ING Investment Management has resumed buying Indian equities for the first time in almost a year as valuations are now cheaper and inflation looks close to peaking, a strategist for ING’s emerging markets fund told Reuters on Tuesday.

India has been among this year’s worst-performing emerging markets, down over 6%, due to worries over inflation, expensive valuations and government corruption scandals that threaten the pace of reform.

But the market has started to claw back some losses in the past month, having rallied now for three straight weeks. It rose 9% last month.

“We have been out of India for a while but as of last week we started to rebuild positions there again,” said Marten-Jan Bakkum, strategist for ING’s $3 billion Hague-based emerging markets fund.

“The reason is that on the inflation side, we have probably seen the worst with food prices coming down … and politics should be a bit less messy as state elections are finished.”

India’s central bank last month raised its forecast for March headline inflation to 8% from 7% and increased its main lending rate by 25 basis points to 6.75%.

Bakkum said ING IM had been neutral on India since last summer but last week bought shares in banks and infrastructure companies that were hit hard in recent months. The falls had brought valuations back towards long-term averages, he noted.

“The premium over emerging markets has more than halved. It’s now trading around 14 times 12-month (forward) earnings now while global emerging markets are at 11 times,” he said. “So it may not look exciting but it’s not as expensive as before.”

On broader emerging markets, ING remains overweight but Bakkum said that was a tactical move as the sector has only just started to recover from first-quarter losses triggered by investors re-allocating cash to developed market equities.

“In general, the sentiment around emerging markets is more positive these days but we don’t think that can be maintained for the rest of the year … we are concerned about inflation and rising government interference in the economy,” he added.

Worries over state interference in the corporate sector is the primary reason for keeping a neutral position on Brazil and Turkey, Bakkum said.

He noted that Brazil, for instance, recently ousted the CEO of state mining firm Vale, while in Turkey banks are bearing the brunt of policy tightening via reserve ratio hikes.

ING’s two main overweights were in Russia and China — the former a play on the oil price and the latter because Bakkum believes monetary policy tightening has probably reached a peak.

The biggest underweights are South Africa, South Korea and Mexico, Bakkum said, noting the strong rand was lessening the appeal of South Africa’s commodity-heavy bourse.

“I don’t like Mexico because valuations are expensive and also because the security situation seems to be getting out of hand,” he said referring to the country’s devastating drug wars.

Source: Business Standard

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