Tag: Jonathan Garner

India moves up to the top spot in Morgan Stanley’s portfolio, Jonathan Garner explains why

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India has moved up to the top spot in Morgan Stanley’s portfolio after the brokerage upgraded it to overweight last week from its earlier rating of equalweight.

Interestingly, the upgrade came just four months after the earlier upgrade in which the brokerage had upgraded India to equalweight from underweight in March.

In an exclusive interaction with CNBC-TV18, Morgan Stanley’s Chief Asia and EM Equity Strategist Jonathan Garner said that typically, a bull market in Asia and Emerging markets begins with Korea and Taiwan and that’s exactly what happened with the semiconductors and technology hardware market.

“India has underperformed the rest of Asia and EM in aggregate over the last 9 months, it has been a volatile period of performance relative. But when we reran our process, it was strongly indicating taking profits in particular in Taiwan, moving to the sidelines on China, going underweight Australia, whereas for India, some of the secular drivers of the market are really falling into place,” Garner said.

He further added that it is time for foreign investors to re-engage with the Indian market.

Morgan Stanley upgraded India for its secular leadership as it sees a secular trend towards sustained superior EPS growth in USD terms compared to other Emerging Markets and a young demographic, which supports equity inflows.

“Another key feature of India that we have been talking about in this note is the tendency of the rupee to be far more stable than in the past and to actually appreciate in real effective exchange rate terms versus the currency basket, which is in sharp contrast to the Chinese renminbi that is now structurally starting to depreciate,” Garner said.

Indian equity markets had a sharp rally from the lows of March, during which the Nifty 50 gained over 3,000 points and came within 10 points of scaling the 20,000 mark. Although the index has corrected nearly 500 points from the highs, it still remains positive on a year-to-date basis.

“So, the market is not as expensive, particularly on a relative basis as it was last October, when relative to Taiwan and Korea, it’s probably the most expensive we have ever seen,” Garner said. “It’s clearly not at any kind of low valuation, but there are so many positives in the market right now that we suspect investors will be happy with the multiple.”

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Morgan Stanley recommends profit booking; says market valuation above EM average

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Morgan Stanley recommended booking profits in India a few weeks ago, Jonathan Garner, chief Asia and emerging market equity strategist, told CNBC-TV18. Garner reasoned that valuations in India have run up above emerging market (EM) averages.

“We have been overweight India for the whole of this year. It had one of its best years ever; performance versus other emerging markets and certainly the best year ever for performance versus China. So there is nothing that fundamentally changed in our economic or investment narrative for India, but valuations are now one standard deviation expensive to the long-run average versus other emerging markets,” Garner said.

According to him, inflation is the biggest risk to global markets. “Our economists feel that the inflationary pressures globally will be transitory and that inflation will roll back down, including in the US next year,” said Garner.

ALSO READ: Semiconductor chip shortage issue now in the rearview mirror, says Morgan Stanley; auto stocks surge 3%

On commodities, Morgan Stanley is not bullish on iron ore but neutral on copper.

“We are positive on areas like aluminium that is benefiting from the environmental changes that we are seeing in the production environment globally. So we are not recommending commodity exposure here. The top areas for us are upstream energy and industrial metals. We are not particularly bullish on in aggregate,” said Garner.

ALSO READ: Equity outperformance raises concerns of overstretched valuations, says RBI article

For the entire interview, watch the video

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Don’t expect significant change from Fed; more bullish on India than other EMs: Morgan Stanley’s Jonathan Garner

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Jonathan Garner, Chief Asia and EM Equity Strategist at Morgan Stanley discussed how one should approach global markets and what to expect from them.

On expectations from FOMC, Garner said, “We don’t expect any significant change. They have been very clear about the shift to average inflation targeting and taking risks from the upside with inflation and so it will be 2023 at the earliest before one should be talking about any kind of adjustment on interest rates. I do think the movement upwards in long-dated bond yields is likely to continue.”

Morgan Stanley has been quite cautious on emerging markets (EMs), he said.

“Year-to-date (YTD) EMs are significantly underperforming globally.”

On the Indian market, Garner said, “We are more bullish on Indian than we are on EMs overall. It is overweight for us. It has outperformed EMs by about 300 basis points (bps) YTD. Earnings growth should be well over 30 percent according to Ridham Desai and the team. So our Sensex target 55,000 does imply upside from current levels whereas for EMs overall we don’t have any upside target price.”

Morgan Stanley is overweight on financials and energy, he added.

“Our overweight sectors across the markets are mainly in financials and energy. In some parts of our coverage in India, we like industrial cyclicals but where we are most cautious is on the most expensive parts of the market in internet and healthcare in particular,” he stated.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

See much more bullish environment for Indian risk assets going ahead, says Jonathan Garner of Morgan Stanley

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Jonathan Garner, chief of Asia and emerging market equity strategist at Morgan Stanley, shared his views on global markets as well as trade war concerns between the US and China.

“We think that we are now mapping out the path towards Fed rate cuts in the second half. As that happens, we think the dollar will enter a period of decline and for India one of the many reasons that we are bullish India is we think that the rupee can be supported by a weaker dollar and also by a lower trajectory for the oil price than we thought previously and so even though the Reserve Bank of India (RBI) is beginning rate cutting environment, the Indian rupee can remain relatively stable. So this is very different from the environment last summer where you are having to hike rates here in India into an aggressive Fed and a strong dollar environment and a strong dollar environment. It is a much more bullish environment for Indian risk assets,” Garner said on Tuesday.

On rate cuts by the US Fed, Garner said, “The Fed is moving in that direction because of the way that financial markets have moved. They are not likely to move as aggressively and quickly as they did in January when the credit market became dislocated in the US so we have that huge spread widening in December. So we think it is unlikely we will see it in June-July, it is more the September timeframe.”

On the global growth front, Garner said, “We cut our view on emerging markets in May from overweight to neutral. We also cut our stance on China quite considerably again from overweight to neutral and one of the reasons we did that is our economists were beginning to highlight downside risks and they had a fairly muted path for global growth in any case whereas we thought that global growth, which fell a lot backend of last year would stabilise and maybe even will recover slightly in the second half of this year, we have now removed that scenario. If the trade tensions escalate further, we would be looking at global growth slipping below 3 percent. That environment where global growth slips below 3 percent would be very bearish for emerging markets particularly for more trade sensitive markets of North Asia. It is less of an issue for India or in fact for Brazil which is another one of our key overweights but it is a big problem for Korea, Taiwan and China.”

With regards to trade war concerns, Garner said, “In terms of the specifics of trade tensions between the US and China which is the most important part of it – there are many other complexities, for example, the Mexican situation and autos tariffs on Japan-Europe but specific to US-China we will find a lot more at the end of this month at G-20. We are not sure yet whether that will be a substantive meeting between Donald Trump and Xi Jinping or whether it will just be more of a handshake rather than something substantive. Our base case is essentially moving towards the view that these trade tensions will not be resolved near-term at that event, they will move over the next three-four months hopefully with some positive developments – not just on tariff issues but the non-tariff issues which are becoming more significant between the two countries. With market themselves acting as a circuit-breaker i.e. the market weakness that we have been seeing coming into play that will actually force these two back together and then some kind of a minimal agreement will be reached.”

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Expect 8% upside in MSCI emerging market index in 2019, says Morgan Stanley

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Morgan Stanley has issued a double upgrade on emerging markets (EMs) as part of the global call for 2019. The tough run for emerging markets Stocks could change considerably next year, said Morgan Stanley in its Global Strategy Outlook report for 2019. The global investment bank has upgraded EM from underweight to overweight and has downgraded US stocks to underweight.

In an interview to CNBC-TV18, Jonathan Garner, Chief Strategist Asia and EMs at Morgan Stanley shared the basis for the upgrade. Garner said they expect 8 percent upside in MSCI emerging market index in 2019. Going forward, the US will underperform and EMs will do a lot better, he said, adding that Morgan Stanley’s key EM overweights for next year are India, Brazil, Indonesia and Taiwan.

Edited Excerpts:

What has driven this upgrade, do you think now EM growth delta will be higher than US growth?

We think that the GDP growth and earnings growth differentials versus the US should be higher going forward. So this year has been all about an upside surprise in the US and a downside surprise in the EM. As the US economy slows into the next year and EMs start to recover, we think that the Federal Reserve will go on hold by the middle of the year on Fed Funds and also stop shrinking its balance sheet. The Chinese easing cycle will come to the fore and the low oil prices will be important, particularly for a country like India.

So, we think we are going to see a major trend reversal in terms of global market performance. We have been very cautious about EMs, they have underperformed.

Going forward, the US will underperform and EMs will do a lot better. So our key EM overweights for next year are India, Brazil, Indonesia and Taiwan.

Where would be India in the pecking order because it is seen as the biggest beneficiary of crude price fall and also your thoughts on fund flows because we have to see some kind of foreign money inflow into Indian markets once again?

In terms of overweight, India is one of our key overweights. My colleague Ridham Desai has a Sensex target of 42000. We like financials and materials exposure and domestic cyclical in the Indian market and we think along with other countries, that I mentioned, are likely to have a pretty robust growth environment and is less at risk from trade and tariff tensions than some other countries in North Asia.

We had a period where there were quite substantial outflows around the middle of the year in Q3 but they have steadied recently, which is encouraging. The primary and secondary market calendar for new issuances across Asia and EM is quite light at the moment, which tends to allow the headline indices to gain a footing here.

On the fund flow side, as long as you are right about this broad pattern of dollar weakness and US growth slowing then we should get a continued improvement in fund inflows.

I want to also ask you about the growth scare that has hit global markets but before that, you did speak about the double upgrade on emerging markets, what kind of absolute returns would you see for 2019 because this year MSCI emerging market index is down about 14 percent or so.

Our new target till December 2019 is 1050, about 8 percent upside. Obviously, for some markets like the Sensex, we have more. For Hang Seng we have raised our targets to 28500, that is about 10 percent. For the S&P we had actually rolled our target over at 2750, so we did not change it, so that only gets 4 percent upside. So, it is quite meaningful. We also have more upside for Japan than we do for the US. So, we are making a broad out of the US and into rest of the world call today.

What about the growth scare globally, would that worry you at all and do you think that could drag global equities down with it at least in the first part of 2019?

The fact that you are asking about it probably shows that it is in the price. If we look at what worried us a year ago, it was exactly this environment where people would be concerned as we were looking then at the twin tightening from China and the US. China has had a very significant slowdown – the global autos, mobile phone handset, memory and DRAM markets are quite obviously in a major cyclical slowdown right now, but that is priced in.

A year ago we were trading about two standard deviations expensive to normal average on forward PE for emerging markets. We are now about 1.5 standard deviations cheap, so around 10 times forward PE. For Japan, we are actually two standard deviations cheap. Basically, the cheapest we have seen in five years. So, the market has priced in a global growth scare in our opinion here.

 What is the in house view on crude at all? The world is in a tizzy, is $86 per barrel real or $58-59 per barrel more real for Brent?

We are down in a situation where the market is oversupplied and that is very clear from the inventory situation we find ourselves in. We would take the view that the oil price is going to be less of a headwind going forward and that is particularly important for some of the current account deficit countries like India.

So, did seem that even six weeks ago that $80-90 per barrel might have been likely for the first part of next year, we are now looking at something in the $60 per barrel and that is very important, it limits the potential for further rate increases in some of the countries like India that have been having to raise interest rates this year.

The question I had was about politics, how big is that as a risk considering we are now heading into elections?

There are a number of elections that are coming next year in our coverage markets including India and Indonesia. In general, our view on this is that we are expecting the fiscal position to be relatively easy in these countries and growth to be supported in the run up to the elections and that would tend to lead to a buoyant macro environment.

Now if it were not for the fact that the Fed is going on hold and the oil prices falling, that might be somewhat more dangerous from macro potential perspective. However, in this global environment, it would probably be associated with positive fund inflows.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow