China vs. India Investing

Chidem Kurdas

Emerging markets  investments by diversified funds have tended to focus more on China than India. That emphasis may change, judging from arguments about the opportunities in India.

Khiem Do, portfolio manager of the Greater China and Asia Pacific funds and head of Asian multi-asset at Baring, has an interesting comparison. Population in China will peak in five years but in India population will peak in 25 years, he said, speaking at a conference. In addition, India is less saturated with consumer durables and therefore offers great potential for growth in consumer industries.

A few funds are in Indian stocks, among them AQR Capital with a stake in Mumbai-based Tata Motors Ltd.

But many more hold Chinese names—Viking bought technology firm Baidu Inc. and Blenheim Capital went for wind turbine maker China Mingyang Wind Power Group Co.

A popular approach is to go for companies that are strongly established in China but trade on Western exchanges. A prime example is Yum Brands Inc., owner of KFC, Pizza Hut and Taco Bell, an early entrant into the Chinese market that now has thousands of fast-food restaurants in the country. This month Yum Brands announced that it got clearance China’s Ministry of Commerce to buy a restaurant chain called Little Sheep Group, headquartered in Baotou, Inner Mongolia. Eton Park has bought Yum Brands.

Some managers favor the same approach to Indian markets—-buy multinationals with strong businesses in India.

Though he is particularly positive on Indian prospects, Mr. Do remains fairly bullish on China. He says someone who tried to short sell Chinese property would likely lose money, though there may be specific market pockets that are overvalued. Short seller James Chanos of Kynikos Associates argues there is a bubble in Chinese real estate that  is about to burst and take the rest of Asia down with it. Prices have been coming down in the past months.

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