Milltrust Alert – Selected Insights from the Emerging Markets

September 21, 2018

BY Alexander Kalis

In This Week’s Issue…

Key Story

Don’t sleep on the rest of the world, even as the U.S. keeps setting stock-market records. That’s the message coming from a host of Wall Street shops highlighting the potential for the America-first thrust in financial markets to reverse.

The glass half-full recoupling between the U.S. and rest of the world would entail an emerging-markets rebound amid positive spillovers from Chinese fiscal stimulus. Beijing has “tons of room to move” after a period of belt-tightening, noted Bank of America Merrill Lynch, saying there’s great risk-reward dynamics in the nation’s equities.

The positive views on Asia and Emerging Markets investmentshas been echoed recently by JP Morgan and Mobius who says the smart money is in Emerging Markets.

Key Soundbites

  • In Brazil, the fact is that the recovery of activity has increasingly been less robust that we had imagined.
  • In Chile, the drivers for consumption are also positive when we look at Chile’s labour market: unemployment may have risen to 7.3% in the beginning of the second semester.
  • In Mexico, we remain of the view that activity will decelerate even more, edging towards a moderate 2.2% GDP expansion in 2018 and 2019.
  • With US-China trade conflict risk becoming higher, we expect that the Chinese policymakers will make efforts to boost domestic demand and stabilize sentiments in the economy. We think that PBoC will likely introduce more measures to provide better credit support to the real economy. In addition, we may also see stimulus packages related to infrastructure projects announced in fiscal policies.

Key Investment

Shenzhou International the largest vertically integrated knitwear manufacturer in China, and the country’s largest exporter of knitwear with customers including Nike, Adidas and Uniqlo. The company reported 1H 2018 with earnings beat driven mainly by stronger than expected gross margin, partly offset by somewhat weaker than expected top line growth dragged by FX.

Key Charts