The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
ôThe correlation between Indian and other Asian equity markets is low,ö he notes. ôAsia is doing well: it has high savings rates, a growing share of world GDP, more companies in the Fortune 500 list, and increasing liquidity and capital flows. The valuation of the MSCI Asia ex-Japan index shows an expected 2008 price-to-earnings multiple of 19x, which is pricier than in the US, with projected p/eÆs of 15.3x. But Asian GDPs should grow 8.8% next year, versus less than 2% for the US.ö
This is why he believes Indians who invest overseas will increasingly demand Asia- or emerging market-themed products rather than global equity or US/European strategies. ôThere is definitely a trend toward growth equity markets,ö Kudva says.
Last month saw two other Asia-themed funds introduced to the Indian marketplace, with the launch of the ABN Amro China India Fund and the ICICI Prudential Indo Asia Equity Fund.
Franklin TempletonÆs is the first however to invest directly, not through a feeder-fund structure. Sukumar Rajah, the firmÆs Mumbai-based CIO, is the principal portfolio manager for the new product, and his team will handle Southeast Asian stock selection and research. Franklin TempletonÆs investment teams in Seoul and Shanghai will be responsible for North Asian stocks.
As an Asia ex-Japan fund, it will naturally include an exposure to Indian stocks. Kudva says the firm intends to limit this to 10-15% of the portfolio, with the ability to go to 20% in ôextremeö situations.
Regulators now allow fund management companies in general to invest an aggregate of $300 million overseas, but Kudva says Franklin TempletonÆs quota has been raised to $500. He says the Reserve Bank of India would consider giving it a further boost if demand warrants, as it is keen to see outflows ease pressure on the appreciating rupee.
Last year Franklin Templeton launched its first overseas fund, the Equity Income Fund, which has a global mandate and is managed by Mark Mobius. According to the rules at the time, it invested 35% overseas and 65% in domestic equities, and now has over $110 million in offshore exposures.
This new fund can invest fully in overseas equities and equity-linked instruments. It can also put up to 30% in domestic bonds and cash instruments, however. The company hopes to raise $250-400 million for the new product, which could see its overseas allocation rise to around $450 million. TempletonÆs India business manages a total of around $8 billion, making it the fifth largest fund house, according to the Association for Mutual Funds in India.
Going into 2008, Kudva sees new international products as a main focus for growing the business. The firm already offers a full range of domestic equity strategies. Kudva reckons there is too much euphoria surrounding domestic equities and reckons Indian investors need to diversify a lot more.
He therefore sees possibilities in promoting domestic fixed-income products. Domestic bonds can deliver 8-9% after taxes, and Kudva predicts this asset class will make a comeback.
Thirdly, Franklin Templeton sees growth not only in the funds world, but in non-unitised accounts for high-net-worth individuals keen to invest in areas such as real estate, private equity and structured products.
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