BackChina’s stock fever sends message to Ashburton: Buy India
While funds in May were selling Indian equities at fastest pace in 22 months and buying Chinese stocks, Ashburton Investments was doing the opposite
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Mumbai: While funds in May were selling Indian equities at the fastest pace in 22 months and buying Chinese stocks instead, Ashburton Investments Ltd was doing the opposite.
Falling valuations have “presented an excellent opportunity to build positions" in India at the expense of China, said Jonathan Schiessl, the head of equities at the UK-based Ashburton, which oversees $12 billion. Schiessl said his India equity fund has returned 79% since its launch about three years ago.
Shares on India’s S&P BSE Sensex index were valued at a 16% discount to the Shanghai Composite Index, the biggest gap since November 2009. The Chinese measure has advanced 49% this year, compared with a 1.3% gain in the Indian benchmark gauge. The MSCI BRIC Index has climbed 12%.
Supporting Ashburton’s case, India has brighter economic and earnings prospects than its Communist-ruled neighbour. India’s economy grew 7.5% in the three months through March, beating China’s 7% expansion, while the International Monetary Fund (IMF) predicts India will outpace China in the current fiscal year.
Profits in companies on the Sensex will climb 45% in the next 12 months, compared with a 33% gain for the Shanghai Composite, analyst estimates compiled by Bloomberg show.
Foreign investors have soured on India as enthusiasm waned over Prime Minister Narendra Modi’s ability to push through major economic proposals and China’s stock rally became too big to ignore.
Fund outflows
“Investors are reducing overweight positions and buying into other interesting stories," Adrian Mowat, the Hong Kong-based chief Asian and emerging-market equity strategist at JPMorgan Chase and Co., said in an interview to Bloomberg TV India. “India was a big consensus overweight for a long time."
Foreign funds pulled a net $429 million from Indian shares in May, the biggest outflows since August 2013, and sold about $1.4 billion more of bonds than they bought. US-listed ETFs that track Chinese equities in the mainland, Hong Kong and US lured $1.2 billion over the past month, the second-most after Japan.
The underperformance of the Sensex is a sharp turnaround from a year ago, when newly-elected Modi was seducing foreign investors and brokerages alike. BNP Paribas SA said India’s “Reagan-Thatcher" moment would bring subsidy cuts, more investment and a simpler tax regime. Global funds agreed: they pumped a record $42 billion into Indian stocks and bonds in 2014.
Ability doubted
Since then, major economic proposals including a goods and services tax (GST) and a bill to make it easier for companies to buy land have been stalled by his opponents, who control the upper house of parliament.
“Investors are happy with Modi’s vision but there’s an element of skepticism over the speed of change and the ability to execute reforms," Hugh Young, Singapore-based Asia managing director at Aberdeen Asset Management Plc, said in reply to e- mailed questions. “We have taken 2% out of India in total" to invest in other Asian nations including China, he said.
The Shanghai Composite has rallied 137% in the past 12 months, the most among major global benchmark indexes tracked by Bloomberg. The gauge trades at 18.1 times projected 12-month earnings, while the Sensex is valued at 15.3, down from April’s peak of 16.9 times. Indian shares are also lagging behind equity indexes in the other Bric nations of Brazil and Russia, which have climbed from 5% to 17% this year.
India’s underperformance has made the country’s shares more attractive for Ashburton. Its Chindia Equity Fund has beaten 90% of its rivals over the past three years, data compiled by Bloomberg show. Foreign investors’ hopes that Modi would unleash the country’s economic potential in his first year were always “unrealistic," Schiessl said.
“Modi is pushing up against the checks and balances of democracy, which is frustrating for short-term market watchers, but to us it is expected," he said. “A lot of hot air has gone out of the India story and that’s a very healthy development." Bloomberg
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