Ian Cowie: India vs China, there’s no contest for my money

With dark clouds gathering over global stock markets, this investor is inclined to celebrate Diwali, the Hindu festival of light, that begins on Sunday. It’s an ill wind that blows no good and India is benefiting from rising tensions between America and China.

There’s no need to take my word for it; here’s what Amit Mehta, lead manager of JPMorgan Indian (LSE:JII), the biggest investment trust in its sector with total assets of £780 million, told me: “India is seeing a geopolitical windfall, as more companies seek to diversify their exposure away from China.

• Invest with ii: Buy Investment Trusts | Top UK Shares | Open a Trading Account

“These factors are underpinned by positive demographic trends. Not only is India now the most populous country in the world, but its age distribution is also weighted towards economically active age groups.”

While China looks set to grow old before it grows rich, India’s youthful consumers and workers give it an important advantage. Mehta added: “The combination of rapid urbanisation, rising household affluence and improving accessibility of goods and services is driving consumer demand and economic activity.”

Never mind the generalities, this small shareholder is jolly glad I got out of Fidelity China Special Situations (LSE:FCSS) at 227p per share in April 2020, and used some of the money to top up my exposure to India. My main motivation at the time was revulsion against revelations about China’s oppression of its Muslim minority, the Uyghurs.

• Ian Cowie: home to my first 10-bagger trust, this market is just getting started
• Ian Cowie: I’d like to invest in Asia, but without China
• Ian Cowie: China is cheap, but I prefer India and Vietnam

Other problems with any exposure to China include the “disappearance” of many journalists and other critics of President Xi Jinping. Even jokes about his resemblance to the cartoon character Winnie the Pooh are reportedly banned; including blocking internet searches and Disney’s plans to distribute a film about the cuddly bear. This would be funny, if it weren’t so sad.

More positively, I have been a shareholder in JII since June 1996, when I paid 63p for shares that cost 848p this week. Yes, I know that the real value of money - its purchasing power - has halved since then, but you never forget your first 10-bagger.

Less happily, JII’s performance has been rotten recently. This trust has the dubious distinction of being the worst performer in the Association of Investment Companies (AIC) “India/Indian Subcontinent” sector over the last decade, five years and one-year periods.

JII delivered total returns of 154%, 36% and minus 0.5% respectively. They say you should never fall in love with a share, because it will never love you back. But I take comfort from the fact that newish managers, Mehta and Sandip Patodia, were brought in to revive JII’s fortunes last September and I sincerely hope they do.

• How we are playing the Indian stock market boom
• Portfolio diversification in action: see how it really works
• Why India could be the next superstar in your portfolio

More proactively, I initiated a new position in India Capital Growth (LSE:IGC), paying £1.21 in September 2021, for shares that cost £1.58 this week. IGC’s focus on medium-sized and smaller companies is paying off, with total returns of 357%, 93% and 20% over the usual three periods.

That puts IGC at the top of its sector over the last one and 10-year periods. For completeness, it is only fair to report that Ashoka India Equity (LSE:AIE) leads over five years with total returns of 165%, followed by 10% over the last year. AIE lacks a 10-year track record, having been launched in July 2018.

Never mind the past, what about the future? Ayush Abhijeet, the manager of AIE, claimed: “India’s economy is experiencing the start of a growth phase as ingredients for a revival in the investment cycle seem to be in place.

“Several global giants, including Apple (NASDAQ:AAPL), are now manufacturing in India. Despite strong growth in the export of electronics, India’s global share in many other sectors such as chemicals and engineering goods is still small, at approximately 2% to 4%.

“Even a 1% to 2% incremental market share gain from China, could result in high-teens growth rates for these sectors.”

None of these investment trusts pays any dividends. So, if hopes of growth are disappointed, there is no income to pay investors to be patient.

Having said that, with all the bad news elsewhere in the world, it must be good news that democracies are beating dictatorships among emerging markets - and India is at the head of this trend. 

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), India Capital Growth (IGC) and JPMorgan Indian (JII) as part of a globally diversified portfolio of investment trusts and other shares.