- India reported more than 300,000 cases of COVID-19 for the sixth consecutive day on Tuesday.
- Despite COVID-19 risks, UBS says investors should maintain a risk-on stance to emerging markets.
- India is geared to global trends and long-term growth, according to Mark Haefele, the CIO of UBS global wealth management.
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In a note to clients on Tuesday, UBS Global Wealth Management’s chief investment officer Mark Haefele said that despite a recent rise in COVID-19 cases in India, emerging markets are still attractive for investors.
On Tuesday, India reported more than 300,000 cases of COVID-19 for the sixth consecutive day.
While case figures in Europe and North America continue to fall, South East Asia has seen a dramatic rise in COVID-19 infections over the past three weeks, according to data from the World Health Organization.
The situation is so dire in India that President Biden has said he will send vaccine supplies, masks, oxygen, and therapeutics to help the country battle the virus.
While Haefele did say rising case figures will be a headwind for the region, the chief investment officer also believes there are “several reasons for a continued positive stance on EM (Emerging Markets) equities.”
Here are the three main reasons why Haefele says investors should be “risk-on” when it comes to emerging markets.
“India’s equity market is geared to global trends and long-term structural growth.”
According to UBS, India now has a nearly 10% weighting within emerging market equity indexes, but that weighting is largely tied to IT companies that do business with the US, so much of it could be shielded from the worst effects of COVID-19.
Additionally, UBS says Indian companies are focused on the long-term growth story and don’t actively trade shares in speculative moves, which bodes well for long-term investors.
Haefele also said that precedence shows COVID-19 surges can be “reined in” within a few months. The firm remains overweight Indian equities.
“China tech regulatory risk appears to be clearing.”
China has a near 40% weighting in emerging market equities, making it one of the most important regions for investors.
UBS believes Chinese tech companies have surpassed recent government regulation hurdles and are poised to post “above-average, double-digit earnings growth” over the medium to long term as investors focus more on fundamentals.
“We see tech regulatory risks receding, with policymakers aiming to constrain monopolistic practices, not curb tech growth,” Haefele said.
“A stronger dollar, higher Treasuries won’t upend EM risk assets.”
Emerging market equities usually struggle when the dollar is strong, but according to Haefele and UBS, the dollar is set to continue on a depreciation trend as the global economic recovery favors “pro-risk” currencies like the Euro.
Haefele also believes the fed will maintain dovish policies and Treasury yields won’t rise above 2% this year, which should help stocks around the world outperform.
Haefele advised positioning for reopening and reflation through value and cyclical stocks in Asia, with a focus on capital goods, construction materials, consumer services, transportation, banks, and metals & mining.
“EM value stocks have traded at a heavy discount over the past decade, leaving room for a recovery rally,” Haefele said.