emerging markets: Credit Suisse upgrades emerging markets to ‘overweight’, surpasses Europe rating

Overall GEM currencies and equities are cheap with relative earnings and GDP estimates improving, but China’s increasing credit impulse has led the upgrade, Credit Suisse economist Andrew Garthwaite said.

China’s central bank had said in December it will keep its monetary policy flexible in 2022, as it seeks to stabilise growth and lower financing costs for businesses amid growing economic headwinds.

The research firm had upgraded China to “overweight” in January, and credited the region as responsible for most of the underperformance of GEM last year.

Russia, Turkey, Brazil, Malaysia, South Africa, Mexico, Korea, Thailand, Taiwan, Indonesia, China and India form its Credit Suisse’s GEM list.

The brokerage also said increasing liquidity in China will likely be directed to either bonds or equities, as the government tries to slow any increase in house prices, helping regional equities perform better.

“Above all, the CFROI (economic value) in GEM is above Developed Markets for the first time since 2009,” Garthwaite added.

Meanwhile, it downgraded its Continental Europe region but to a lower “small overweight” rating, arguing that the region could face slowing GDP growth after commodity prices rise due to the Russian-Ukraine conflict.

“We also think that strategically Europe is much better positioned than in the past in terms of monetary and fiscal policy,” Credit Suisse said.