James Ashley, GSAM
The MSCI Emerging Markets Index collapsed this year, returning -14.2% year-to-date.
Last year, by comparison, the index had a 38% calendar year return, which was better than the S&P 500 (22%).
Ashley, speaking at a recent media roundtable in Singapore, said that as quantitative easing transitions to quantitative tightening, such volatility will only increase over the next two years.
But he believes emerging markets have been oversold. “We see this as an attractive entry opportunity,” he said. However, he warned it’s necessary to be “very selective, very reactive and very thoughtful on how capital is allocated.
“The message for 2019 is that we like equities, and we like risk,” Ashley said.
Overweight emerging Asia
GSAM prefers equities to credit and more specifically, emerging market equities to developed markets, he said, summarising his firm’s priorities for 2019.
He is especially bullish on India.
“We are not denying the challenges that exist there, or the concern about the shadow banking sector or the questions around central bank independence”, Ashley said.
Additionally, prime minister Narendra Modi’s party faces general elections in the first half of 2019, which pose the risk of opposition victories.
“But if you put all those uncertainties together and you look at the valuation and the growth outlook both short-term and long-term, India will be one of the more attractive opportunities right now within the emerging market world.”
Year-to-date the MSCI India index is down 11.5%, according to FE data. But company valuations, which in India have historically been high versus other key markets, are now “much more attractive”, he said.
Another Asian market he is overweighting is Indonesia. The MSCI Indonesia Index is down 11% year-to-date.
“Indonesia has a solid macro outlook and has a set of policies that are prioritising in a way stability rather than growth, which is responsible and pragmatic to us.
“Valuations of Indonesian equities look attractive and if you put all that together it looks like a case where we should not be aggressively but moderately overweight.”
Elsewhere in Asia, he is “moderately overweighting” China, despite the slowdown of GDP growth and the ongoing trade war with the US.
His position would change, however, “if there is a further material escalation in the trade war” or if the slowdown stops playing out in an orderly way.
Thanks to these three countries, and lastly to Vietnam, to which he assigns a small positive weighting in the portfolio, his view on Asia as a whole he describes as “relatively constructive” for next year.
“This doesn’t mean to stay blind to those risks. It is about trying to be proactive [instead of] waiting for the market’s response and then jumping into to catch the momentum.”