India with the earnings season not being so positive but overall that has already filtered in. And we are seeing that with the ability for further structural reforms and overall a cleaner current account deficit a much smaller level now, India remains to be a positive story for us as well.

Sonia: So, what kind of returns can we expect from India for the next one year?

A: If we are just expecting an earnings growth, that would be a single high digit return that we are seeing right now. On the one hand, it is more to do with whether or not Modi at the end of the day can lift through key structural reforms to lift private investments; that remains an area that as foreign investors we really want to see more and more -- not just public investments, but private investments as well to boost the overall India story.

Latha: Up until yesterday, and even early this morning, most traders we spoke to wanted the Chinese Peoples’ bank of China (PBoC) or the government to show some kind of support in the form of a reserve requirement ratio (RRR) cut or a rate cut. If that were not to come, would the markets take it very badly? If they did, what would be the reaction?

A: We have all expected some sort of easing from the PBoC during this weekend, but what we have seen over the last couple of weeks was despite the Chinese central bank not going through with RRR cut or interest rate cut. They are going through other channels of providing of liquidity to the stock market into the economy.

We are seeing stronger repo purchases, we are seeing stronger lending loans especially, to the policy banks to push through infrastructural spending. So, despite the fact that we have not seen a clear RRR cut or interest rate cut, we know the Chinese government is on the back of this and helping stimulate some liquidity easing in general.

Going forward in the second half of this year, we do expect further RRR cut and  1-2 interest rate cuts as well.

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First Published on Aug 25, 2015 11:00 am
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