(Company corrects money managed by Jain in paragraph 5. It also
corrects Vontobel's AUM growth figures in paragraph 13.)
* Jain has 27 pct of EM fund in India, highest among peers
* India bets mostly limited to 5 stocks showing rapid growth
* Says steering clear of Chinese banks
By Nishant Kumar
HONG KONG, July 16 A $9 billion emerging markets
fund run by Vontobel Asset Management has a quarter of its money
in a handful of Indian stocks, including ITC and Hindustan
Unilever - an unusual bet at a time when the country's economic
woes have prompted many investors to flee.
Rajiv Jain's Virtus Emerging Markets Opportunities Fund is
also notable for his decision to largely shun China, citing
worries about China's banking sector, which he calls "a complete
Jain said he shares concerns about India but his bets are
mainly consumer products firms able to generate some of the
fastest earnings growth in the world on the back of a growing
"It should not be construed as being bullish on India," he
told Reuters in an interview. "It's four or five names."
"It's a function of what the opportunity set is globally. If
you look at the world today, it's not easy to find companies
that can deliver 20 percent-odd EPS growth," said Jain, 45, who
manages $41 billion for New York-based Vontobel.
Beset by slowing growth and high inflation, India's woes
have been exacerbated by its crashing currency, and foreign
investors sold a net $1.5 billion of Indian shares in the four
weeks to July 12.
By contrast, the fund's 27 percent weighting for India is up
from 24 percent at the end of last year, the highest in the
world among funds with $1 billion or more under management, data
from Thomson Reuters Lipper showed. The fund's benchmark has
just a 6.8 percent weighting for India.
Most of the investment is in five stocks: cigarette maker
ITC Ltd, Hindustan Unilever Ltd, Nestle India
Ltd, Asian Paints Ltd and lender HDFC
. Jain said his top India holding, ITC, had a high
return on capital and was in a business "almost impossible" to
"If we are comfortable buying Starbucks at 27 times
earnings... what's wrong with ITC trading at 27-28 times
earnings at similar growth rates?" he said.
Indian consumer sector stocks are forecast to grow per share
earnings by 19 percent in the next fiscal year and their shares
trade at 30 times forward 12 months earnings, according to
Thomson Reuters Starmine.
That compares with an average of 14.6 percent EPS growth for
Asia Pacific consumer sector stocks which have a multiple of
17.8 times forward 12 month earnings.
Other areas Jain likes are Mexico and Brazil, with Mexico
accounting for 13 percent of the fund's assets and Brazil
accounting for 10 percent.
But China has fallen out of favour for Jain, who has helped
Vontobel grow into a $42.5 billion money manager from $1.2
billion in mid-2002.
China, which has 18.4 percent weight in his emerging market
fund's benchmark, was missing from his top-10 country exposure
at the end of June. Allocation to Hong Kong also fell to 6.8
percent from 7.6 percent last quarter.
"Anything, which has been a beneficiary of China or has a
lot of exposure to China, we actively want to avoid," Jain said.
He said he is wary of Chinese bank's accounting practices,
poor disclosures and a loan to deposit ratio that may have
spiked to 120 percent. A number of smaller banks are also
dependent on wholesale funding, currently under pressure given
government crackdown on risky lending.
If bad loans mount, China could face a situation similar to
the late 1990s when Chinese banks were close to "technically
bankrupt", he said, saying that much will depend on how well the
government can handle the current crisis.
"The movie (then) was not playing in public. Now, it will be
publicly screened. It's a lot more difficult," he said.
(Editing by Edwina Gibbs)