Looking to invest in Asian equities, but don't know where to start? Focus on India and Indonesia, said Christopher Wood, managing director of equity strategy for CLSA, during a one-on-one interview at the CLSA Investors' Forum that is being held in Hong Kong this week for more than 1,300 investors from 30 countries.
In India, infrastructure spending coupled with consumer spending will drive the economy. So if you are going to stock pick, choose infrastructure-related companies and those that sell consumer goods domestically.
"The government understands that if it doesn't build the infrastructure, everything else will come to a grinding halt," said Wood.
Wood pointed out that India's banks are lending for infrastructure projects. Consider that personal loans rose by 6.5% year-on-year, or Rs360 billion ($7.8 billion), to Rs4.89 trillion as of May 21, while infrastructure loans increased by Rs1.22 trillion, or 44.3% year-on-year, to Rs3.97 trillion, according to the Reserve Bank of India.
"There is no excess capacity of anything in India except people," joked Wood to underscore the point that there is virtually an endless need for more roads, bridges, airports and ports.
While Indonesia could also certainly stand to do infrastructure investing, Wood is not as confident that that will happen quickly. But he's bullish because Indonesia is "the least geared to Western consumers" of all of Asia's stockmarkets. It's a domestic-driven market with a heavy emphasis on palm oil and coal, which both China and India are gobbling up. And there's no sign that their need for these natural resources is about to wane.
"Indonesia still has one of the worst legal systems, and crazy labour laws," noted Wood, which would mean that if you want exposure to Indonesia's upside, it is better to do it as an equity investor in the resources sector, than a foreign direct investor trying to navigate the system.
You may ask: What about China? "The reason China isn't the flavour of the month right now is that the government has been tightening policy measures," said Wood.
The mainland government curbed mortgages and set higher down-payment requirements for some homes earlier this year in an effort to cool the property market. And property picks have been a key driver of China's stockmarket in the past. Home prices in 70 major cities climbed 9.3% in August from a year earlier, while the value of sales last month rose about 15% to Rmb353.3 billion ($52.1 billion) from July. Volumes also increased, data released on September 10 showed.
That said, the gain in home prices was the slowest in eight months and values were unchanged from July. And sales were still lower than a year earlier, which may suggest that the tightening policies have been working and therefore ratcheting up another notch isn't necessarily needed. But that just means the government is likely to maintain the status quo for the time being, and Wood said the market isn't likely to get turned on again until there is policy easing.
So for now, his suggestion is to focus on India and Indonesia and capture a bit of their home-grown success.
