In an asset class as expansive as emerging markets equities, identifying specific countries or regions with the potential to outperform is difficult, even for professional investors. Hence, many market participants lean on broad instruments, including exchange traded funds, to access developing economies.
On the other hand, emerging markets investing is also a style that can reward risk, including focusing on a specific country. In what could bode well for ETFs such as the (GLIN ), India is one of the most preferred developing economies among professional market participants.
Indeed, there’s already ample momentum for stocks in Asia’s third-largest economy. Over the past three years, the MSCI India Index is higher by 65.7%, beating the MSCI Emerging Markets Index by more than four to one. Add to that, the India benchmark sported less annualized volatility than the broader index over that period. Past performance isn’t a promise of future gains, but for patient investors, GLIN could be a compelling tactical option.
“Talking about India in particular, we believe that India has a substantial opportunity to do better than what it’s done in the last 10 years in terms of equity market returns,” according to BNP Paribas.
Home to 83 stocks, GLIN follows the MarketGrader India All-Cap Growth Leaders Index. Bolstering the long-term case for this ETF is the point that India’s equity markets and overall economy are underpinned by variety of positive factors. Those include the potential for GDP to grow by 50% to 70% over the next several years — a jump that would have material, positive benefits for GLIN holdings.
“This increase in the absolute size of the economy and nominal GDP, which would grow at a compounded rate of 10-12%, would have significant positive implications for corporate profit growth, which we think can grow at mid-teens,” added BNP Paribas.
The French bank also pointed out that while the Indian economy would likely slow down if the global economy enters a traditional recession, recessionary conditions are unlikely to permeate India. This doesn’t imply that Indian stocks will rise in such a scenario, but it could be a sign that assets such as GLIN will perform less poorly than broader emerging markets indexes.
GLIN allocates nearly a quarter of its weight to tech stocks, but its 13.15% weight to industrials could be an assist over the long haul.
“The new industrial policy to piggyback on the changing supply chain and changing geopolitics which promotes global manufacturing in India and positions India as one of the key global manufacturing bases for multinationals. This should boost Indian manufacturing output significantly over the next three to five years,” concluded BNP Paribas.
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