As emerging markets investors ponder what else can go wrong by way of China or Russia, there are still some developing economies worth considering.
India is a prime example. Just look at the WisdomTree India Earnings ETF (NYSE: EPI). EPI, one of the bellwethers among India exchange trade funds, is lower by just 1% year-to-date, while the MSCI Emerging Markets Index is off almost 7%.
That comes after Indian equities and EPI easily outpaced the emerging markets benchmark last year, indicating that if sentiment toward stocks in developing economies improves, India could once again play a leadership role.
Liqian Ren, WisdomTree director of modern alpha, and Aneeka Gupta, director of macroeconomic research, highlight several compelling factors pertinent to investors considering EPI and stocks in Asia’s third-largest economy.
The analysts “see three tailwinds for the Indian economy in 2022: (1) continued dovish monetary policy, (2) the government’s plan to sell off state assets to finance infrastructure investment, similar to China 20 years ago, and (3) sectors like software and real estate that can reap the benefits of domestic and global growth,” they said in a recent note.
Adding to the case for EPI is the fact that India’s economy grew at a more rapid rate last year than China’s, and that trend is forecast to continue this year and in 2023. Economic growth is highly relevant in the case of the WisdomTree ETF because it has a cyclical tilt as highlighted by a nearly 41% weight to the financial services and energy sectors.
Those are value sectors, which is notable because Indian stocks are usually pricey relative to the broader emerging markets universe.
“Historically, Indian equities have traded at rich valuations. As of January 31, 2022, the MSCI India Index had a slightly higher price-to-earnings ratio (P/E) than the S&P 500. Earnings weighting instead of market-cap weighting made the portfolio substantially more value-oriented and less growth-oriented, as the WisdomTree India Earnings Index shows. Plus, an earnings-weighted index has higher quality measures, such as return on equity (ROE),” added the WisdomTree strategists.
The WisdomTree India Earnings Index is EPI’s underlying benchmark, and it weights components by net income, giving the fund a quality overlay not found with rivals in this category.
On a recent podcast with Ren and Gupta, Wei Huang of the Stanley-Laman Group highlighted opportunities with Indian healthcare and tech stocks. Those sectors combine for over 18% of EPI’s roster.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
