“Emerging markets will perform very well this year. The reason I believe that is inflation was a problem for the major emerging markets in 2011. It is no longer the problem. We are seeing growth slowing down, but the upside of that is we are seeing inflation coming off. We are beginning to see quite a number of central banks reducing interest rates. This is the time that you buy emerging markets, which is when they are at the end of their rising inflation cycle. Our target for the emerging-markets index is 1,150.
Mowat said he is ‘‘overweight’’ Philippines, Thailand, Indonesia and South America, ‘‘which is experiencing a big reduction in interest rates and we forecast that to continue. We are overweight Russia, where we see it as a big beneficiary in the reduction of the global risk premium. He’s ‘‘underweight’’ Turkey and South Africa, and ‘‘neutral’’ on China (SHCOMP) and India.
On China, India and defensive, cyclical stocks:
‘‘We are quite bearish on the Chinese economy. Its equities markets have done poorly and that tells you a lot of the slowdown in the economy. There is recognition that China faces issues with non-performing loans, that it needs to cross- subsidize a shortage in capital at the local government level.
‘‘This year you are going to see much weaker construction starts in China. One of the big themes we are playing this year is ‘underweight’ commodities because it’s quite possible that Chinese steel and cement production will be less this year. Within China, we have zero exposure to property and building materials.
‘‘The Indian market was one the poorest-performing markets last year. We are beginning to see inflation coming down and we have had an easing move by the central bank. I like Indian financials and industrials. I am not ‘overweight’ the market because there’s a lot of Indian defensive stocks that did well last year.
‘‘This year you may want to be selling your defensives and go long on cyclicals whether those be industrials, technology or consumer discretionary.’’
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