Global equity fund managers view India as the primary investment opportunity in Asia Pacific.
James Dowey, manager of the Liontrust Global Dividend fund, said the demographic advantages inherent in India made it both an economy and a market worth investing in.
He said: “The biggest and best source of opportunity in Asia Pacific in the decade ahead is India. The reasons are simple – its huge potential scale due to its exceptionally young population and great growth prospects from a low base unlocked by reforms and innovation over the past decade. India’s median age is 28 compared with China’s at 38 and while China is set for a decline of one or two million of its working age per year over the next decade India will gain about 10mn a year.”
Many emerging market economies get stuck in what economists call the middle income trap - when a country can no longer compete internationally in the market for labour-intensive goods because wages are too high, but it cannot also compete in higher value-added markets because productivity is too low
Attempting to escape this trap usually involves regulatory and supply-side economic reforms, which can be unpopular with voters.
Dowey’s view is that these regulatory reforms have already happened in India, while the economy is also moving up the value chain and not reliant on being the lowest-cost manufacturer.
He said: “This can already be seen in the recent strong growth of the technology and high value manufacturing sectors alongside signs, finally after many years, of a major build out of infrastructure and real estate. These factors should set the scene for structural economic growth north of 5 per cent a year.”
Alex Stanic, manager of the Artemis Global Select fund, which is no longer owned by any of the allocators we cover, said that while there are enormous globally-focused companies throughout the Asia Pacific region, exposure to domestic economies offers greater diversification potential.
His view is that India is taking over from China as the growth engine of the region.
Stanic said: “It’s invested heavily in transport and energy infrastructure in the past decade and that’s continuing. It has more of its rail network electrified than France or the UK these days. India has just overtaken China as the world’s most populous country. The long-term potential there is very strong and it’s quite an internalised market. We have a holding there in HDFC, a well-run bank. And one of our team is heading to India this month for further in-depth research with companies.”
Stanic still sees a role for China in a global portfolio, believing it is now less aligned with the rest of the world’s economy, and consequently is a good diversifier.
david.thorpe@ft.com
