UBS has given India an underweight rating, describing it as ‘extremely expensive’. UBS strategists believe that Indian stocks are the least attractive in the market as valuations are rising with declining earnings momentum, while there is little room for economic recovery this year.
“India’s relative valuation for ASEAN, two regions with similar growth dynamics and sometimes perceived macro vulnerabilities, appears too broad to justify. We note that in both India and Taiwan, retail investors have played an outsized role, Which is difficult to predict in terms of reversal, creating an additional potential headwind if demand subsides,” it said in a note dated October 20.
It has doubled China’s overweight rating, leaving India, Taiwan and Australia the least.
UBS estimates that Asia is pricing in substantial earnings recovery in 2021, excluding Japan shares. “Fed policy changes are likely to be the major debate. With less easing monetary policy, rising bond yields through Fed tapering and further tightening in China, the biggest risk in our view today is oil prices, US-China Stress remains another source of risk.”
UBS expects earnings to jump 37 percent in 2021, as economies open up, revenues pick up and margins expand. Consensus earnings have been revised up, while leading indicators still suggest positive earnings revisions this year, albeit at a slower rate. In 2022, a slowing economy and OPEX/CAPEX recovery could slow earnings per share (EPS) growth to around 12%. Extreme export growth, rising input costs and high implicit ROEs also limit the scope for significant upgrades from here.
“While ASEAN has taken a while to go, at least given the impact of the Covid-19 variant and a slower vaccine roll out that we anticipated, we still feel it is time to go into relative performance in the short term and There is much more, despite the danger of shrinking. We see better relative performance than the extremely expensive India,” UBS said.
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