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India, China may be insulated from US slowdown: ABN Amro

Paritosh Thakore, Head-Asian Equities, ABN Amro Asset Management says investors should factor in a US slowdown, but he believes that India, China, Indonesia may be insulated from a US slowdown. CNBC-TV18 exclusive to domain-b.

Paritosh Thakore, Head-Asian Equities, ABN Amro Asset Management said that investors should focus on policy response from Central Banks particularly the Fed and that they should factor in a US slowdown. Select Asian economies may suffer, but the overall growth is intact Thakore said adding that India, China, Indonesia may be insulated from a US slowdown. "Asian markets have shown resilience over the last two weeks to global cues," Thakore said.

According to Thakore, Asian growth drivers remain intact and they may support markets. He added that Capex and consumption are likely to be strong. He added that capital investments are likely to be strong. Thakore said that the Indo-China Fund is set to invest 65% in India and 35% in China.

"Long tem secular themes will still attract investments," Thakore said adding that risk appetite has been high and it will see corrections. According to him, dips would continue to be buying opportunities. "We prefer to stay invested for a medium to long term basis," Thakore said.

Excerpts of CNBC-TV18's exclusive interview with Paritosh Thakore:

What's your take on how global markets are shaping up for the next month or two?
Things have become a lot more interesting now with the news out of the US on Friday. So I suspect now people will be focusing on the policy response from the Central Bank, particularly the US Fed. We should see some movements there perhaps in the next meeting on September 18.

But by and large, the fundamentals for Asia continue to remain relatively promising. The key drivers of economic growth, namely consumption and investment, should continue to be positive. So I suspect that people are now going to factor in expectations of a slowdown in the US economy. Obviously across Asia, some countries and some sectors will be affected more than others. But by and large, the growth drivers of the region will remain intact.

How do you think Asian markets will respond if now a 25 bps cut is delivered along expected lines on the 18th?
It depends on various markets that are more correlated to global growth. There are now increasing signs of a slowdown in the US economy, obviously the jury is still out to the extent of that slowdown and the extent of the timing of slowdown.

But some markets are more correlated and other markets, with a strong domestic focus namely India, China and Indonesia to a certain extent, these will tend to be more insulated at times of a global economic slowdown.

China though is at about 40 times or so compared to the rest of the Asian basket. India is trading at 15,500 odd levels. How comfortable are you about valuations across some of these Asian markets now?
The statistic you refer to refers purely to the China Asia market which is available only to the domestic China investors. They have their own demand supply characteristics that are driving valuations there.

The number of channels available to the ordinary Chinese investors, as to where to park their savings, is very limited either to banking sector in terms of deposits, or in terms of property or now the stock market. So I would leave aside the 40 plus valuations that you see in the A-share market.

In fact, the fund that we are going to launch now is not one that is going to invest in the A-share market but in fact, in Chinese companies that are domiciled in China but listed outside namely Hong Kong and Singapore. In those markets in fact, the valuations are more like the number you gave for India, which is in the 16 to 18 range.

We have seen instances of it in the past few weeks, how vulnerable do you think Asian markets are to any bad news from the US and how resilient to hold out to that?
A: I think everything now is connected to a far greater extent then was even five-ten years ago. But if you look at what has happened in the Asian markets over the past couple of weeks, in fact, I would argue that they will be rather resilient compared to the ongoing news flow that's been slightly negative for a while now in the US with concerns on the credit markets. In fact, even the US equity markets have held up well in spite of those concerns.

So yes, there is no escaping in the short run, some of this impact of the news flow out of the US. But we need to look at the fundamentals that are driving economic growth in our region and more importantly, from a stock market or stock investor perspective, look what it is that is driving stock company earnings.

By and large, obviously there are going to be some companies that are going to be affected more than others. But the growth drivers are largely intact, capital investments are likely to continue to be strong, consumption in a number of economies, India included, is likely to continue to be strong. That is what will give us a long-term support, both for economic growth and to stock market valuations.

Flesh out this India-China Fund a bit. How exactly the investments will be divided between the two and if there is any kind of specific sector focus on this fund?
Actually its 65% India, 35% China; there is some latitude on the asset allocation, we can go up to 75:25. There is no sector specific focus, we have a team in Hong Kong that will be handling as an advisor to this fund.

The China investments, most of them are located in eight shares in Hong Kong, some in Singapore and so the separate advisor based in Hong Kong. We already have a successful China equity fund that we manage out of Hong Kong and so the China portion of this fund will be managed similarly to what we already do in Hong Kong with our China equity fund.

Are you a believer in that decoupling theory, which is doing the rounds that even if there is a severe pain bordering on recession in the US, Asian markets will continue their out performance?
A: Decoupling is a word that much like subprime, we come to learn over and over again over the past several weeks and months. But one just has to see what's really driving the economic growth here.

In the ultimate interconnected world, there is obviously never going to be a situation where every country and every sector can 'decouple' from what is going on globally. But at the same time, there is still enormous opportunity for companies that are playing to the theme that are driving Asia growth.

For both China and India, right now, in some respect they are quite similar, namely aspirational consumption, increased middle class, increased urbanisation, increased capital investment. These are long-term secular themes that are likely to continue to drive economic growth and therefore, corporate earnings over the medium-term.

There has been some concerns though that the bad news from the US will see an outflow of money from markets like ours. When you speak to clients or colleagues is that the sense that you get that there might be a sense a bout of redemption pressure or outflow pressure for markets like India, and even China perhaps?
There is no escaping the fact that risk appetite has been at a very high level over the past several years. So we are going to see hiccups, it's never going to be a straight line up from one area to another. You may also have noticed, at least in the recent past, dips when they come, have actually been good buying opportunities.

We look at investing on a medium to long-term basis and we continue to remain excited about what we are seeing both here in India and in China. We are therefore, offering a very focused product to the investor base here to participate in two of the principal engines of global growth.

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