A traffic light signals green in front of the HSBC Main Building, right, in the central business district of Hong Kong, China. (Photographer: Jerome Favre/Bloomberg)

Prospects For India Remain Strong, Goldman’s Chief Global Equity Strategist Says

India has “some very exciting growth companies” that are attracting both domestic and international investors despite high valuations, according to Goldman Sachs International’s Chief Global Equity Strategist Peter Oppenheimer.

The Indian equity benchmarks have remained relativity unscathed from the ongoing U.S.-China trade spat as optimism grew around the domestic economy. Although India is seen as an emerging market, it doesn't suffer from severe trade imbalances, he told BloombergQuint. “The prospects remain very positive in the long run.”

Multiple stress points have been building in emerging markets since 2013 which has led to the recent rout in the Turkish and Argentinian markets due to budget and current account gaps. The MSCI Emerging Market Index has fallen 9.71 percent in 2018 so far.

“Most emerging markets are not as vulnerable as they were back in 2015 or 2016 when the dollar was rising and the interest rates were picking up, because most markets had higher imbalances back then,” he said. Goldman Sachs does not expect the unrest in a few countries to spread over all emerging markets.

Other Key Highlights

  • Focus of investors is on trade and emerging markets.
  • Expect more tariffs from the U.S. for China but don’t think it will escalate into a broader deeper trade war.
  • Growth repercussions from trade war will be relatively small.
  • Expect global growth to be slow over the next 18 months.
  • The 4 percent growth in U.S. was the cycle’s peak.
  • Overall global growth to remain around 3 percent over the next year and slowing bit beyond that.
  • This economic cycle will continue to support global profits even though the pace is slowing.
  • Rates in the U.S. will rise more next year than the markets are currently pricing.
  • No further valuation expansion in financial assets.
  • Profit growth alone will drive returns in equity in the future.
  • Narrowness of FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks driving markets, and technology sector dominance will continue.

Here are the edited excerpts from the interaction:

In the last few days, we have been besieged with news flow in the emerging markets, be it Turkey, Argentina or the trade spat between the U.S. and China. What impact could it have on equity markets from now on until this yer end?

In terms of focus of the investors at the moment, it is on two issues and they are related: first, the potential U.S. trade tariffs and repercussions of these across global economies. Second, on emerging markets, and in a sense, the two are linked.

We will see more tariffs from the U.S., particularly related to China as they have threatened. But it is unlikely to escalate into a broader and deeper global trade war. When we look at the impact on global growth of the kind of scale of tariffs which the U.S. administration has talked about implementing, the overall effects are likely to be relatively small, knocking one- or two-tenth of growth, for example in case of U.S.-China. But this issue would continue to be a focus through the end of the year. It raises uncertainty because the reaction to the implementation of tariffs could be that there is a greater escalation of trade war, which would have a bigger impact on growth.

In terms of emerging markets broadly, we see many investors are being concerned about risk of contagion from the countries that you mentioned. On this, we are relatively more sanguine. We think overall emerging markets in equities are offering good value and most emerging markets are not as vulnerable as they were, for example, back in 2015-16 when the dollar was rising, and the U.S. interest rates were picking up, because most countries have lesser balances now than they did then.

What is your view on India as a market? It has done well than the rest of the emerging market pack, particularly in the last 3-4 months of this calendar year.

India is an economy with a tremendous growth potential and although it is seen as an emerging economy, it doesn’t suffer from big imbalances that we see in some of the countries where the current focus is most intense.

You have some exciting growth companies which are attracting domestic and international investors who are looking for genuine growth opportunities in large markets which are expanding. So, the prospects remain positive particularly in long run. Although there is lot of intense focus right now on emerging markets and fear of contagion, we think those fears may well be over done. There are specific concerns in emerging economies which are facing particular economic stress but that is not true for emerging markets as an asset as a whole. Investors would continue to be more differentiated in the space.