Giant Asia markets battle for investor support in 2013

In a rivalry as old as the continent itself, Asia’s major “emerging” markets India and China are set to do battle for investor support in 2013, with the rest of the region likely to take its tone from the outcome.

The two markets tend to have their particular protagonists, with China experts claiming that nothing can trump the sheer size and growth of the Sino proposition, while those backing India say its entrepreneurial spirit is what will ultimately sustain its lead in the region.

Last year provided a rollercoaster rise for investors in both markets, whether engaging directly or through collective funds.

According to private bank Duncan Lawrie, despite the failure of GDP growth to meet early 2012 forecasts of 7.5% pa, India’s main index, the BSE Sensex 30, ranked as the clear winner in market performance terms in 2012 when compared with other dominant emerging markets – China, Brazil and Russia. The Sensex appreciated in monetary terms by over 15%.

In the first half of the year investors had to deal with both ongoing volatility and a depreciating currency. It was only after the middle of the year that the index established a firm upwards trend.

The catalyst for this was the government’s third quarter announcement of reform initiatives, including the resurrection of FDI (foreign direct investment in multi brand retail), the bank said.

Edward Bland, Duncan Lawrie’s Director and Head of Research, believes the Indian government is finally taking steps to cut some of the red tape. “Investors can take heart that further long-pending reforms to stimulate the economy now stand a better chance of being implemented.”

He notes the surge in manufacturing and boost to industrial output in India, the latter coming from a revival in infrastructure investment.

“The question on India is, however, whether it will continue to be the prime performing emerging market,” he added. The country faces a general election in 2014, and “electioneering may incentivise infighting and stall developments. The likelihood of consistent delivery of long-awaited reform bills is also fairly low. “

He considers that India retains its long term potential, but valuations in China have now reached historically low levels and “do not properly discount the pick-up in GDP growth rate and corporate earnings expectations”.

“The transition to new leadership (in China) has gone smoothly, providing more certainty and promises more impetus to measures to support domestic consumption such as basic health care, and the acceleration of urban and infrastructure investment.”

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