India’s future prospects and global emerging markets
Luke NG, senior vice president of FE Research Asia gives us his thoughts on India’s future prospects and global emerging markets in general:
India
“Over the past few months we have been seeing rising market uncertainties due to two major issues – the intensifying worry over the Chinese economic slowdown, and the sharp fall in oil / commodity prices.
“Among emerging market economies, India seems to be one which is less impacted by these external factors. Unlike other emerging Asian economies, the Indian economy is less reliant on exports and trades with China, and therefore investors have fewer concerns on the impacts coming from the Chinese economic slowdown. At the same time, India is a commodity importer, and oil accounts for around 35% of Indian’s imports. Therefore India has been one of the beneficiaries of the oil price correction as it helps lower the cost of production, inflation and current account deficit.
“Overall, the Indian economy is in a fine position backed by moderate debt level and strong foreign reserve. Inflation is also within central bank’s target range of 2% to 6%, which allows the Reserve Bank of India to stay accommodative in its monetary policy. As PM Modi came into power in 2014, there was a high expectation that he could drive a series of reforms, i.e., ‘Made in India’, ‘Digital India’, bring in labour market reforms, tax reforms and deregulation of petrol and diesel prices etc to move the economy forward. While major reform progress has yet to be seen since Modi came into office, the government is gradually paving the way to drive changes in various areas. These success of these efforts are key for India to maintain a sustainable high growth rate going forward.
“Because India is less attached to the global market uncertainties and has decent future growth prospects, it is an area that investors could consider to include for a globally diversified investment portfolio.”
Global emerging markets
“Global emerging market equities are generally trading close to historical lows in terms of valuation over the past two decades, and present huge discounts over developed market equities.
“It could be a value play for long term investors, however, it could also be a value trap – especially for commodity oriented economies where commodity-related companies make up of a large component of the equity markets. These companies continue to face structural changes in demand as China transits from a secondary focus to tertiary focus economy – and therefore resulting in a decrease in commodities consumption.
“While valuations of emerging Asia equities are also attractive, they may present better opportunities for long term buyers as these economies are potential beneficiaries of the falling commodity prices.
“Asian governments are engaging in series of reforms to drive sustainable economic growth going forward, and in order to capture these opportunities investors need to be selective by focusing on industries / companies which present sustainable growth / leadership in the region and avoiding those with excess capacity in the face of mild global growth and structural economic changes. Therefore, fund manager selection plays an important role in order to capture the long term opportunities emerging in the region as equity markets try to recover.”
