New York: India’s stock markets may be at a historic high, but for US mutual fund (MF) managers looking for higher returns from overseas markets, China is still a better bet, at least in the near future.
“The long-term potential (of India) is clearly enormous,” says Matthew Dobbs, the portfolio manager of Vanguard International Growth Fund who works at London’s Schroder Investment Management Ltd, a partner with Vanguard on this fund. “The short-term view is a bit more mixed… China is a bit more attractive than India at the moment,” he adds.
Vanguard has 1.8% of more than $18 billion (Rs72,000 crore) in assets invested in India, 3.7% in China and Hong Kong, and 2.8% in Korea.
Most MF managers are fairly confident about India’s ability to curb excess inflation and prevent a slowdown in growth, but they remain concerned about overheating of certain pockets in an economy that expanded by 9.4% in 2006-07.
Some of them say that India needs to be friendlier to business in order to compete with China. Many say that India’s stock picks are comparatively few and high-priced. And all want a greater push on infrastructure.
“India is one of the most expensive emerging markets,” says Charles Wang, a portfolio manager of Acadian Emerging Markets Fund at Boston-headquartered investment management firm Acadian Asset Management, Inc. “You need breadth and depth to make it more stable. The India market is quite a risky market in our view,” he adds.
Wang explains that the fund is underweight on India because of high valuations and a potential bubble.
The Acadian fund has 21.8% exposure to South Korea, 7.2% to China and Hong Kong, and only 0.5% to India.
Punita Kumar-Sinha, a portfolio manager and chief investment officer for the India Fund and the Asia Tigers Fund for 10 years and a senior managing director of The Blackstone Group, agrees. “In other countries, the markets have seen broadbased movements. In India, we have seen the market breadth to be quite low versus earlier years—a handful of stocks have driven the index,” she says.
Kumar-Sinha adds that India is “slightly underweight to neutral” in the company’s broad Asia funds because other countries have more options in ship building, ports and oil services—sectors that performed well this year. The Asia Tigers Fund has 8.7% of its investments in India, 30% in China-Hong Kong and 20.9% in South Korea.
Greater China and South Korea, in particular, are preferred by managers looking at emerging markets in Asia. Dobbs says China has an attractive cyclical positioning.
Wang adds that South Korea is in the process of liberalizing policies on foreign investment and has a broad range of investment options, including several technology stocks.
Other countries mentioned by the managers as possible rivals to India for investments include Singapore, Thailand, Indonesia, Brazil, Russia and Mexico.
According to data provided by Thompson Financial, there are almost 1,000 US funds that have some level of exposure to India with an average stake at 2.2%. The total investments of these funds in India is more than $30 billion.
Sharat Shroff, portfolio manager at Matthews International Capital Management, LlC., says the fund’s strategies are overweight on India compared to benchmarks—a philosophy reflected in the $763 million assets in Matthews India Fund and the Matthews Asia Pacific Fund, which has 6.2% of $484 million of assets in India.
“We don’t look at India and China as an either-or question,” says Shroff.
“Both economies have their strong points and they are trying to take some inspiration from each other’s successes—India is trying to push through special economic zones and invigorate the industrial sector, while China is trying to boost its services sector,” he adds.
Like fund managers, individual investors too have mixed views on India. Investors range from the highly confident—if they have a high familiarity with India—to reactionary, based on market activity. Several investors say they have international growth MFs, but are unsure if these include investments in India.
Even though there are so few US funds dedicated to India—there are only four MFs and an indexed exchange-traded fund—Kumar-Sinha of The Blackstone Group says “that is plenty”.
She feels that US investors may be more risk averse right now as many Asia funds have not seen strong inflows.