An Indian Summer

Key Points:

·     The 21st century was meant to be China’s.  Yet, it hasn’t quite worked out that way.  At one time, predictions abounded on when China would overtake the USA to become the world’s largest economy.  It seems as though those forecasts have subsided for now.

·    China’s economic woes are well known and documented, with the most recent data suggesting no immediate sign of any real improvement.   China’s housing market has entered its 4th straight year of declines, and the recent economic stimulus package falls far short of what’s needed.

·    What has received less attention in the press is the unending economic rise of India.  Unsurprisingly, this has been reflected in the performance of the stock markets.

·    After a stunning 18 month run, India overtook China’s weighting in the world’s biggest investable benchmark (MSCI All-Country World Index) in September.

·    As a result, emerging markets funds that are structurally underweight China and overweight India have been best placed to take advantage of this trend.

·   For those tempted by China’s stock market headline valuations, with China A shares trading on a 12-month forward PE of just 10x, are you really just looking at catching a falling knife potentially?  For when you strip out resources and financials (where we find all those property stocks, with their ’notional’ profit forecasts, that, in reality, just aren’t there) and it’s a less compelling 13.2x.