Investors frustrated over slower EM growth; financials will continue to drive Indian market in 2020: Adrian Mowat, CLSA
As far as EMs are concerned, trade war concerns are the biggest headwind.
Mowat said growth rates in emerging economies are still high, but far lower than expectations. "Growth has just kept on slowing in emerging economies," he said, noting that emerging markets (EMs) have underperformed markets around Europe, Japan and the US.
He expects bearish, cyclical allocations to emerging markets next year.
“Clients are questioning emerging markets (EMs) as an asset class,” he said, while adding that EMs have failed to live up to expectations.
In India, the government is acknowledging the slowdown and is responding to it with policies, particularly at a time when the financial system needs more capital, he said on the sidelines of a CLSA event.
He said the corporate tax cut is a big positive for the country, but it also needs to be seen in the context of India's efforts to achieve a sustainable fiscal position.
Slowing global investor interest is one of the key reasons behind underperformance of the Indian stock market, Mowat said.
Financials remained the dominant driver of the domestic market in 2019 and the story may remain the same in 2020, he said.
"We are in a dollar-dull environment. The dollar index has not moved at all, which is having an impact on asset classes," Mowat said.
As far as EMs are concerned, trade war concerns are the biggest headwind. “A trade deal will be a big reason to turn bullish on emerging markets,” he said.
Mowat said equity became an asset class of choice globally because the alternatives were not attractive at all, with bond yields turning negative globally.