Asia's consumer growth story looks promising in the long run, but India has turned riskier for investments in recent months, said a senior executive at Prudential PLC's Asian asset management arm.
"It's not a time to be selling, (Asian) markets are cheap enough, fundamentals are good enough for people to stay interested in equity markets," Ashish Goyal, the chief investment officer of Asian equities at Eastspring Investments, told Reuters in an interview on Thursday.
Goyal expected volatility but advised investors to take advantage of market weakness to add to their holdings. The MSCI Asia Pacific ex-Japan has gained 12 per cent so far this year, after dropping nearly 18 per cent in 2011.
Formerly known as Prudential Asset Management, Eastspring manages about $80 billion in assets, of which about $15 billion are in Asian equities, managed by Goyal's team.
Goyal said India's shaky governance and the lack of clarity around regulations for some sectors have been hindering investments from the private sector.
"India has become riskier in the last six months. They had a big opportunity that they missed, which was fiscal consolidation," said Goyal, who is responsible for a team of 20 investment professionals based in Singapore and Hong Kong.
India's beleaguered government avoided bold reforms in its annual budget, opting for cautious steps to shore up growth and modest targets to rein in a bloated deficit.
Goyal joined Prudential Asset Management in 1998 from India's ICICI Asset Management where he was a portfolio manager focusing on the Indian equity market.
He said there are still pockets of opportunities in infrastructure plays in India, as well as the banking and resources sectors in Indonesia. The BSE Sensex surged as much as 28 per cent this year but pared gains to be up 13 per cent so far this year.
Despite the tough environment, Goyal said well-run businesses in India, such as property firm Sobha Developers Ltd, and infrastructure plays such as Reliance Industries stand to benefit from the country's under-investment.
Since investing in India has become more challenging and Chinese equities were relatively cheap, Goyal said an Eastspring fund that invests mainly in both countries started increasing positions in China stocks over the last few months.
The S$1 billion Dragon Peacock Fund now has about 50 per cent of its assets invested in China equities, compared with 47 per cent for India. Its top holding is Bank of China Ltd, while its largest Indian play is Infosys.
The fund has benefited from a strong outperformance in China Resources Cement Ltd, on expectations of policy easing and increased construction activity.
Eastspring had about $2.8 billion in assets under management in Indonesia as of December 2011, making it one of the biggest investors in Indonesia.
In one of its Indonesian equity funds worth $969 million, financials make up 32 per cent of the portfolio, and its largest holding is Astra International Tbk PT.
Goyal, who has nearly 20 years' investment experience, said Indonesian stocks, which outperformed global markets last year, are looking pricey, especially in the consumer and property sectors and investment opportunities have become more limited.
"It's just resting for a bit after a phenomenal performance last year. Earnings have to catch up."
Goyal said resource stocks such as coal miners are also attractive at current levels, as investors have discounted concerns about demand from China shrinking, falling coal prices and regulatory changes in Indonesia.