2018 to see dance of bulls in emerging markets

The party in emerging markets is likely to continue next year, says Ashutosh R Shyam. India is the third-most preferred equity market among EMs after Brazil and Mexico for 2018, according to a Bloomberg survey of traders, strategists and investors.

Credit Suisse has turned 15% overweight on India from underweight. Confidence in Indian equities is based on the higher probability of an earnings recovery with the outlook on credit growth having improved after the recent announcement on bank capitalisation. India has an 8.5% weight in the MSCI EM index — a key gauge for global fund managers — that surged 33% in 2017. That’s the highest single-year gain since 2009, outperforming developed market equities by nearly 20%.

Investors remain overweight on EMs thanks to high yield and buoyant growth prospects. While that trend should be sustained in 2018, investors may turn more selective as any change in Fed rate-tightening guidance may weaken the appeal of EM assets.

The market is currently pricing a 75% probability of two interest rate increases by the Fed. Analysts believe the MSCI EM could gain 12-15% in the next calendar year.