Dubai: Union Bank Privee is cautious over China’s rising dominance in terms of the weight of China in the MSCI emerging market index, while UBS is positive on Argentine stocks.
As the MSCI gets closer to include China A shares in its EM indices, it is possible that China could account for 40 per cent of standard EM benchmarks, according to Mathieu Negre, Head of Global Emerging Equities at UBP.
“Irrespective of China’s particular investment risk return profile, we find this kind of concentration against basic principles of good portfolio management and risk diversification,” Negre said.
“How to deal with rising weight of China particularly in passive investment vehicles will be an ongoing issue for EM investors for the foreseeable future, he added.
Argentine stocks
Soledad Lopez, emerging market strategist at UBS Wealth Management is bullish on Argentine stocks.
“We advise investors to add exposure to Argentine equities in a broadly diversified manner. Over the next 12 months, we think MSCI Argentina will do better than the MSCI Frontier or MSCI Emerging Markets indices,” Lopez said.
“Growth and inflation dynamics are improving, and we are seeing upgrades in the legal and regulatory framework for banks, energy companies, and utilities. This should offer more upside for the equity market,” she added.
Finally, the potential inclusion of Argentina in the MSCI Emerging Markets index, which we consider likely in the next 12 months, could enhance local equity returns, according to UBS.
The Buenos Aires Stock Exchange Merval Index has gained 21 per cent so far in the year.
