Posted inAsset Class in Focus

Pinebridge: India equity overweight in 2018

Government reforms in India have "unlocked growth" and are driving a strong case for equity investment, though there are some caveats, said Sunny Ng, portfolio manager at Pinebridge Investments.
Aerial view of traffic with green trees in shanghai china.

In 2018, Ng is overweight India and Indonesia equities.

“In India, we have the position that [Prime Minister] Modi’s reform initiatives have unlocked the country’s growth story,” Ng told FSA.

The underlying concerns are the fragmented banking system and the government’s recently announced recapitalisation of banks, which prompted Ng to trim exposure. Meanwhile, he also believes the tightening immigration policy in US will put pressure on India’s IT exports.

Ng and Arthur Lau co-manage the Pinebridge Asia Balanced Fund, a multi-asset product that invests about 58% in equities and 37% in fixed income, according to FE data. The top holding is another Pinebridge fund, the Global Funds India Equity, which invests in India’s industrial stocks.

Ng is neutral on Hong Kong and China-listed companies. Instead, he prefers a tilt toward foreign companies that stand to benefit from China’s consumer consumption.

Ng said in terms of global equities, corporate earnings outweigh valuations as an important metric in evaluation of stocks. “Valuations will become more important once interest rates rise and liquidity tightens enough to have a material impact on the economy. We do not expect these factors will emerge next year.”

Global economic growth is an an early cycle, he believes.

When evaluating equities, investors should take capital expenditure into consideration, especially if it is aimed at automation. “Corporate capital expenditure is flocking into technology disruption. It means that the company is likely to benefit from higher productivity over time, which should strengthen the bottom line.”

Tech and politics

In the US, technology advances such as robotics and self-driving cars are perceived as a threat to jobs and therefore government regulators may be motivated to take a stricter view of technology company expansion, to include M&A, than in the past, said Ng.

In contrast, large tech firms in China are close to the central government. These tech firms help with surveillance and monitoring and the regulatory authorities has been very supportive of their expansion. Therefore, Ng believes the valuations of Chinese tech firms have better support than those in the US.

Ng does not think the valuation of China’s tech firms are too high in the short-term. “The valuation level depends on the time horizon. If I am looking out five-to-ten years, certainly there is a little bit of a bubble.”

“Large technology firms do look expensive but their earnings growth has justified that.” He explained that the technology industry globally fosters a “winner takes all” model, meaning that the big companies tend to get bigger while those with less marketshare lose relevance, leading to domination  by a few giant corporations.

Inflation and bonds

In fixed income, co-manager Lau said Asia’s local currency bonds appear to be an attractive investment opportunity in 2018. “Asia’s currencies and markets should benefit from strong economic growth and trade, while the US dollar has been somewhat weakened.”

“One major risk globally would be inflation. This is the one big factor that would change our view on the fixed income outlook,” said Lau, adding that he is monitoring wage increases.

The fund’s three-year performance against its benchmark, the MSCI AC Asia ex Japan, and its sector, Asia-Pacific mixed asset.

Source:FE. All fund NAVs in this performance chart have been converted to US dollars.

Part of the Mark Allen Group.