Emerging markets overall felt a dose of optimism in August amid hopes for a COVID-19 vaccine, continued easy monetary policy globally and improving economic data pointing toward recovery. Our emerging markets equity team breaks down the key trends, news and events it has an eye on, and shares its latest market outlook.
A trend witnessed in several countries globally, the daily number of COVID-19 cases in India started to increase in late-August as the country continued to ease quarantine restrictions and economic activity began to gradually normalize.
But if the states experiencing surges of coronavirus infections are forced to reinstate restrictions on business activity, these conditions may end, fast. While much of the U.S. stock market is discounting for the perceived pandemic recovery, we believe economic recovery will be more gradual.
Volatility has remained high through the equity rebound in the face of several key uncertainties: the trajectory of the COVID-19 virus as a second wave of infections hits states that reopened their economies; the willingness of consumers to go out and spend again; the comeback in employment after massive layoffs; and the size of a potential new fiscal stimulus package.
Indian equity markets continue to trade at a discount to long-term averages, and we believe long-term reforms and expectations of faster earnings growth could support a re-rating.
The pandemic has accelerated investment trends already underway that should continue for years to come. As a result, since March, we have been repositioning for the post-COVID environment, targeting companies that can deliver above-average growth in the next three to five years, as opposed to the next six to 12 months.
Digital transformation was already a priority investment for many companies pre-COVID, but the sudden shift to enable widespread working from home — with all of the communication, security and data needs that go with it — made technology spending an immediate business-critical consideration.
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