Competition makes stock selection risky in China and India: JPMorgan

Adrian Mowat , chief strategist at JPMorgan Securities for the Asia-Pacific region, spoke exclusively to ET NOW on a variety of issues that are constricting global growth and where the smart money is moving into.

How are you reading global economic data, especially inflation?

People are spending on groceries and gasoline and that's what is depressing the demand for other goods and services. It is causing weakness in US and European economic data. We need to lower energy and commodity prices to reaccelerate demand in the developed world. We remain bearish on commodities and global economic data is weak. We are revising down our forecast for both developed and emerging economies. Commodity prices need to come down reflecting weaker demand.

Where do you think the smart money is moving into? Which sectors and economies are likely to be in favour?

We are looking to buy some of the most cyclical sectors which currently are very underweight in most portfolios. We will be looking at the financial space, some of the consumer stocks , even auto stocks which at the moment are underweight becausethey are experiencing relatively weak demand and supply in the coming months. Telecom should be defensive, but in emerging markets like China and India, the competitive environment makes the stock selection extremely high risk.

What is your view on India?

We are overweight on India against a backdrop of pessimism on EMs. Many investors understand the negatives in investing in India whether that be persistently high inflation, political problems and margin pressure. So, India's outperformance is certainly in line at this point in time. If we were to see a broader selloff at the US equity market, as investors have eventually capitulated to weak data. You will see EMs to move downwards with that and a correction of 10% is quite possible.

Still, if you were to construct a portfolio of Indian stocks, what would you include?

For now, your best bet is to stick with high quality liquid names like consumer staples space in India are attractive on that basis as are the private sector banks. They are the right things to be earning today. Reasonably, open minded to buy capital goods companies at this point in India.

Quantitative Easing of US Fed comes to a close, what does it mean?

End of QE2 could turn out to be dollarpositive. Japan's economy desperately needs a weaker yen. So, when I look into the 2nd half of the year, it is quite possible that the dollar could appreciate. Earnings numbers will reduce in China, including for banks and so construct in overweight portfolios is quite difficult.