There is little value in China and India on the surface, with PEs of 17-18x. But there is excitement in them. While the US grows at 1.5-2%, and Taiwan grows at 3-4%, China and India are forecast to grow at 9-10% over the next five years. So where do you buy?
Decoupling of Asian markets from US has been a big theme for the past few months in particular. As the data is suggesting the ML decoupling hypothesis has proved right and we are seeing a divergent trend in stocks markets also.At the same time another decoupling theme is also worth examining. The Asian giants India and China might also be decoupling from other emerging markets in their growth trajectory. We take a look at the growing relevance of growth themes like India and China over value proposition.
Investors prefer growth
India and China (against India or China) are the economies where the investors are focusing at present. Since the credit market problems shook global stock markets, China’s stock market has held up. Chinese shares are 38% higher than they were when the problems started. India is though about 1.5% down than its July peak, year-to-date foreigners have net bought about USD9bn worth of shares in India.
Remember Chinese A-shares are all but closed to foreign investors, so even if they are in risk-reduction mode globally, they have almost nothing to sell there, as against Indian stocks markets which are open to foreign investors. Implying, that global investors are increasingly making their own decisions about where to put their money, instead of sheepishly following benchmarks. It appears they are making their own calls, by identifying areas of growth. India’s growth is forecast to be twice that of Taiwan or Korea, this year and next.
Thus, the key is simply which countries will continue to register the strongest growth, because growth is what investors want to buy.
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