HSBC has maintained overweight rating on Indian equities and believes that the August CPI print of 5 percent marks the start of a prolonged period (approximately a year) in which CPI inflation is likely to trend at or below 5 percent.
Herald Van Der Linde of HSBC says while risk to Asian equities from earnings is falling, new risks are emerging with the steeper US yield curve.
Generally, Asian equities do not perform well in such an environment. The markets that have historically been most sensitive to this are Indonesia, the Philippines and Thailand. China, Singapore and Taiwan have tended to do better.
Hence, the brokerage house feels Asian equities tend to perform poorly in times of steeper yield curves but believes their long-term story remains intact.
"Thus, while the long-term environment remains supportive for Asian equities (interest rates remain low), we need to be watchful for a near-term setback. Hence, a decline in markets should ultimately be seen as a buying opportunity," Herald says.
HSBC remained defensive but would look to build more cyclical exposure upon a market correction.
For now, he says the brokerage house believes the relevant investment approaches are structural themes, best-in-class companies, and yield.
HSBC has downgraded low-yield Korean equities to underweight (from neutral), and upgraded both Taiwan and Hong Kong to neutral (from underweight).
However, it has maintained overweight rating on Indian equities.
The brokerage house believes that the August CPI print of 5 percent marks the start of a prolonged period (approximately a year) in which CPI inflation is likely to trend at or below 5 percent.
"This makes us believe that there is room for a 50 bps rate cut, which would further support our case to be overweight on India," Herald says.