US market fully priced; US outperforming EMs unlikely: UBS

US President's promises of corporate tax cuts and increased infrastructure spending have been priced in by the US market, says Geoffrey Dennis of UBS Investment Bank. Although, he is of the opinion that even if these proposed reforms come to fruition, they will take a lot of time to pass through the Congress."The US market seems to be fully priced at the moment. I will be very surprised if US outperforms emerging markets from hereon," he says. He is overweight on the Indian market. He says demonetisation created a set back, but in the long term, it is the best growth story in the emerging markets. He expects the local market to go higher in the next few months.Mark Matthews of Bank Julius Baer too is positive on India. A strong base effect coming from commodities and the banking space is the reason for his optimism. "2017 will be a good year for the Indian market," he says.Below is the verbatim transcript of Geoffrey Dennis and Mark Matthews' interview to Latha Venkatesh and Anuj Singhal on CNBC-TV18. Anuj: No surprises from Donald Trump, pretty much what has been his position? Dennis: What the markets are going to focus on very much and what we all should be focusing on is to what extent these various programmes that he is proposing are affordable for the country given that he is talking significant tax cuts. So I think there are two issues there, number one is to what extent these are affordable and secondly, how easy will be to get some of these programmes through the Congress and how quickly therefore you may see some impact on the US economy. Our best case is that it will be very hard to see much response in the US economy to any fiscal measures that the new government is proposing because it is going to take time for those to go through Congress. Latha: What have you made of this speech so far? Thin on detail but reiteration of tax cuts, border tax, tough immigration and pro-infrastructure? Matthews: Basically he is repeating himself. He has done what he said he would do since he entered the office and he is saying he will keep doing it. Latha: We have reached a stage where the US indices for instance have risen hugely over 10 percent since the election results. So after what we heard today, do they have legs to run harder, are we going to see any shift in terms of sell emerging markets (EM), buy US more, what will be the trade hereafter? Dennis: One of the points that we have made is that huge rotation that you have had out of emerging markets into and particularly US for developed markets generally from the election until close to the year-end, two-third of that has now been reversed because emerging markets are outperforming year-to-date. Quite significantly we have had a bit of a pullback in the last couple of days, it could go a little bit further. Our concern on the US side is the market is fully priced and it is understandable that investors want to be optimistic because these promises on growth and tax cuts etc are both good for corporate earnings and indeed for the economy. But how you can deliver those over the long-term is going to be very difficult indeed. Therefore our concern is the US market pulls back -- not usually pulls back somewhat over the short-term to medium-term and we think emerging markets look relatively good here even if we paused for the time being. Latha: What is your view, flows into emerging markets hereafter, as well as your specific view on India, we too are very close to all-time highs? Matthews: I think that India can go higher because the consensus forecast of about 18 percent EPS growth this year will probably be surpassed. It will be over 20 percent this year and the reason for that is very strong base effect coming from commodities and banks. Thanks to Reserve Bank of India (RBI) governor, Raghuram Rajan, when he was at the helm and the government has not been able to achieve everything it has inspired to achieve but there is so much that it has done from goods and services tax (GST) to hiking salaries. I do think it makes sense for the Indian market to have a good year this year after not having done much for the last few years. For full discussion, watch video...