HEAD-TO-HEAD: Aberdeen vs Matthews Asia

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Luke Ng, FE Advisory Asia

Indian Equity Funds

Indian equities have underperformed broad emerging markets so far in 2018. After returning 38.8% in 2017, the MSCI India Index posted a 6.5% loss in 2018, as of 21 June, compared to the 4.8% loss of the index covering global emerging markets and a 2% loss for Asian emerging markets.

“One of the key factors in India is that the equity valuations are relatively expensive compared to other emerging markets and to its long-term average,” Luke Ng, senior VP of research at FE Advisory Asia, told FSA. “The valuations, which on average have always been higher than their Asian peers in emerging markets, may make some foreign investors stay away from the market. But now, especially, the valuations are ahead of fundamentals.”

At the same time, the macroeconomic environment is good for equities, Ng noted. “The trade deficit is relatively moderate,” he said. “It helped the Reserve Bank of India, the country’s central bank, to stay with an accommodative monetary policy.”

While India’s political environment is stable at the moment, general elections expected in early 2019 pose some risk. Monetary and fiscal reforms launched by prime minister Narendra Modi since 2014 are believed to be necessary for the country to reach a higher growth rate, but have brought their own turmoil.

The prospects differ among sectors. Ng highlighted big opportunities in the financial sector, which has been growing fast thanks to low penetration of financial services among India’s population, as well as advances in financial technology.

FSA asked Ng to provide a comparative analysis of two India equity funds: The Aberdeen Global Indian Equity Fund and the Matthews Asia India Fund.

Data: FE, Morningstar, fund fact sheets.

¹ Morningstar Quantitative Rating, assigned by a model based on machine learning, which Morningstar applies to funds the firm’s analysts don’t cover.

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