Understanding the Asian equity market in a time where disease and war plays a major role can be confusing. Conrad Burge, Head of Investment for Fiducian Group Limited answers some questions about the current market in Asia and how investing in India may offer strong potential returns over the long term.
What is the current outlook for Asian equities?
The outlook for Asian equities varies significantly between countries as the region is far from being one entity. Some markets are attractively priced while others appear expensive. The Chinese market, for example currently looks cheap but, as we know, the country faces extreme challenges at present, including severe flow-on effects from lockdowns in place across the country to counter the spread of new variants of the COVID-19 disease (necessary because the Chinese vaccine has proved relatively ineffective in preventing the spread of the disease).
On the other hand, the Indian stock market currently appears relatively expensive after rising by 29% last year but this ignores the positive outlook for the Indian economy and for corporate earnings growth. The Indian economy is forecast to grow by an impressive 8.2% this year (IMF April report) and by around 7% in 2023, while earnings are forecast to grow by over 20% this year and by 14% in 2023 (Yardeni Research).
What impact do geopolitical pressures have on this sector?
Geopolitical pressures could potentially have an enormous impact on East Asia in particular as the region is highly dependent on imported energy, including oil, gas and coal. If the Ukraine war is prolonged, these negative effects could be expected to multiply and slow growth.
In the case of India, however, this economy is relatively self-sufficient and is far less dependent on exports to the developed world. Self-generated economic growth is likely to be sustained in India even in the event of a prolonged slowdown in the rest of the world.
When it comes to investing in Asian equities, in your opinion, where are the opportunities, and what are the risks?
Investing in Asian equities is for investors looking for solid returns over the longer-term and is not recommended for those seeking short-term gains as markets can be volatile. The risks could be high for the Chinese market if lockdowns continue, if problems in the property market are not soon resolved and, in geopolitical terms, if the country’s leadership continues to up the ante against Taiwan and threaten military action against its neighbour.
India, on the other hand, is likely to continue to grow strongly over coming years despite any maelstroms that emerge internationally.
Of course, India is considered as an emerging market. Last year, India’s equity markets were said to have had the best performance in Asia. Do you think the trend will continue this year? If so, why?
The trend for the Indian share market this year is unpredictable. However, the longer-term outlook remains positive. Output continues to grow strongly year-by-year; the population is continuing to increase (unlike East Asia, including China, where populations are already declining rapidly in some cases) and the middle class is continuing to expand at a rapid rate. This growth in the educated middle class bodes particularly well for consumer stocks, transport, infrastructure, services of all kinds, including software and technology more generally.
When was the Fiducian India Fund established and what does it offer investors?
The Fiducian India Fund was established in 2007 and has a strong performance record. In 2021, the Fund out-performed the index (Bombay BSE100) by over 11% and by 4.8% per annum over the 10-year period, returning over 18% per annum in $A terms to 31 December 2021.*
Through a diversified blend of four managers, the Fiducian India Fund provides investors with the opportunity to gain actively managed exposure to a high-growth economy with the potential for strong future growth.
What is your forecast for Asian equities, in particular Indian equities, moving forward?
The Indian share market has a record of out-performance and this is likely to continue into the future as it is clear that India could become one of the world’s major economies over the next two decades.* As such, the Indian share market could potentially out-perform most other Asian equity markets over coming years, particularly given solid economic fundamentals in terms of population growth, an educated workforce, growing openness to foreign investment and a strengthening alliance with western countries.
* Past performance is not a reliable indicator of future performance and we do not guarantee the performance of the Fund or any specific rate of return. Potential investors should also obtain and consider the relevant Target Market Determination (TMD) and Product Disclosure Statement (PDS) (available from your financial adviser and via fiducian.com.au) before making a decision about whether to acquire or continue to hold any financial product.