This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Alan Higgins, Chief Investment Officer, UK at Coutts gives his market outlook for the week.
Economic data continues to reflect a bottoming in India’s business cycle and stabilisation of Chinese growth, albeit at a slower pace than in the recent past. Growth in China’s gross domestic product was better than expected, returning to a 7.5% annualised pace in the second quarter. While growth was helped by short-term stimulus measures, we see China remaining committed to the extensive reforms – particularly those aimed at tackling growing indebtedness and exposure to property sector overbuilding – necessary for longer-term growth.
Data continues to point to a bottoming in the business cycle, with exports bouncing back after the first-quarter setback from the “Big Freeze” in the US. The July budget from India’s new government included measures to boost foreign direct investment, increase spending on infrastructure and standardise the tax system, all of which have been well received by the markets.
These changes should all help kick-start India’s investment cycle, boost consumption and drive growth towards our forecasts of 5% for this year and 6% in 2015. Recent purchasing managers’ indices of corporate sentiment have also pointed to improved manufacturing activity as a result of increased domestic and export orders.
The Reserve Bank of India’s (RBI’s) tight monetary policy has kept a lid on persistently high inflation, while the central bank has also continued to relax reserve requirements for commercial banks. RBI rhetoric has suggested policy could be loosened further to support growth if a sustainable disinflation trend emerges. While the outcome of the monsoon season remains a key uncertainty, we look for a quarter-point rate cut by yearend as inflation gradually trends lower.
Morningstar Disclaimer
The views contained herein are those of the author(s) and not necessarily those of Morningstar. If you are interested in Morningstar featuring your content on our website, please email submissions to UKEditorial@morningstar.com