Credit Suisse reiterates 'overweight' stance on Emerging Market stocks
Credit Suisse sounded a confident note on the outlook for Global Emerging Market stocks, citing a multitude of reasons to back up their case, including poor market sentiment towards the group relative to others and how foreign investors had "capitulated".
First and foremost, Andrew Garthwaite and his team reminded clients that phases of structural outperformance by GEMs tended to last between 6.5 and 12 years.
As well, on a PPP basis versus export market shares, and excluding China's yuan, EM currencies were 30% "cheap", US dollar denominated debt stood at just 13% of GDP and currency pegs were now largely a thing of the past.
Like the International Monetary Fund, the Swiss broker was also forecasting an improvement in GDP and industrial production relative to those of developed markets.
For all of the above reasons, they believed GEMs should "re-rate", reiterating their 'overweight' stance on the space, although they did trim their allocation to the asset class.
As well, balance sheet excess was confined to just a few countries, Credit Suisse added, highlighting the case of Turkey and China's private sector.
In terms of risks, the main one was protectionism, it said.
But Credit Suisse believed the US and China would succeed in agreeing a trade deal, even if for no other reason than because the US had three times more foreign direct investment in China than vice-versa.
China, India and Mexico were "clear" overweights, Garthwaite said, adding that he also liked South Korea, while Taiwan continued to offer a cheap hedge to fluctuations in the US dollar.