Investors looking to diversify into Asia – but are cautious of China – should look to Indonesia, according to T Rowe Price’s Anh Lu.
Recently, investors appear to have been wary of Asian funds, especially as Chinese equities have been increasingly volatile.
But Ms Lu, manager of the $984.2m (£630m) Asian ex Japan Equity fund, said investors should focus on developing Asia if they wanted exposure to the region.
Many Asian nations have had elections and Ms Lu said these new leaders were “committed to tackling the region’s long-standing challenges”.
“Given the magnitude of the challenges, progress will come in fits and starts, but we are optimistic about the reform potential in Asia,” she said.
Her favoured country at present is Indonesia, which she thought was well placed for an “India-like reform”.
At the end of June 2015, Ms Lu’s fund had 3.1 per cent in Indonesia, a 0.4 per cent overweight compared with its benchmark, the MSCI All Country Asia ex Japan index.
Investors had been cautious about the country since 2013, when it was branded one of the “fragile five”. These were economies identified by Morgan Stanley as particularly vulnerable because of large current account deficits.
Indonesia is growing at its weakest pace since the global financial crisis. But its central bank did not cut rates in July as the country still has high inflation, which is at 7.3 per cent year on year for June, well above the bank’s target of 3-5 per cent.
However, the country’s outlook appears good.
President Joko Widodo came into office last October, after being elected in July 2014. He has revamped the fiscal budget and has plans to put money into infrastructure and social policies.
Swedish financial group SEB also suggested Indonesia could experience accelerated growth momentum in the fourth quarter once the US economy was on a firmer footing.
Ms Lu added that the changes occurring in Indonesia were “less appreciated by investors than they are in India, so there may be more room for positive surprises”.
But she warned: “The investment is not for short-term investors as it will take many years to play out.”
In the year to July 28, the Asian ex Japan Equity fund outperformed its peer group, the IA Asia Pacific ex Japan sector, delivering 2.9 per cent against the sector average return of 1.2 per cent, data from FE Analytics shows.
However, it slightly underperformed its benchmark, which rose 4.9 per cent in the period.