2018 a year of PE multiple derating, currency recovery to be the story of 2019: Adrian Mowat
“If Chinese economy fails to recover, it will be a genuine risk premium for EM."
Speaking at the second edition of ETMarkets Global Summit in Mumbai, the EM strategist said he remains sceptical about the Trump-Xi meet at G20 summit.
“If Chinese economy fails to recover, it will be a genuine risk premium for emerging markets,” Mowat said.
India, he said, is sitting at the top in terms of forward price multiples. As developed markets slow down, emerging markets (EMs) would accelerate, he predicted.
Mowat felt that the rupee has overshot a lot on the EM effects. One of the key stories of 2019, he said, will be a recovery in EM currencies. He is sure a recovery in EM currencies will be a key driver of capital from the US potentially into emerging market risky assets.
According to Mowat, the biggest problem with markets globally is that the biggest equity market (US) is outperforming European and emerging markets (EMs). He stays extremely bullish on US markets compared to EMs.
Capital, he said, is moving towards the US, thanks to interest differential -- the difference between interest rate hikes in the US and Europe -- which is favouring the dollar.
"Average expectation is that US interest rate will be around 3.15-3.25 per cent by the end of next year. The probability of three further rate hikes till the end of next year is diminishing because the US economy will slow down," he reasoned. "The US may see a meaningful slowdown next year and this may be a big positive for the emerging markets. India is also expected to accelerate."
On China, he said, shadow banking is shrinking. “China's GDP 6 per cent doesn't feel so when you look at the other economy data,” he added.
The emerging market guru, who worked with the first offshore managed India fund in 1993, said investors do not really invest in economies, but in companies with strong earnings growth.
It is wrong to say Brexit is anti-free trade story, he emphasised.
On concerns over rising supplies in oil market, Mowat said he is more concerned about what happens with OPEC and Russia than rising US shale production.
Exporters vs domestic cyclicals
In an interview to ETNow last week, Mowat had said investors need to cut exposure to exporters and start thinking of some more domestic cyclical names that might benefit from an easier macro environment in 2019.