May 16, 2013, 11.49 AM IST
Jonathan Schiessl of Ashburton says fallings commodity prices, though a positive, does not help much as he feels investing in commodity-related stocks is tough in Asia's second-largest economy.
The problem with emerging markets is its massive divergence in performance, says Jonathan Schiessl, Asian equities specialist of Ashburton.
However, Schiessl, who runs an Indian Equity Opportunities Fund and the 'Chindia' fund focusing on China and India out of London , says he is more bullish on the big two Asian giants currently than he was before. "A lot of the developments in India -- from falling commodity prices and few of the other issues -- make us a little bit more constructive on India. But yes from an economic perspective, it is still a pretty mix picture across the region," he told CNBC-TV18 in an exclusive interview.
But Schiessl says fallings commodity prices, though a positive, does not help much as he feels investing in commodity-related stocks is tough in Asia's second-largest economy. He says foreign investors are waiting on the sidelines for more clarity on the political front.
"In the past, we have the energy sector as being a sort of hedge due to energy issues in India. But we find it quite difficult to invest in a lot of the commodity stocks. First of all, because of the pricing transmission is issue and secondly, a lot of these stocks are obviously are Government of India undertakings and they are not necessarily, in our view, being run in minority shareholders’ best interest at times," he explains.
Below is an edited transcript of the interview on CNBC-TV18.
Q: How do you feel about Asian markets right now? Some investors feel a little disappointed about how emerging market performance has panned out and there are some wrinkles about economic performance as well? Would you describe your stance today as bullish or tempered bullish?
A: The issue, to a large extent we face is, even within Asia, the divergence in performance is massive. So, you can look at China, which has been terrible; India, which has been more recently better but after a bad last year and then if you look at the smaller Asian markets, like Indonesia and Thailand, which has obviously been fantastic outperformance. So, I think when we look at big Asia -- and by that I primarily mean India and China -- we are certainly getting more bullish as we stand today. There are a number of reasons for that but I think valuations, particularly in the China space, are very attractive.
Of course, more recently, a lot of the developments in India from falling commodity prices and few of the other issues that make us a little bit more constructive on India. But yes from an economic perspective, it is still a pretty mix picture across the region.
Q: What do you sense from your end investors? Do they buy this optimism that valuations have come down to a lower level? Some of these things, which are happening on the margin, do help macros. Do you find that story accepted by investors?
A: Not the ones we speak to. It is interesting. We have a mix of investors. Some of our African-based investors are certainly more optimistic. When we go down there and we speak to clients, I guess they feel the growth a little bit more.
Our UK-based investors are a little bit more cautious. I think if we are seeing those investors are putting a little bit of money back into equities, they are either going into developed market equities or they are going into developed market stocks that have emerging markets growth opportunities -- so some of the big staples names. But are they buying in emerging markets themselves? We have not seen a great deal of flow from that perspective yet.
Q: Do you see this continuing to be a headwind? The fact that people turn back and tell you: “US is doing so well; Japan started doing well. Why should I take this incremental risk to go to an emerging market like India?”
A: The drivers of what has been happening recently are still in place. If you take it back at level: why have developed markets outperformed emerging markets? There are two factors. There is an economic factor which has been some of the inflation concerns in emerging markets, in India there are structural issues, politics etc and then of course there is the QE that we have got from central banks all over the developed market and Japan now joining that party.
So from that perspective, yes, that has not changed. I guess the data last week in developed markets would indicate things whilst things are getting better in the US but I think we are likely to have QE will last probably longer than many people are imagining. Therefore, the focus will still be on developed markets going forward.
But when I look at the likes of India and stuff, yes, the falling commodity prices and stuff do make us a little bit more optimistic.
Q: How are you tailoring your portfolio in India right now? The fact that commodities have fallen, is it just a macro tailwind for you or have you translated that into your portfolio allocation as well? I see names like Bharat Petroleum Corporation (BPCL) etc cropping up on your list.
A: Absolutely. We are not huge churners. We don’t churn our portfolio around too aggressively. That said, I guess the issue is none of us know if fall in commodity prices is sustainable. So I am not going to change my portfolio and suddenly start buying consumers of commodities like steel companies because iron ore is coming down. Obviously the transmission mechanism in India also is slightly complicated.
Will they like carry on pushing out diesel prices? There is a political element also that you have to take into account. You highlight one stock and that is the only stock we have in the whole energy sector. In the past, we have the energy sector as being a sort of hedge due to energy issues in India.
But we find it quite difficult to invest in a lot of the commodity stocks. First of all, because of the pricing transmission is issue and secondly, a lot of these stocks are obviously are Government of India undertakings and they are not necessarily, in our view, being run in minority shareholders’ best interest at times.
Markets face resistance; Nifty likely to correct soon
After expansion comes contraction - this is the theme which the stock markets have begun to work on. This letter has been upbeat on the market. We still are, when it comes to the long term. The short term scenario may be different. For short term traders the strategy should be to take swing trades lasting one or two days, only on extremes.
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