Ian Cowie: tech is another reason why I’m bullish on this region

Like 1.1 billion Indians, some investment trust shareholders have good reason to celebrate Diwali, the Hindu festival of light.

City cynics used to joke that an emerging market can be defined as a market from which it is difficult to emerge. But the Association of Investment Companies (AIC) “India” sector delivered average returns of 24% over the last year; 52% over five years and 135% over the past decade.

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Those numbers compare with the AIC’s formerly fashionable “China” sector where independent statisticians at Morningstar reckon typical total returns over the same periods were 12%; 7% and 101%. Investors in a one-party communist state are being left in the dust by those backing the world’s biggest democracy.

One specific explanation for these diverging emerging markets’ experiences came from California rather than Calcutta or Kowloon this week when Bloomberg reported that the technology giant Apple Inc (NASDAQ:AAPL) exported Indian-made iPhones worth more than $6 billion (£4.6 billion) during the past six months. That’s a third more than the total a year before, putting Apple on track to ship over $10 billion of kit from the subcontinent this year.

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This tends to confirm what I have been predicting for several years, that India stands to gain from rising tensions between America and China, prompting major exporters to transfer production from dictatorships to democracies. Three of Apple’s suppliers - Taiwan’s Foxconn Technology and Pegatron, plus India’s Tata Electronics - are now assembling iPhones at Chennai and Karnataka in the southern part of the subcontinent.

That trend might accelerate after the US presidential election, next Tuesday on 5 November. Donald Trump, the Republican candidate, has repeatedly accused China of systematically stealing intellectual property and threatened to impose 60% tariffs or import taxes on the goods it exports to America. Kamala Harris, the Democratic contender, is more circumspect and political pollsters prefer her to win, while money markets tip Trump. If this small investor had to guess which of those opposing views might prove right, I would favour financial indicators.

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Never mind the geopolitics and macroeconomics, two very different Indian investment trusts are spicing up my modest portfolio. JPMorgan Indian Ord (LSE:JII) is my longest-held share and my first 10-bagger, or stock whose price increased by 10 times or more, after this long-term investor bought in June 1996, paying 63p per share. They cost 993p this week and focus on big, blue-chip businesses such as the software giant Infosys Ltd ADR (NYSE:INFY) and the engineering group Tata Motors.

Sad to say, JII’s relative performance has rather faded away recently, resulting in the departure of both its former fund managers a couple of years ago. JII’s total returns over the past year, five years and 10 years are 21%; 34% and 117%.

By contrast, India Capital Growth Ord (LSE:IGC) focuses on smaller companies to produce bigger returns and leads its sector over the medium and long term. To be precise, over the usual three periods IGC delivered 25%; 149% and 252%, which lifted its total value to stand just outside the top 10 holdings in my forever fund.

However, both these funds were beaten over the past year by abrdn New India Investment Trust Ord (LSE:ANII), with an eye-stretching 33%. To be fair, that return represented a bounce-back or recovery from weaker relative  performance of 54% and 160% over the medium and longer terms.

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None of the above pay any dividends and so shareholders can only hope to be compensated for the absence of income with an abundance of capital growth. Buyers today may also draw comfort from double-digit discounts, with IGC shares priced -10% below their net asset value (NAV) and ANII and JII both trading around  -20% below their NAVs.

Those discounts could offer attractive entry points if the Indian leader, Narendra Modi, can continue to drive forward the digital transformation of this vast country, which relied on a primarily agricultural economy until recently. Apple’s big bet on making more of its new iPhone 16s in India suggests the new technology revolution might have further to run.

At least shareholders in Indian investment trusts don’t have to worry about the risk of China invading Taiwan. Or the risk of confiscating all foreign investors’ assets. Lest this sound far-fetched, then do beware that’s what happened when the People’s Republic of China was founded in 1949.

History rarely repeats itself, but it often rhymes. Don’t say you weren’t warned.

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.