Asset manager points to India as exception in emerging markets negativity

India stands out in unloved emerging markets as cheap energy, reforms give it a boost, says Ashburton Investments.

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As investors pull money out of emerging markets at the fastest pace since the financial crash of 2008, India remains a bright spot where bets have increased this year, says one asset manager.

India bucks the trend as a net energy importer and because of its determination to push ahead with economic reforms, according to Jonathan Schiessl, head of global equities at Ashburton Investments, the South African asset manager.

Meanwhile, most emerging markets, especially in South America, have been crushed by a collapse in commodity prices. Raw materials in these countries are relied on for funding government spending and firing up economic growth.

“India is on the other side of the coin when it comes to energy and other commodities, but the real differentiator in emerging markets is reform or perceived reform and those countries that are getting their structural houses in order, that’s the real differentiator,” said UK-based Mr Schiessl. “Yes, India has lucked out with falling energy prices but they also have a government in place that’s doing enough to make us feel comfortable.”

The asset manager said he particularly likes Indian banks, and 25 per cent of the $105 million fund he manages is dedicated to the stocks of financial firms.

India’s outlook was given a shot in the arm last year after Narendra Modi, the country’s reform-minded prime minister, took office. Since assuming power, Mr Modi has lost little time in his plans to overhaul the country’s economy. As well as moving towards market-based energy pricing by removing energy subsidies, Mr Modi is also getting ready to pass a goods-and-services tax, to open up more to foreign investment as well as to better target subsidies for fertilizer, cooking gas and food.

As a result of the optimism, the S&P BSE Sensex Index, the country’s benchmark measure of equities, gained 27 per cent last year, making it the fifth best performing index in the world. So far this year, the measure has shed 6.5 per cent, outperforming the broader emerging market index benchmark, the MSCI EM Index, which has dropped 11 per cent.

Emerging markets have been unloved by investors during the past couple of years amid economic and political turmoil in countries such as Russia and Brazil, collapsing commodity prices and relatively sluggish GDP growth in China, the world’s second-biggest economy.

More than $60 billion has been taken out of emerging markets equities this year, according to EPFR, a global compiler of fund data. But Mr Scheissl said the India fund he manages has experienced growth, which he did not quantify, in recent months.

Elsewhere, the IShares India Exchange Traded Fund, the biggest of its kind, has received inflows of $1.95bn so far this year, according to data compiled by Bloomberg.

Mr Schiessl also cited the formal adoption of inflation targeting in India. At the moment, he said, three-quarters of India’s household assets are tied up in real estate or gold, regarded as hedges against high inflation. If consumer price gains are quelled, that could be a boon to stocks, he said.

Apart from India, he says he also likes European and Japanese equities but following years of sharp equity gains, opportunities are scarce.

“It’s a bit difficult to find much value after we’ve had so many years of rising equity markets, but we still think equities offer better value compared to bonds or cash,” he said.

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