[CC may contain inaccuracies] does this suggest that you see recent gains as being a dead cat bounce,
that there's no kind of longevity or this is the turning point when it comes
to where we go from here? Yeah.
I think if you go back to last October, we had a trough in the overall Asian
equity markets and China troughed a little bit after some of the others like
Taiwan and Korea. But we're up a healthy percentage really
for most Asian markets. So off the bottom.
Taiwan, which we also downgraded, is up almost 40%, China around 30%.
And when we do our valuation work and we look at the pattern of earnings
revisions, we think it's time to adjust the portfolio.
So we took down China, Taiwan and Australia to an outright underweight and
we put India as a major overweight, which is the market were most excited
about right now. So do you expect further inflows to a
market like India at the expense of China?
I mean, I guess that's kind of your alternative when it comes to the theme
growth play. Yeah that's an interesting pattern to
flows in Asia. Year to date, the standout winner by far
has been Japan with about 70 billion USD of inflow.
And that's a market that sits outside of the Asia ex-Japan in the universe and
which we we do like for India versus China.
To your question we are getting some profound changes in performance relative
which we haven't seen really in the prior two decades.
So India began to structurally outperform China about 18 months ago on
the equity side, and that's to do with superior earnings performance in dollar
terms. And also even more interesting is that
the currency in real effective terms, the Indian rupee, is structurally
strengthening against the Chinese yuan, and that still is changing patterns of
capital flows. So portfolio flows such as equity flows,
but also FDI and private equity, which is really moving towards India in a
major way. So in terms of this China versus India
argument, let's start first on the China side.
To what extent has investor confidence and therefore the ability for China to
to recover and keep growing and maybe not have you say, let's take our
profits? How much is that the government's fault?
And to what extent does the government have the power to change that now?
Well, equities, by their essence, are driven by return on equity.
Return on equity has been falling in China for ten or 12 years.
That's an interesting development. It's very different from the previous
period and it's to do with individual business performance.
But it's certainly the case that economic growth in China has reduced
structurally. One of the things we pointed out in our
note is that whilst the nominal GDP growth environment this year is very
healthy in Japan or India, it's it's really quite weak in China.
And actually the overall core inflation in China is pretty well zero.
So that ability to generate sustained earnings growth has become really quite
impaired in recent years in China where you're logging.
India is a place to invest. A lot of people are saying Japan's a
good place to go again. And what is this being?
How much is being driven by the kinds of growth policies, the kind of steps that
have been taken, particularly in India, because there was doubt over India for a
long time that investors can count on to continue to create this landscape for
companies to grow. So India has always been demographically
advantaged with a young population. So in that sense, it's the classic story
of urbanization, household formation, industrialization.
But what was really missing until probably the last ten years or so is a
structural improvement in the budget and a change in the mix of government
spending to deliver on infrastructure. I was in India in June and you can just
see the transformation that's going on in India's big cities now.
And so that infrastructure itself enables private investment, including
the fact that large multinationals are locating plant in India now because the
power system is more reliable, the ports, the road system, the human
capital element, the labour supply is always been there.
But now you have much more enabling government spending on the
infrastructure side.