India is experiencing a substantial turnaround from an investment perspective. So much so that Adam McCabe, portfolio manager for the Aberdeen Asia-Pacific Income fund, places it in the ‘sweet spot’ from an emerging market perspective. ‘There is a real chance that the sovereign country risk premium, the inflation risk premium, can be broken particularly with the efforts of Narendra Modi and indeed Raghuram Rajan at the Central Bank,’ said McCabe. ‘Together they have every chance of being credible and successful at unlocking that value.’ The Aberdeen Asia-Pacific Income closed-end fund, or FAX, holds 32% of its assets in Australian fixed income as of the end of January 2015, 7% in South Korean bonds and 6% in Indian bonds. FAX has fallen 9.5% in price so far this year and traded at a 14% discount to its net asset value at last check. Much of the volatility in the portfolio of late is due to worries about a slowing China’s impact on the region’s economy, especially on countries like Australia which supply China with the commodities to grow. While McCabe understands China’s economic rebalancing is causing some problems in his portfolio, long-term he sees the benefits. ‘China can no longer afford to grow at 10% to 12%, these breakneck speeds,’ said McCabe. ‘It needs to be very stable. And indeed what we are seeing is a transition of China away from one that is investment led to one that is more driven by consumption. That’s positive for the world in the longer term.’
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