Why India And Indonesia Are Now The Preferred Markets for Fund Managers in Asia?

2 exceptions to the trend

Despite a general trend of asset managers shifting out of Asian markets and moving into Latin America and Turkey, there are two Asian markets that seem to be an exception to the trend. These are India (EPI) (INDA) (PIN) and Indonesia (EIDO).

Offer higher risk-adjusted return

Experts at Amundi Asset Management seem to remain positive about these two Asian (AAXJ) emerging markets (EEM) (EMB), as they are believed to be less sensitive to the global cycle and have exhibited more steady economy growth. Since these economies are not dependent on commodity exports, the volatility of domestic demand is found to be consistently lower. Stable domestic demand effectively translates into higher risk-adjusted returns for these consumption-led markets.

India

India (EPI) (INDA) (PIN) is a market where “investors have been implicitly pricing a 3% growth premium above the average for emerging markets,” according to Amundi research. Justified by a consistently higher ROE, this points to:

1. a medium-term investment horizon
2. a good stock picking ability
3. the need to include small and mid-caps in the scope of investments

Additionally, the higher diversification on offer by India’s capital market illustrates economic dynamism and a wider opportunity set.

Geoff Lewis, Global Strategist-Capital Markets Group, Manulife Asset Management believes “India is a particularly strong secular theme”.  He also believes that foreign investor inflows into India tend to be stickier in respect to other emerging markets. “India has a strong domestic growth story, especially with the GST coming in this year,” said Lewis.

Indonesia

Indonesia’s (EIDO) investment case rests on two strong pillars;

1. Expansion in capital spending in the region
2. A sustained economic growth rate of around 5%

Asset managers such as Aberdeen Asset Management, Jupiter Asset Management, and Sempione Sim Spa, continue to pile into Indonesia. According to Bloomberg data, the total assets under management in Indonesia’s fund industry rose 57% on an annual basis in 2016.