Emerging markets in general will continue to enjoy robust growth driven by strong domestic demand and investments, according to Mirae Asset Global Investments Group, one of Asia’s largest independent financial services groups.
According to Mirae Asset’s Emerging Markets Outlook in 2011, 2010 was a year of contrasts between emerging and developed markets. Emerging markets faced rising inflationary pressures and needed to tighten monetary policy whereas developed markets faced deflationary risks with sluggish growth, and needed to keep monetary policies loose, these being significant themes for 2011 as well.
In 2011, domestic consumption will continue to be a significant driver of economic growth in emerging markets, although a slowly recovering global economy will also boost the export sectors, Mirae Asset’s report said. There could be a rebound in the USD in the coming year as the US economy shows signs of gradual recovery, but this would not derail a long term structural uptrend in emerging market currencies. More capital controls are likely to be implemented by emerging markets if hot money flows continue to put appreciation pressures on their currencies and fuel asset price inflation.
Wilfred Sit, Head of Emerging Markets Investment Strategy, Mirae Asset Global Investments (HK) Limited, said, “Economic growth in emerging markets will continue to lead the world, driven by robust domestic demand and an improving export outlook," says Wilfred Sit, Head of Emerging Markets Investment Strategy, Mirae Asset Global Investments (HK) Limited. "Emerging equities are expected to remain on a long term uptrend as global investors continue to allocate more assets to emerging markets.”
China will remain as one of the fastest-growing economies in 2011 with GDP expected to grow at more than 8 per cent. The main drivers will be domestic consumption and investment and the net export contribution will continue to decline. In the short term, CPI remains a concern, but is not expected to be a big problem because food prices will likely soften in the second half.
Mirae Asset expects fiscal policy to remain active. As 2011 will be the first year in China’s Twelfth Five Year Plan, government spending is expected to remain strong in public housing, in mid-to-west regional development. More support for industry, rural healthcare and education subsidies are expected to be seen.
Li Cong, Chief Investment Officer, Head of China Research & Investment at Mirae Asset Global Investments (HK) Limited, said, “We have a structurally positive view on China’s equity market in 2011. The domestic liquidity environment will be tighter than the offshore Chinese equity market but this favourable factor has already been partially reflected in the prices of blue chip names.”
Rising interest rates will put pressure on highly-geared sectors such as independent power producers (IPPs), utilities and airlines, but will benefit financials, especially insurance. Rising incomes will continue to boost domestic consumption from the low end to the high end. Upstream sectors will enjoy positive demand and supply environments, while mid-streams will likely suffer from a squeeze on margins.
The Indian market is expected to remain strong in 2011 on robust corporate earnings, improving ROE (return on equity), and expectations of strong global liquidity. A significant upturn in the investment cycle would be the key driver for continuous strong performance. In terms of sectors, consumer durables, pharmaceuticals, industrials, energy and financials are likely to do well, according to Mirae Asset.
“In India, we continue to prefer consumption where trends remain healthy, led by rising incomes, favourable demographics and an easier financing environment," says Rahul Chadha, Head of India Investment. "We see a shift beyond consumer staples to autos, media, cable distribution, retailing, health-care and airlines, all beneficiaries of higher income levels.
Rising rural consumption on the back of higher crop realizations, rising wages and wealth effects through higher land and gold prices, will provide a multi-year theme.”
The introduction of a direct tax code will provide further relief to the salaried class and boost consumption, according to Mirae Asset, which prefers pharmaceuticals over consumer staples. As the market for Western medicines still has low penetration rates, the domestic industry is estimated to be expanding in the high double digits per annum, and a huge patent expiry of drugs in the developed markets remains an added demand trigger.
In India, Mirae Asset continues to like financials with high ROEs, low NPAs (non-performing assets) as a good proxy on the strong domestic economy, and IT as a beneficiary of strong off-shoring trends by global companies to cut costs. Industrials could be the dark horse of 2011 if the government gets its act together on infrastructure spending and the private sector embarks on capacity expansion after 18 months of strong demand, Mirae Asset’s report said.
