Fri, Nov 30, 2018 - Page 12 News List

HSBC forecasts robust expansion for emerging markets, but warns of risks

By Kao Shih-ching  /  Staff reporter

Emerging markets are expected to grow strongly next year, but inflation and the US-China trade dispute could slow their momentum, HSBC Global Asset Management Ltd said yesterday.

HSBC plans to slightly underweight Taiwanese stocks on expectations of slower growth compared with 12 months ago as they are affected by their foreign clients’ decreasing profits, head of equities Nick Timberlake said at a media briefing in Taipei.

“We see some headwinds for some companies here,” Timberlake said, adding that his equity team likes a lot of Taiwanese companies, but has to be cautious because their valuations are quite high.

While the team is still interested in adding individual stocks, it would wait until the second quarter of next year, when Taiwanese companies’ valuations and fundamentals are expected to improve to decide whether to add the Taiwanese market, he said, citing as an example several semiconductor companies that are not at their best now.

Emerging markets are expected to see their earnings per share (EPS) grow 14.5 percent this year and 11.8 percent next year, with all sectors expanding by double digits except for the energy sector, which has jumped more than 30 percent last year and this year, he said.

Emerging market equities continue to look attractive relative to history, with returns on equity reaching 13 percent in September, while emerging markets equity funds have experienced a net inflow of US$31 billion this year, he said.

Given strong growth in GDP and EPS, alongside positive valuations, the team has an optimistic view on emerging markets next year, he said.

However, risks exist, such as the US’ trade policies, a robust US dollar, capital repatriation, faster-than-expected exit from quantitative easing, unorthodox policy responses to external challenges by populist governments, China growth slippage, geopolitical shocks, as well as unexpected swings in commodities, HSBC said.

The team deems inflation the biggest risk, but “so far, it is unlikely to happen,” he said.

The team is monitoring the US-China trade dispute, which also negatively affects Russia and Brazil, he said.

However, compared with the trade dispute, a slowing Chinese economy and deleveraging would affect the global economy more, he said.

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