India, Brazil, Indonesia, Turkey and South Africa — dubbed the Fragile Five due to large current account deficits — were the worst hit markets in 2013 after the US Federal Reserve announced plans to taper its stimulus programme. Foreign capital pulled out, market volatility spiked, and currencies plunged.
“With inflation under control, they now have room to cut [rates] again to support growth, an option that is closed to policymakers in most developed economies. Countries in [Asia] have also embarked on essential reforms.”
He gave the example of India and Indonesia, which have already cut costly fuel subsidies, while China has taken up a slew of monetary, economic and financial reforms.
“Asia’s long-term story still holds, buttressed by rising wealth, young population, and pent-up demand for housing, consumer durables, transport and banking services,” Young said.
India getting high
Following the sharp run-up in indices, Young agreed it is becoming harder to justify the valuation of Indian stocks at current levels unless there are signs of an improvement in corporate earnings.
But there are some attractive opportunities.
“India may struggle with a current account deficit, stifling bureaucracy and poor infrastructure, but some of its companies rank among the best in Asia in terms of return-on-equity and earnings growth.”
In his opinion, these include Infosys Technologies, Tata Consultancy Services and HDFC.
China consumerism
Even as China’s economy is slowing, Young said he sees long-term investment opportunities in consumption-driven sectors.
“While a slowing economy may be a cause for concern, it is also a reflection of a country undergoing wide-ranging reforms to achieve more balanced and sustainable growth.
