Emerging markets are likely to suffer a sell-off when investors find that US corporate earnings are lagging a surge in stocks.
US stocks are largely supported by corporate buybacks and cost-cutting, the Hong Kong Economic Journal reports, citing Robert Rountree, global strategist of Eastspring Investments.
Market momentum will stall amid a weaker forecast for US economic growth, which has been slashed by 30 percent, he said.
The US stock market will fall again when the reality sinks in, potentially hurting liquidity in the global stock market.
A sign of weakness in the world’s biggest economy was the Federal Reserve’s decision to delay an interest rate hike, previously expected in September, Rountree said.
He said investors should overweight H shares given their attractive valuations at half of their US counterparts but with similar corporate earnings growth of about 8 percent.
Domestic lenders, first to second-tier property developers and insurers are among Eastspring’s top picks.
Meanwhile, portfolio manager Wong Ka-kuen said China’s economic slowdown has been factored into the MSCI China Index.
If Chinese corporate profits continue to improve in the second half, insurance and property stocks could catch fire, he said.
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