Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
News that India’s stock market has overtaken Hong Kong to be the world’s seventh largest by market cap made headlines this week. That reflects increasingly positive sentiment, which Mobius Investment Trust (MMIT) manager Carlos Hardenburg highlighted at one of our events earlier this year. Carlos noted that he has been investing in India for almost three decades but has never experienced the level of optimism about the country’s prospects as he has today.
However, the country’s performance is arguably also a reflection of sentiment towards China, which has shrunk from over 40% of the MSCI Emerging Market Index in 2020 to less than 30% today. A similar phenomenon has played out in Asia ex-Japan indices. The result is that more money is likely flowing into India, in part because there may be a sense that there is a lack of opportunity elsewhere – a process that is then compounded by passive flows.
Nonetheless, Asia as a whole does continue to trade, on a price to book basis, below its own historical average. It’s worth noting that this is not the result of China’s outsized role in indices, as this holds true on a country specific basis as well, with the only exception being India.
In some ways this is surprising. Asian countries do not suffer from the same high levels of debt that much of the western world does. They have not been subject, for the most part, to the same inflationary pressures as their western peers have. And the growth opportunities are arguably more compelling than anywhere else.
As just one example, the Brookings Institute estimates that Asia’s consumer class will increase to 80% of the global total by the end of this decade, up from 50% in 2020, and only 20% at the start of the century. This is not to mention that the region contains many of the most attractive technology companies operating outside of the US.
That consumer growth and those tech opportunities also reflect the two distinct areas that are likely to attract investors in the region. On the one hand, you have large scale infrastructure growth and uptake of financials and consumer staples. Then you have more developed countries like Taiwan, South Korea, or China, where there are more opportunities in technology and consumer discretionary.
JPMorgan Asia Growth & Income’s (JAGI) current portfolio gives some indication as to where managers Ayaz Ebrahim and Robert Lloyd believe the best opportunities lie. The JAGI portfolio is currently overweight technology. Names like Samsung and TSMC are likely to be familiar to readers. However, other semiconductor players like SK Hynix and Wiwynn are also in the portfolio and supported the trust’s outperformance last year.
Ayaz and Robert have also cut back on consumer discretionary in India but are overweight to the country’s banks, as they are in Indonesia. Both countries have underpenetrated markets for financial services, meaning this is also something of a growth play.
Consumer discretionary is another sector the managers are overweight to, with notable holdings being in franchise operator Yum China and Indian automotive manufacturer Maruti Suzuki. The latter controls almost half of the market for passenger cars in India.
Risks around China clearly remain. However, with valuations having come down to more attractive levels, and the end of the rate hiking cycle in sight, it may be that Asia enjoys a better 2024. The opportunity is certainly there.
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