Emerging market investors took a battering as the Indian stockmarket slump intensified last week in a crisis that is hitting some of the UK’s biggest investment funds.
The MSCI India index has fallen by just under 17 per cent in the space of a month, and last week a currency slump triggered talk of a possible repeat of the 1991 crisis when India had to be bailed out by the IMF.
And strategists warn there is further pain to come as the nation grapples with slowing growth, stubborn inflation and the world’s third-largest current account deficit.
Peter Dixon, global equities economist at Commerzbank, has reversed a positive stance on the Indian stockmarket.
He said: “You really would not want to increase your exposure to India right now – at this stage it would be like catching a falling knife. Most investors are aware this is the time to step aside and wait for the storm to pass.”
John Hardie, head of FX strategy at Saxo Bank, said the US Federal Reserve decision to vote on quantitative easing later this month could trigger a fresh round of market falls in India.
“We could see bigger moves to the downside after the Fed meeting – we have not necessarily seen the bottom of the market yet. India is in quite a predicament. From a currency point of view I would not touch it right now.”
Emerging market funds with a high weighting in India include several First State funds, such as Angus Tulloch’s £6.9bn Asia Pacific Leaders and David Gait’s £286m Asia Pacific Sustainability and £334m Emerging Markets Sustainability funds.
All three have more than 16 per cent in India, according to their latest factsheets, compared with the 8.2 per cent neutral weighting on the MSCI Asia ex Japan index.
Other funds with high exposure include the Johcm Asia ex-Japan fund and the Fidelity Emerging Asia fund, which currently has 29.5 per cent in India – although this is slightly underweight the fund’s benchmark.
Last week the rupee suffered two of its worst days on foreign exchange markets since at least 1995 – slumping by almost 4 per cent on two consecutive days. The currency has now fallen by more than 20 per cent in 2013.
In a sign that policymakers’ credibility is in question, the falls came after the nation’s finance minister outlined a 10-point plan to cut the current account deficit and boost growth – in spite of fire-fighting interventions from the central bank.
Then on Friday, economic growth in the second quarter was revealed as just 4.4 per cent – lower than estimates and the lowest growth figure since 2009.
In spite of the sharp falls on the market, fund managers with exposure to India were standing by their investments last week.
Leon Eidelman, co-manager of the £1.1bn JPMorgan Emerging Markets fund, said his long-term overweight position in India had been a “painful” one but that he hadn’t sold any positions, though he was not yet buying in on weakness.
However, Hugh Young, managing director of Aberdeen Asset Management Asia, claimed valuations were now attractive and said “while share prices and the rupee could fall further, we would view any such movement as a potential buying opportunity”.
First State and Johcm declined to comment on their funds’ India weightings.
