India, China and Indonesia ‘best bets for 2009’, says Mahtani

India, China and Indonesia are F&C's three key country calls in the emerging markets universe for 2009, according to Sam Mahtani fund manager at F&C's emerging market equities team.

After a dispiriting 2008, Mahtani expects equities in these three countries will regain strength during the year, benefiting from lower oil and commodity prices along with positive trends in domestic growth and fiscal stimulus.

"Although growth will undoubtedly slow in these three countries, as the global economy worsens, domestic trends remain supportive. Furthermore, inflation has dropped, on the back of falling food and oil prices, giving domestic policymakers the opportunity to push through significant cuts in interest rates which will help improve the demand outlook on a twelve month view" Mahtani explains.

He believes that the aggressive fiscal stimulus pledged by the Chinese government last November, has helped to improve sentiment. "The rapid slowdown is now evident in all areas of the Chinese economy but the action of the authorities, such as their pledge to inject $586bn into the economy, proves their commitment to ensuring structural growth does not come under further threat.''

Mahtani explains monetary stimulus has been equally forthcoming from the Indian authorities, whilst the Indonesian government is looking at introducing new policy measures to assist long-term growth such as new infrastructure projects.

Although exports across the regions have dropped off, countries like India are less affected than other Asian economies "Exports are not too much of a concern for India, because they only represent 12% of its GDP. In addition, economic data in India and China will stabilise from the fourth quarter of 2009 due to the low base affect of poor economic data in the same period in 2008''.

Mahtani considers that stocks in the three countries are attractively valued taking into account the weak global economic backdrop. He concluded: "The current valuation in these three markets discounts the macro slowdown to a large extent. Both China and India are trading at around 8.5x forward 2009 PE, which is significantly lower than twelve months ago.'' Some of the key high conviction ideas that he is backing in his emerging market portfolios include BHEL, the largest producer of power plants in India and CNOOC, an oil and gas company in China which, he believes, has one of the most attractive production growth profiles in the world.