1 – The outbreak of the 2019 Novel Coronavirus in China, which has spread across Asia and other parts of the world, has had a negative impact on sentiment in the short term. Business activity and consumption in China have been significantly impacted as people curtail their movements as a preventive measure. This is expected to result in a materially negative growth print in the short term. Sectors such as travel, leisure, retail and select sub-segments of discretionary consumption are being directly impacted in the near term. We could, however, see the government respond through additional stimulus measures such as further rate cuts, measures to encourage infrastructure spending or boost consumption. While we continue to monitor the situation, we currently believe the long-term growth outlook for China and Chinese equities remains unchanged.

2 – India’s fiscal deficit target for the budget was raised to 3.8% of gross domestic product (GDP) for fiscal year 2020 (FY20) in view of lower revenues, while the target for FY21 was set at 3.5%. While there were high market expectations for fiscal expansion given weakness in India’s economy, the FY20 budget largely reflected the government’s decision to stay on the fiscal consolidation path, with no significant stimulus to the economy. Additionally, we believe the Indian economy and corporate earnings growth are set for a gradual recovery over the next one to two years, supported by growth-oriented policy measures already undertaken.

3 – Although emerging market small caps recorded positive returns in 2019, the asset class lagged its emerging markets large cap counterpart. We, however, believe that the structural story for emerging markets small caps remains intact, i.e. small caps are levered to idiosyncratic local economic dynamics, particularly consumption. Attractive valuations in the asset class and solid earnings potential further support the investment case, in our view.

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