Brazil, India, Indonesia, South Africa and Turkey – the fragile five economies are facing headwinds related to elections and fear of sudden withdrawal of foreign cash due to Federal Reserve's decision reduce money-printing.
Doll is betting on developed markets over emerging markets this year and is bullish on US, Europe and Japan. Meanwhile, he added US economic growth continues to pick up and the jobs data is a blip.
He expects equities to outperform other asset classes this year. "A year ago I was arguing equities should be 10-20 percent above normal allocation. Given New Year I am arguing equities should be 5-10 percent higher than normal, bonds 5-10 percent lower than normal," he said.
Also Read: Eyeing stable rupee, JPMorgan AMC to hike exposure to India
Below is the edited transcript of Robert Doll's interview with CNBC-TV18
Q: The jobs number was very weak but how do emerging markets react to it?
A: Jobs number was a disappointment. Thankfully it's a monthly series so we will get another number a month from now. It is not consistent with all the other economic data which is strong and I still think the economy is improving; we will watch that jobs series closely. But markets have not been particularly affected and that is the right reaction.
Q: Do you see the EMs underperformance to continue in 2014 or will that trend change?
A: It seems to me that economic growth in US is picking up and therefore earnings growth is likely to be a bit better. On the back of that, developed markets (DMs) supported by US is a good place to be. EMs is mixed, a lot of them have inflation problem and unless that is taken out of the system, they will have their runs and corrections.
Q: Yes our country is one of them, how do you approach India now?
A: India is one of the countries that has inflation problem and unless those inflation numbers come down markets will have trouble making progress. Slowing inflation means slowing economy and that is not good news for equities.
Q: What kind of returns do you expect from equities in 2014? Should investors increase their exposure to equities now?
A: Stocks are going to outperform other asset classes. A year ago I was arguing equities should be 10-20 percent above normal allocation. Given New Year I am arguing equities should be 5-10 percent higher than normal, bonds 5-10 percent lower than normal.
Q: What is your pecking order within the equity markets, your top three preferred markets?
A: I still like DMs and given the improvement in economic growth likely in the US, I think that is going to be a good place. We'll see what kind of growth we get in Europe; it is going to be rather anemic; that market is cheap. Japan is a fascinating experiment, we'll see if that has more legs.
Q: What kind of returns do you see from the US markets this year?
A: Last year was an unusual year in two regards for US. One, the magnitude of the stock market gained 30 percent. Two, the pace or the way it developed, hardly a bump along the way. This year there will be more modest returns and more volatile returns and that is normal.
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