Lunchtime titbits from Ayaz Ebrahim

The Asia chief investment officer of Amundi, Ayaz Ebrahim, delivered a couple of investor titbits about Asian markets over lunch in Hong Kong yesterday.

Ebrahim, who joined Amundi in mid-2011 as CIO for Asia ex-Japan and deputy chief executive in Hong Kong, was speaking to a table-full of journalists about his bullishness on India.

Amundi and its chief executive for North Asia, Zhong Xiaofeng, were hosting a media luncheon at the China Club in Hong Kong’s central business district.

Ebrahim recalled how he first started his asset management career as a fund manager in India in 1991, one of only four foreign managers who could invest in the country at that time.

“I was a unique animal in India, you needed special approval from the Reserve Bank of India [to invest as a foreign manager],” he noted. “So Indian corporates loved to see me because I could bring foreign exchange to the market.”

He suggested this factor helped him to foster lasting relationships with senior CEOs and shareholders at major firms in the country – well-connected decision-makers in terms of fixed asset investment – relationships he maintains today.

“All through these years when I have been meeting them, even when India was booming and growing at 7% or 7.5%, they used to say they were happy and making lots of money, but there was always a ‘but’,” Ebrahim said.

He explained the ‘but’ was that they were never sure about government policy or direction and how sustainable the domestic market situation really was.

“These are people with a 20-year track record of conservatism,” Ebrahim noted. “But I meet the same people today and I have never heard them so optimistic.

“They say this [India under prime minister Narendra Modi] is the real deal, they believe in the government, that it is going to change things. And these are people in-the-know, they know what is going on in terms of government machinery.

“That is a very strong message to me, because these are people who are making fixed asset investment decisions.”

He used this anecdote to put his own bullishness on India’s cyclical recovery into context. While he conceded that Indian equities were now on the expensive side, with an average price-earnings ratio of 16-17%, he argued it was not excessively rich give a stable rupee.

“Hopefully returns of that sort of level are not unrealistic, even for a foreign investor in US dollar terms,” Ebrahim said.

He pointed to widespread optimism that India would cut red tape and carry out necessary infrastructure spending to grow at a structurally higher 7-8% level.

What would prevent that would be if the oil price rose quickly to $80 per barrel, or if the Indian market slumped or market perception about the government’s ability to institute change evaporated. That would lead to a P/E de-rating, he said.

On a related note, his second market titbit was that he had been on marketing trips to North America and Europe recently, where for the first time he had fielded considerable institutional interest about both India and China.

“Frankly no-one over the last few years really wanted to hear about India or China,” Ebrahim said. “It was off the table. You tried your best to tell them this was a good story and they would make polite noises, give you tea and shoo you away.

“But in the last couple of months, even late last year, when I have sat down around the table there has been very strong interest about India and China. That has not happened for a long time.

“These are institutions which in many cases have traditionally been underweight in these places and have started to put some money back. There is a whole host who maybe have invested in China before but never in India.

“Now they are looking at India more closely as real structural change. There is a host of money that never looked at India as a separate asset class before, but are starting to now.”

Amundi has about $35 billion in assets under management sourced from clients in Asia ex-Japan. Add in Japan and it has about $88 billion, against global assets of $1.06 trillion, by AsianInvestor numbers.