Monday, May 25, 2009


India Re-rating & EM One Year On

India Re-Rating
420 million Indians just voted for deregulation, supply-side reform and less government intervention, a marked contrast with voters in the G7 and unambiguously equity-bullish. But investors are only modestly UW India and India now trades at roughly a 40% premium to EM (versus 10-year average premium of 24%) so we expect only modest reallocation to India. (Note India’s forward PE has today jumped from 14.4x to roughly 17.4x - see table 1).

Emerging Markets One Year On…
May 21st marks the one-year anniversary of the cyclical high of Emerging Market equities versus Developed Market equities (chart 1). A dramatic comeback in EM is being lagged by other correlated growth & risk assets: if EM is a faithful lead indicator then we can expect more to come from global Material stocks and the Euro for example (see Charts 2 & 3). The summer risks to relative performance of EM, in our view: Emerging Markets are overbought short-term; US dollar strength due a new risk-aversion event; weak Chinese economic data. Absolute direction of global equity markets will likely be dictated by US consumption.

To see full report: GEM STRATEGY