The emerging market's outlook has improved slightly since the beginning of the year. Global conditions seem somewhat more favorable: the dollar has moved within a very narrow range and analysts at Pioneer Investments believe that the danger of a strong appreciation of the dollar has been avoided.
In addition, US interest rates have stabilized and it seems that the Fed will carry out the process of monetary normalization with extreme caution. Prospects for commodities are positive and the firm's coincident indicator for China remains relatively strong, suggesting that the growth dynamic is widespread.
"Equity valuations in emerging markets are not particularly attractive overall but we like India and, in China, the sectors representing the new economy versus the old China. From a medium-term perspective, the uncertainty of Trump's policies could force or encourage China to accelerate the transition to a domestic demand based economy."
As for India, Pioneer Investments estimates that it still represents an investment opportunity backed by mostly endogenous factors, "although it has suffered from the credit crunch, the economy has weathered well and domestic consumption has already shown signs of recovery in the first Quarter of the year," they explain.
Inflation is bottoming out and at Pioneer investments they expect that in 2017 it will stay at the target level of the Indian central bank (RBI). Although valuations are expensive, they are supported by returns (in particular by ROE) and the estimated earnings per share growth for the next 12 months has been revised upwards to 7%. The results season has been positive to date.
"The currency is undervalued in the medium to long term, which contributes to competitiveness. The perception of value should be adjusted, since we hope that the structural reforms will cause a revaluation of Indian stocks. Emerging market currencies also offer opportunities for arbitrage: we prefer the currencies of commodity-exporting countries with high carry versus those of manufacturing countries, both for structural reasons and for the positive carry," they conclude.