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UBS has an underweight rating on India calling it ‘extremely expensive’. Strategists at UBS find Indian equities to be least attractive as valuations are rising with fading earnings momentum while there is less scope for economic rebound this year.

“The relative valuation of India to ASEAN, two areas with similar growth dynamics and occasional perceived macro vulnerabilities, looks too wide to justify. We note that both in India and Taiwan, retail investors have played an outside role, which while difficult to predict in terms of reversing, creates an additional potential headwind if this demand unwinds," it said in a note on 20 October.

 It has double upgraded China to overweight rating with India, Taiwan and Australia as least favoured.

UBS estimates that Asia excluding Japan equities are pricing in a substantial earnings recovery in 2021.  “The shift in Fed policy is likely to be the key debate. Less easy monetary policy, with rising bond yields through Fed tapering and further tightening in China, is the biggest risk to the downside today, in our view. Oil prices, US-China tensions, remain other sources of risk," it added.

UBS expects a 37% rebound in earnings in 2021 as economies open up, revenues pick up and margins expand. Consensus earnings have been revised up, while leading indicators still suggest positive earnings revisions this year, albeit at a slower rate. In 2022, a slowing economy and recovering opex/ capex could slow earnings per share (EPS) growth to around 12%. Peaking export growth, rising input costs and high implied ROEs also limit the scope for significant upgrades from here.

 “While it has taken ASEAN a while to get going, not least given the impact of covid-19 variants and a slower vaccine roll out that we anticipated, we still think there's more to go in relative performance in the short-term, notwithstanding the risk of Tapering. We see even better relative performance versus extremely expensive India," UBS said.

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