Equity
ANALYST VIEW - UBS downgrades Hungary to ‘Underweight'
UBS said GEM earnings growth estimates were still overly optimistic, given decelerating global growth, and cost pressures.
“We expect margins to come under pressure across most countries and sectors," UBS said. The bank projects that a one percentage point decline in margins - the base line scenario of UBS - is likely to imply earnings growth of less than 10%. UBS stressed that only a modest further decline in margins will imply no earnings growth this year.
Despite the correction, GEM Price to Book remains above its 5-year average, UBS said.
“A peak-to-trough analysis of past downturns suggests a downside of 12% to bring market in line with its 5 year average or with the long-term average for global equities."
UBS said it was positioning itself more defensively.
UBS increased exposure to markets that are on low historical valuations and where macroeconomic conditions are likely to remain relatively robust. Russia remained the bank's favourite market, followed by Taiwan, Poland, and Mexico. It also upgraded Israel to ‘Overweight' and the Czech Republic to ‘Neutral', while it downgraded Hungary to ‘Underweight'.
UBS sees IT the most attractively valued sector within GEM, and so it increased its exposure to this segment.
“We take a more defensive stance by adding to Staples in Mexico and Healthcare in Israel. In doing so we increase our underweight in Energy and Industrials, and modestly reduce our overweight in Materials."
Turkey, Taiwan, Thailand, South Africa, Poland, Hungary and Israel are the most attractively valued markets, while China and India are the least attractive, UBS said.
UBS added Komercni Banka, and removed Hungary's OTP Bank following the strong underperformance of Komercni.
Furthermore, UBS said that at the macro level, Hungary was “significantly more exposed to slower global growth and risk aversion than the Czech republic".
“We expect margins to come under pressure across most countries and sectors," UBS said. The bank projects that a one percentage point decline in margins - the base line scenario of UBS - is likely to imply earnings growth of less than 10%. UBS stressed that only a modest further decline in margins will imply no earnings growth this year.
Despite the correction, GEM Price to Book remains above its 5-year average, UBS said.
“A peak-to-trough analysis of past downturns suggests a downside of 12% to bring market in line with its 5 year average or with the long-term average for global equities."
UBS said it was positioning itself more defensively.
UBS increased exposure to markets that are on low historical valuations and where macroeconomic conditions are likely to remain relatively robust. Russia remained the bank's favourite market, followed by Taiwan, Poland, and Mexico. It also upgraded Israel to ‘Overweight' and the Czech Republic to ‘Neutral', while it downgraded Hungary to ‘Underweight'.
UBS sees IT the most attractively valued sector within GEM, and so it increased its exposure to this segment.
“We take a more defensive stance by adding to Staples in Mexico and Healthcare in Israel. In doing so we increase our underweight in Energy and Industrials, and modestly reduce our overweight in Materials."
Turkey, Taiwan, Thailand, South Africa, Poland, Hungary and Israel are the most attractively valued markets, while China and India are the least attractive, UBS said.
UBS added Komercni Banka, and removed Hungary's OTP Bank following the strong underperformance of Komercni.
Furthermore, UBS said that at the macro level, Hungary was “significantly more exposed to slower global growth and risk aversion than the Czech republic".
