Swiss dealer UBS believes rising markets and Asian shares might ship flat returns in the course of the first half of calendar yr 2024 (1H24) because the upside from the expertise cycle could also be offset by a slowdown within the US.
The baseline view of UBS economists is for a US recession within the second quarter of 2024 (2Q24), albeit average, resulting in weak returns on developed market (DM) shares. Once we take into account the historic sensitivity of rising market returns to rising market equities, rising markets are unlikely to be proof against developed market weak point. However because the Fed begins to decrease rates of interest and the expertise cycle continues, we see room for higher returns within the second half of 2024.
The brokerage set year-end targets for the MSCI Rising Markets Index at 1,020 and 650 for the MSCI Asia ex-Japan Index for 2024, implying only a single-digit rise from present ranges. UBS expects a barely decrease upside for US shares (S&P 500). “Since rising market shares have a tendency to learn greater than US shares when US actual yields decline, we see a slight outperformance in rising markets versus the US,” the word added.
UBS is underweight in India, Saudi Arabia, Singapore and Thailand, whereas chubby in Taiwan and South Korea. “We’re underweight in costly markets like India (retail flows could also be in danger as rates of interest rise, weighed down by greater oil costs) and Thailand (weak help from home momentum awaiting fiscal stimulus, weak bottom-up analyst forecasts). “
“Valuations are costly versus regular basic company efficiency. In our view, the market might be ignoring dangers to rural demand on account of El Niño. The bottom case for the market seems to be regime continuity into subsequent yr’s elections. With the evolving expertise cycle and a possible restoration in China, the ‘Security premium on India’ might reverse. Retail inflows could decline as financial institution deposits stay excessive, UBS stated.
“We additionally like comparatively defensive markets supported by the home economic system and low cost valuations – Brazil, Malaysia, Philippines and Poland. We’re impartial on China as we anticipate significant coverage stimulus, whereas decrease valuations restrict additional declines,” the word added.
First printed: November 17, 2023 | 5:16 pm he
(tags for translation) Rising Markets