Mumbai: Despite losing over 14 per cent (in dollar terms) since January highs, the Indian equity markets are still the most preferred destinations for global emerging market investors while most of the fund managers have cut their allocations to China. With the Shanghai Stock Exchange Composite Index up about 150 per cent in the last one year with no signs of an earnings revival, 70 per cent of global investors have shown concern about a bubble in Chinese equity market.
These are the findings of the latest fund managers survey conducted by Bank of America Merrill Lynch (BoAML) in which a total of 207 panelists with $562 billion of assets under management (AuM) participated.The survey revealed that Asia-pacific investors increased their overweight allocations to India and Taiwan in June. Sentiments towards China and Hong Kong reduced as the net overweight allocations for China fell and investors turned underweight on Hong Kong.
“Views on the Chinese economy, to a large extent, define global investor views about emerging market equities. China growth prospects have come down sharply since April. However, Chinese equities have had a surprising run in the last year and have diverged from monetary conditions, nominal earnings and economic growth,” the survey said. “Historically, the Chinese equity market has traded at a discount to Indian markets with a price earning multiple of 9-11 times its forward earnings. The valuations have changed now and Chinese equities are trading at a premium to Indian markets.
While Indian markets are trading at a PE multiple of 15.5 times their forward earnings, Chinese equities are trading at a PE multiple of 19 times their FY16 earnings,” pointed out Gopal Agrawal, head of equity at Mirae Asset Global. Mr Agrawal said that the Indian markets are also looking attractive due to their structural growth story, fall in global crude oil prices and reform expectations. “If the corporate earnings growth picks up momentum, we can expect higher allocation from global investors,” he added.
