The recent sell-off in equities across Asia provides investors with an ideal buying opportunity in the medium-term, with India most likely to generate favourable growth outcomes for investors, says Nikko Asset Management.
In a recent update, Asia ex-Japan Equities: historic price to book valuation buying opportunity emerges, Nikko Asset Management argued that the sell-off in Asian equities has “opened up” a buying opportunity.
Nikko AM head of Asian equity Peter Sartori said India offers investors one of the best structural growth opportunities over the medium term.
“The country is a significant beneficiary of the collapse in oil price which has helped lower input costs for many corporations and brought the current account deficit back down from -5 per cent to -1.4 per cent of GDP,” said Mr Sartori.
The Reserve Bank of India (RBI) is also in a position to relax monetary conditions further as consumer price inflation remains below the central bank’s target for the year.
“Government reforms will also continue, which should in turn drive a higher, sustainable growth trajectory as evidenced by the recent willingness to tackle long-standing, tricky structural issues pertaining to the financial position of the state electricity boards and public-sector banks.”
Mr Sartori pointed out that while India’s GDP growth has fluctuated over the last decade, the return on equity (ROE) of companies listed on the Bombay Stock Exchange has been stable – ranging between 16.5 per cent and 18.7 per cent.
“A confluence of cyclical and structural factors, both macro and micro, will underpin the country’s growth prospects and should drive an improvement in ROE and consequently, investment returns,” he said.
According to Mr Sartori, September’s sell-off pushed valuations to all-time lows, seen only three times before; during the global financial crisis, the Asian financial crisis and the Severe Acute Respiratory (SARS) crisis.
On all three occasions, markets bounced back, performing strongly over the following 12 months. The firm indicated that this is likely to be the case again.
“We believe the current challenges are more manageable particularly with the availability of both fiscal and monetary tools,” Mr Sartori said.