India has made meaningful progress on structural reforms, Mark Mobius says
According to Mobius, the emerging market will be able to weather small and gradual increases in US interest rates.
Growth in emerging market equities has seen the case of 'resilience in the asset class' for the first half of the year, said Mark Mobius in his blog.
According to Mobius, the emerging market will be able to weather small and gradual increases in US interest rates. Moreover, the stabilisation of US dollar, has largely benefited emerging markets because it reduces the threat od US dollar-denominated debt issued by many companies. The stabilised US dollar has led these companies to repay these debts.
In US dollar terms, the MSCI Emerging Markets Index rose by 14.5%, while the MSCI World Index increased 2.7%. In terms of growth rates, the International Monetary Fund estimated gross domestic product growth of 1.8% in 2016 and 2017 for advanced economies, and growth of 4.1% and 4.6% respectively in developing economies, Mobius said.
"In addition, given challenges surrounding the global economy, including the United Kingdom’s referendum vote to leave the European Union, several major central banks have taken a dovish stance on interest rates, which we think bodes positively for emerging markets’ growth and assets. At the same time, the US Federal Reserve (Fed) has been very cautious in terms of tightening this year," Mobius said.
Along with IMF, "In August even Moody's too revised its outlook on the world’s largest emerging-market economies upward for 2016 and 2017, with the expectation that these economies have stabilised," Mobius said.
Till now, the asset class received strong inflows as investors continued to search for higher yields, helped the emerging markets to ouperform. Along with it, the rebound in commodity prices led by oil further shifted investor sentiment in favour of emerging market equities, he added.
India and China
For India, according to Mobius, the passage of national bankruptcy law and goods and service tax (GST) bill and relaxing of foreign direct investment rules has made meaningful progress on structural reforms to stimulate growth and share markets.
However, China's scenario is different. Since last year, the downfall in Chinese economy has been a matter of concern for all the emerging markets including India.
But, as per Mobius, China's economy hasn’t imploded as many had feared at the start of the year.
"The devaluation of China's currency had prompted alarm bells among global investors on fears the weaker currency could ignite competitive currency volatility and potentially destabilize the economies of China’s neighbors", he said.
In fact, China's weak macro data led investors remain cautious, causing the Shanghai Composite Index to decline nearly 40% from its peak in the mid-June 2015.
Mobius in his blog mentioned that the Chinese economy has recovered since then, but still has many ailments including oversupply of housing, excess capacity in many industries, a slowing manufacturing sector and considerable debt issues.
The pick up in the China is credited to the growth in consumption driven by rising wages, an expanding services sector and new infrastructure initiatives launched by the government, Mobius added.