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Emerging market equities: India on the ascendency

Portfolio Manager Daniel Graña explains why India’s favorable demographics, pro-growth policies, and innovative companies all contribute to the country being among the most promising future sources of excess returns within emerging market (EM) equities.

Daniel J. Graña, CFA

Daniel J. Graña, CFA

Portfolio Manager


18 Aug 2023
2 minute read

Key takeaways:

  • Demographics, corporations’ desire to diversify supply chains, and geopolitics are causing investors to recalibrate their EM equities allocations.
  • India’s young work force, pro-growth economic policies, and strong equities culture are characteristics that should command EM investors’ attention.
  • A wave of capital investment, along with innovative products and services aimed at solving EM-specific frictions, have the potential to unlock much of India’s unrealized productivity.

As has been the case with other asset classes, the investment environment for emerging market (EM) equities has evolved considerably over the past few years. In the wake of the COVID-19 pandemic, the trend toward deglobalization has accelerated. Companies are now seeking to reconfigure supply chains and the cost of capital has reset to levels harkening back to the 1990s. All the while, the inescapable forces of demographics march on and geopolitical tensions have added an additional layer of complexity to allocating capital.

EM equities investors must process how these shifts will impact corporate earnings growth and, thus, returns for the asset class. Many of the past decade’s return drivers are waning, especially as China’s central government prioritizes national service at the expense of profitability within the private sector and authorities struggle to identify the right mix of contributors to economic growth. The confluence of these developments has led investors to seek alternative sources of returns within the EM equities universe. One potential destination that, in our view, is rightfully garnering investors’ attention is Asia’s other giant economy: India.

The subcontinent’s dominant economy meets many of the criteria that we consider conducive for generating excess returns over a multi-year horizon. India has favorable demographics, with the benefits inherent in a young workforce magnified by the trend toward urbanization. The country is rapidly improving its historically subpar infrastructure with the aim of unlocking productivity. Furthermore, the government is championing a reform agenda that seeks to increase the private sector’s role in propelling economic growth.

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These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

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Important information

Please read the following important information regarding funds related to this article.

The Janus Henderson Fund (the “Fund”) is a Luxembourg SICAV incorporated on 26 September 2000, managed by Janus Henderson Investors Europe S.A. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • Emerging markets expose the Fund to higher volatility and greater risk of loss than developed markets; they are susceptible to adverse political and economic events, and may be less well regulated with less robust custody and settlement procedures.
  • This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
  • The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund may incur a higher level of transaction costs as a result of investing in less actively traded or less developed markets compared to a fund that invests in more active/developed markets.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Janus Henderson Investors Europe S.A. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Emerging markets expose the Fund to higher volatility and greater risk of loss than developed markets; they are susceptible to adverse political and economic events, and may be less well regulated with less robust custody and settlement procedures.
  • The Fund may invest in China A shares via a Stock Connect programme. This may introduce additional risks including operational, regulatory, liquidity and settlement risks.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
  • When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
Daniel J. Graña, CFA

Daniel J. Graña, CFA

Portfolio Manager


18 Aug 2023
2 minute read

Key takeaways:

  • Demographics, corporations’ desire to diversify supply chains, and geopolitics are causing investors to recalibrate their EM equities allocations.
  • India’s young work force, pro-growth economic policies, and strong equities culture are characteristics that should command EM investors’ attention.
  • A wave of capital investment, along with innovative products and services aimed at solving EM-specific frictions, have the potential to unlock much of India’s unrealized productivity.