- POSTED: 08 Jan 2014 20:47
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A strong recovery in developed markets does not mean that emerging markets will "go downhill". That is according to DBS Group Holdings’ chief executive officer Piyush Gupta.
SINGAPORE: A strong recovery in developed markets does not mean that emerging markets will "go downhill".
That is according to DBS Group Holdings’ chief executive officer Piyush Gupta.
Speaking at an event for DBS' private bank clients on Wednesday, Mr Gupta said as confidence builds up in the US and the US investor community, that confidence will spill over to the rest of the world.
Global banks from Goldman Sachs to Morgan Stanley have recently warned of a protracted slump in emerging markets.
Goldman Sachs advised clients to cut allocations in developing nations by a third, forecasting "significant underperformance" for emerging market stocks, bonds and currencies over the next ten years.
But Southeast Asia's largest lender has a contrarian view.
Mr Gupta said: "I don't think Asia's going to tank in the medium term; I don't think Asia's going to have a huge issue, even in the short term. And frankly, to add to that, I think valuations in Asia are very attractive. China, at 10 times, is running at historically low valuations. So if you take a 12-month view, I would be quite bullish, and I would be willing to put some money behind China, behind several of the North Asian countries."
Mr Gupta said his optimism is backed by the fact that the bank's corporate clients, including global multinationals, are still looking to allocate capital to Asia.
Asia is also cushioned, to some extent, by its domestic consumption demand.
Mr Gupta reckons the impact of tapering, or the withdrawal of US monetary stimulus, has largely been priced in.
He said: "In the short term, as rates go up, will people pull out money? I think that will happen. Some of that happened after Bernanke's statement in May. When rates went up 70, 80 basis points, there was an outflow of dollars from the region... But my own view is that a large part of that rate build-up and correction is already done."
Still, for the short term at least, most market analysts favour developed markets over emerging markets.
But some caution that investors need to do their homework and pick the right sectors.
Robert Mcconnaughey, global research director at Columbia Management Investment Advisers, said: "As a whole, the tech sector in the US has never been as cheap relative to the rest of the market as it is today. But there is a chunk of mega cap companies where there is significant concern about their ability to defend their historical margins and market share -- Microsoft being an example, (and) IBM.
“Virtually any of the very large technology companies, there's a question of, are they really growth companies anymore and can they defend their current profitability?"
Other risk events that could shake the emerging markets this year include elections in Indonesia and India.
These two countries are also in Morgan Stanley's “fragile five”, a group of emerging countries that are especially vulnerable to capital flight, due to heavy reliance on foreign capital.