In a recent report by Morgan Stanley, India has solidified its position as the most preferred emerging market. The country has exhibited remarkable resilience and growth, outperforming the MSCI EM Index by a substantial 45.5% in dollar terms from early 2021 to October 2022, and all signs point to this trend continuing.
Morgan Stanley Reckons India Top Emerging Market
While emerging markets grapple with the challenges of earnings revisions and a strengthening US dollar, India has managed to stand out as an attractive destination for investors. Furthermore, escalating geopolitical risks and the retesting of US 10-year real yields at levels not witnessed since 2007 have complicated the valuations in these markets, as noted by Jonathan Garner, head of emerging markets research at Morgan Stanley.
“Relative economic and earnings growth is improving, and the macro-stability framework appears robust enough to weather a higher real rate environment. The continuous influx of domestic investment and the shifting dynamics of a multipolar world are driving both Foreign Direct Investment (FDI) and portfolio investments toward India,” Garner stated.
Concerns about soaring inflation triggering abrupt shifts in monetary policies have somewhat subsided after the September Consumer Price Index (CPI) showed a moderate increase of 5 percent, with core CPI slowing down further to 4.6 percent. The Morgan Stanley team anticipates that October’s figures will remain below 5 percent.
Singapore and Poland earmarked as “Overweight” markets
Morgan Stanley’s report also highlights the upgrades of Singapore and Poland, designating them as “Overweight” markets. Singapore is known for its defensive stance in emerging markets during bearish phases and is currently displaying strong earnings and profitability trends.
In Poland, recent election results suggesting the possibility of an opposition coalition government have been seen as a positive development. This outcome is expected to unlock additional European Union (EU) funds and alleviate the burden on the nation’s banks. Morgan Stanley believes that the market may not have fully factored in the complete potential upside of this development.
South Korea and United Arab Emirates (UAE) downgraded to “Equal Weight”
While South Korea may witness benefits from a semi-cycle recovery in 2024, a substantial upward re-rating in the near term seems unlikely due to persistent macroeconomic concerns, according to Garner.
The relatively hawkish stance of the Bank of Korea, combined with high household leverage and a substantial energy trade deficit, could lead to challenges such as higher domestic inflation and margin headwinds.
Despite strong earnings revisions and profitability, the UAE has been moved to “Equal Weight” due to ongoing geopolitical uncertainties and higher cyclicality compared to other Gulf Cooperation Council (GCC) markets, as per Morgan Stanley.
What does India becoming a top emerging market mean?
India’s stellar performance as an emerging market, its resilience in the face of global economic challenges, and its continued appeal to investors make it a standout choice in today’s investment landscape. As geopolitical and economic dynamics continue to evolve, India’s position as a favored emerging market appears set to continue.
Also read: Top 5 Reasons to Invest in India Now
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