Despite years of underperformance, NN Investment Partners’ Ashish Goyal, head of emerging markets equity, has said that he finds EM stocks attractive, especially in countries such as China, India and Indonesia.
Speaking at NN IP Dialogue, a meeting held in Singapore last week for updating clients, Goyal said EM equities have all the elements to support its outperformance, including valuation, earnings growth and a macro structural story.
‘Therefore, all of these elements show that the EM equities should do quite well. It is already the case this year -- an outperformance of 4% year to date,’ he said.
Goyal also said EM equities will outperform in the next two to four years, especially compared to the developed markets.
Looking at some of the biggest EM economies in Asia, in China, the service sector has been driving growth over the past few years, though historically, services only contributed a very small part of Chinese economy, Goyal said.
‘When you think about services, you think about medical services, travel insurances, education, healthcare or e-commerce,’ he said.
‘China probably has the most developed e-commerce system in the world, in terms of financial payments. The system is far more sophisticated than any other economies’ equivalent operations in the world and that’s an incredible achievement for China.’
He said that there is a very large ecosystem around e-commerce platforms, such as logistics, which is benefiting from the e-commerce boom.
‘We particularly like this sector, because it tends to have less government involvement and less inefficient use of the capital.’
Constructive on India and Indonesia
Besides China, Goyal is positive about India and Indonesia.
‘India is another giant economy in Asia,’ said Goyal. ‘The country has the potential to grow as fast as China did over the last two decades. Investment in railways and infrastructure has certainly picked up.’
According to Goyal, some good regulatory changes have also happened in India. ‘The passage of the Goods and Services tax (GST) legislation will be a game changer. It will have a dramatic impact on the productivity and efficiency of the economy.’
He said Indonesia is another country he finds attractive. ‘Despite its political challenges, Indonesia has a lot of growth potential, which is very similar to India.’