LONDON: Chinese and Indian stocks look expensive but rampant economic and corporate profits growth means these markets are still attractive, Joshua Tay, a fund manager at JPMorgan Asset Management, said. Tay, who manages the $577 million (Rs2538.8 crore) JPMorgan Asian investment trust, also said he was optimistic about Chinese stocks despite their recent setback.
“India and China are the two hottest markets right now and you just have to pay up. I’m less sensitive to valuations and more sensitive to growth,” he said in an interview late last week.
“You do have a feeling that valuations are stretched, but you could argue valuations were expensive when the (Indian BSE) index was at 6,000 and it has doubled, so what do you do?” Tay said.
India’s 30-issue BSE index rose to 14,403.77 on Friday, its seventh record close so far this year, driven by robust company results and the central bank’s upgrade this week of its 2006-07 economic growth forecast to 8.5% to 9.0% from 8%. However, some commentators believe the market is now overvalued. According to Reuters data, the market is on a price/earnings (PE) ratio of 17.8 times 2006 forecast earnings.
Tay has 9.3% of his portfolio invested in India, which is approximately in line with the index, while 15.3% of his portfolio is in China, above the benchmark weighting.
“This sort of valuation is sustainable provided the companies continue to deliver high growth in the next few years,” he said.“If there is a sudden downgrade in growth of companies in India or the growth prospects at an economic level, then people will start to worry about valuation. Until then, I can live with the PEs of China and India.”
Last month, Hugh Young, an Asia fund manager at Aberdeen Asset Management, said he was positive on some Indian stocks, in spite of their high valuations, because the long-term outlook for firms was good.
Tay also said he remained positive on Chinese stocks, despite a setback in recent days on fears the government would act to cool the mainland stock market.
This followed a run that took the Shanghai Composite index to a record high last month. “The government said that about property how many years ago? It’s something you can say, but the undeniable fact is that, by and large, demand for Chinese paper (shares) outstrips supply,” Tay said
“The government plays no role in these capital market decisions,” he said. Over the past five years the trust’s net asset value has risen 68%, compared with a 56% rise in the FTSE World Pacific Basin excluding the Japan index.(Reuters)