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US market fully priced; US outperforming EMs unlikely
Geoffrey Dennis, Global EMs Strategist, UBS Investment Bank
Mar 03, 2017 | Source: CNBC TV 18
Post U.S. Presidents first address to congress: 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.
Are we going to see any shift in terms of sell emerging markets (EM), buy US more: 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. 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.
What is your view, flows into emerging markets hereafter, as well as your specific view on India: 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.
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