Share tips: why I'm still in China and India

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Sam Mahtani, fund manager, F&C Emerging Equities.

I am positive on the emerging markets for 2009, particularly on three countries China, India and Indonesia as all are likely to benefit from lower oil prices along with positive trends in domestic growth and fiscal stimulus. In China, domestic trends remain supportive and I expect they will benefit from reasonable economic growth, although GDP is likely to slow to around 7% in 2009. Interest-rate cuts and the $586bn economic stimulus package announced in November show the government remains committed to taking the necessary measures to help stabilise the economy and put China back on the growth path.

The domestic story in India also remains supportive, with continued infrastructure spending and tax cuts, although I expect GDP growth will fall to 5.5% this year. As exports account for around just 12% of GDP, India is not as exposed to the global slowdown as other Asian countries. India has also been proactive in easing monetary policy over the last few months, and interest-rate cuts are likely to continue in 2009, as is the rapid fall in inflation. I expect this to lead to higher levels of domestic demand in the long term.

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Indonesia will also undoubtedly experience slowing domestic growth this year. But again, lower interest rates should help, and domestic demand remains intact. Indonesia's government is also discussing initiatives such as new infrastructure projects and policy measures to aid long-term growth and help them get through the crisis.

My first stock pick would be China-based CNOOC Ltd (NYSE:CEO). I believe it is one of the world's premier oil and gas firms. The main factor that differentiates it from its rivals is its high production growth rates, robust management and long-term potential from future exploration projects. Taking account of its growth potential, it's very attractively valued on an eight times forward price/earnings ratio (p/e) and offers a dividend yield of nearly 6%.

Secondly, I like State Bank of India (LSE:SBID), India's largest bank. Its net profits have demonstrated resilience, growing by more than originally anticipated and more than other banks in the region. Business growth has outstripped the industry average, driven by surging deposits and advances. The management team has aggressively restructured in terms of manpower, technology and business focus and the group has a diverse business profile, with a presence in asset management, investment banking and primary dealership. There is also a strong focus on shareholder value. With the stock trading at close to book value, we think it offers exceptional value.

My final stock is China Life Insurance (NYSE:LFC), which is better positioned within the insurance industry than its peers because of its strong brand name and distribution network across China. The group's reputation for demonstrating a conservative approach should give it a competitive advantage for any investors who are concerned about risk during the global downturn. Its focus on regular premium policies provides stability in the form of regular contributions with long-term duration. The stock is trading at a premium to embedded value, but it is a high-quality franchise and, we believe, a great way of playing the Chinese story for a long-term investor.

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