India, Asean To Lead Rebound From Upcoming Global Recession, Says Nomura's Subbaraman
While India may not be immune to the possible recession in major economies, Subbaraman says medium-term outlook is very positive.
As developed markets navigate the upcoming recessionary turmoil, emerging markets could lead the recovery, according to Rob Subbaraman of Nomura.
Among emerging markets, India and Asean countries will have the highest growth rates in the world, Subbaraman, head of global markets research at Nomura, told BQ Prime. He cited fundamentals like healthy balance sheets, "very good" demographics, digitalisation of economies and China-plus-one strategy for his optimism.
The diversification of multinational companies over two-three year horizon it is going to beneficial for India and Asean, Subbaraman said. “Asean and India are comparatively good shape compared to other EM regions.”
However, this recovery, according to Subbaraman, will start showing only in the second half of next year. Asian exports would be hit hard in the first quarter, he said flagging another "market wobble" next year.
Recessionary Woes
The recession, which threatens to grip nations like the U.S. and Europe, will be a long-lasting one, persisting throughout the next year with a quarter-on-quarter contraction, he said, citing reasons such as cost of living crisis and aggressive monetary policy tightening.
On top of that, the central banks are not going to quickly come to the rescue, the analyst said, adding that the inflation is still too high compared to their targets.
"We expect recessions across the US (-1.0% y-o-y in 2023 from 1.8% in 2022), Euro area (-1.6% from 3.2%) and UK (-1.4% from 4.3%), with global GDP growth slowing to 1.2% from 3.0%," Nomura said in its Dec. 7 investor note .
A recession in the developing markets, the note said, should unleash faster disinflation in Asia from the second quarter of 2023. Rate hike cycle has reached its finale and the brokerage expects policy rate cuts in the second half of 2023 and into 2024.
Even China is going through a "bumpy" recovery, according to Subbaraman. The Asian country is witnessing a rise in coronavirus cases which is likely to result in disruptions in the short term.
But "once the global dust settles, we expect Asia to outperform, with the region attracting large capital inflows, owing to its better growth prospects and stronger fundamentals," Nomura said.
India An 'Interesting' Opportunity
Flagging that India might not be immune to the possible recession in major economies, Subbaraman added that it might be a interesting opportunity to get involved in India as the medium-term outlook is very positive for the country.
Even with good balance sheets, India is going to face a notable growth slowdown next year, Subbaraman said. For fiscal 2024, the analyst predicts growth at 5.1%, which is lower than consensus and RBI's focus. However, in financial year 2025, India's growth would be at 6.8%, which is above the consensus view.
Meanwhile, inflows from foreign portfolio investors could be lull next year.
Still, Subbaraman, while highlighting asset class as metric for investments in emerging markets, said India stands out and could attract significant inflows.
Private Sector Investment
Subbaraman said "with public debt quite high in India, you do need the private sector to play a big role to get investment going and that’s what India really needs". This is why, Subbaraman said, the brokerage is positive in the medium term for India.