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Shashank Savla, Asia: India's outlook improves but its stock market still looks expensive

India has been one of the best performing markets globally this year, with the Nifty equity index rising 34% both in local and US dollar terms. The mood on the ground is optimistic with expectations of a growth recovery and a fall in inflation. This is in stark contrast to the situation prevailing at the end of 2013, when the previous Congress-led coalition government had presided over a raft of negative news including corruption scandals, rising deficits, high inflation, a weakening currency and a lack of decision making. India’s reliance on foreign capital inflows to finance the current account deficit also made it vulnerable to the withdrawal of the US Federal Reserve’s quantitative easing program. Along with the aforementioned factors, India’s high 14.5x forward price/earnings valuations compared to 11.9x for Asia Pacific ex Japan underpinned our underweight positioning at the time.

Stephen Bailey, Macro-Thematic: Why it’s good to talk, and the benefits of M&A activity

We hold a relatively bullish view on equity valuations, not because we expect economic expansion to suddenly pick up, but due to the potential for significant corporate earnings growth to be driven by acquisition and rationalisation. Today we have seen news emerge of potential M&A deals involving both Friends Life and BT, two of our holdings.

Press speculation over the weekend linking BT with a bid for Telefonica UK, its old O2 business, prompted the company to issue a press release earlier today. The company stated that it had been “exploring ways of accelerating” its plans to provide mobile services to business and consumer markets, with an acquisition one of the options considered. Furthermore, it says that it has been in (“highly preliminary”) discussions with two UK mobile network operators, one of which it confirms as O2. The European telecommunications industry is among those that that look ripe for deal making, and EE – a network owned by Deutsche Telekom and Orange – has already been identified by many as a likely candidate to be the second, unnamed party in discussions with BT

Samantha Gleave, Cashflow Solution: What next after US QE?

Following the termination of the Federal Reserve’s ‘QE3' asset-buying programme, investors will once again be asking themselves ‘what next?’. Back in April, James noted in a blog (What next for markets – sentiment or fundamentals) that the valuation compression caused by QE had yet to reverse, even though the programme had begun to be tapered. However, we are now seeing signs that this compression, a hindrance to our investment style, is easing.


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