For market strategists, the valuations of Indian equities remain a source of concern. The global bank said that the Indian economy was also experiencing strong growth, which was in line with the global recovery while presenting the DBS CIO Insights Report for 2Q21 titled “Back on Track.”
“Our concern for India has always been the valuations,” said Joanne Goh, a strategist at DBS Bank. “Right now, with the valuations at this large, we are a little worried that it (the Indian market) might not be able to outperform other markets such as China.”
She went on to say that while Indian markets may recover in line with other global markets, they see more opportunities in other countries, such as China, in the near term. According to the executive, India has seen rapid digitalisation over the last year, and if this trend continues, the Indian markets will be able to justify higher valuations.
US equities have the highest allocation of 28 per cent in DBS’ global tactical asset allocation for 2Q21, led by Asia ex-Japan equities at 16 per cent. Corporate bonds and alternatives from emerging markets (DM) each receive a 15% allocation. Emerging market bonds account for 14% of the market.
Gold, hedge funds, European equities, and Japanese equities, on the other hand, have allocations of 8%, 5%, 4%, and 2%, respectively.
According to DBS CIO Insights, while the equity rally’s pace may slow in the coming months, an extreme drawdown is unlikely.
“There will be a few hiccups along the way, but the process of normalisation has begun with the roll-out of vaccine,” Hou Wey Fook, chief investment officer, DBS Bank, said in response to the revival of Covid-19 cases around the world.
The markets are about to normalise; there is a lot of liquidity, growth is returning, and corporate earnings are stable.”
According to the study, the outperformance of US equities over Europe and Japan is expected to continue in Q2 2021, as the country’s successful vaccination rollout bodes well for economic re-opening and corporate earnings.