sortiwa
Markets are always looking ahead. We as market practitioners like to look at how similar situations developed in the past and what impact they had on markets then. Most investors are looking to SARS to have a sense of what this means for China or Hong Kong and what it means for stocks. In terms of how businesses are doing, it’s clear to us that what is most significantly impacted by coronavirus are areas like travel, leisure and other consumer-focused activities. In the case of markets around the region be mindful that Japan has been a beneficiary for many years of tourism coming from China. For Japan’s stock market, areas of activities like hotels, restaurants etc., will see a negative impact because of that. Elsewhere in the region, investors are probably comforted by the fact that around Asia, we have got fairly strong balance sheets and so, companies are not at risk of running out of funding because of this coronavirus. Markets are protected to a certain extent. Companies in Japan, probably Korea, have insulated themselves from this type of activity because they’ve been scarred in the past.
What is your outlook for India?
India is quite an expensive market now. In the past, people have been willing to pay a higher cost because the economy was simply one of the fastest growing in the world and that has probably slowed down quite a bit. Everyone is overly concentrating on China, which was seeing 8% GDP growth and that will be less because of coronavirus. In the case of India, people have been willing to pay a high price for the attractive growth scenario. I think it is quite fully-priced at the moment. India appears to have one of the strongest prospects for earnings growth, but what we find every year for the last five years is that we go into the new year with high expectations and every single time Indian companies tend to disappoint on their earnings forecast. For that reason, we have got lower levels of confidence in the earnings growth forecast for India than we do for other markets. Our preference in Asia is for Japan and Korea.
How much returns are you expecting from India in the next one year?
For a market like India which is an emerging market, it has got some world class companies in there. Investors holding a riskier asset in the region would want double-digit returns. I’m not sure where they’re going to get that because right now, we’re looking at a PE multiple which probably is quite demanding and 20% growth is not doable. Unless these companies actually deliver the earnings growth, India will disappoint in 2020.
The market seems to be relieved that the US-China tariff war has subsided.
We are living in a world of uncertainty and a lot of investors tend to get fazed about these external factors. You walk in every day not knowing what to expect, because Trump might announce something overnight with a tweet. We know which countries and which companies are delivering on annual forecasts. We also know which countries and companies are cheap or expensive on the basis of fundamental valuation metrics. And we also know elements of safety in terms of company balance sheets. Asia is actually probably a better investor or investment destination than the US has been. If you take China, Japan, two good examples or in India, you have more than half of the big companies sitting on net cash on their balance sheets, which means that they’re able, if they wanted, to use a net cash to buy back shares to help the investor base. It is hard for investors to really believe that there’s been a trade resolution when there is so much uncertainty around.
How are you looking at China in the wake of the coronavirus breakout?
With China, be mindful that the stock market is not expensive by any level, to other international markets. The PE of the Chinese stock market is about 11 or 12 times. In the case of the US market, the biggest equity market globally, the stock market is trading at 18 times. China is already trading on a pretty substantial discount to other global markets. China’s economy is the second-biggest in the world but its stock market is really much less relevant in terms of the global perspective. The Chinese stock market is roughly the same size as the UK market. Yet the Chinese economy is probably five-six times or seven times as big as the UK. From that perspective, the Chinese authorities have got a number of tools at their disposal to actually get involved in the market. In China there is unity of policy.
Source link
