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India clears Calpers fitness test

Sacramento, California/Hong Kong, April 20 (Reuters): India has passed the investment test of top US pension fund Calpers, winning an endorsement that is likely to spur more foreign stock buying in the emerging markets.

Just two months ago, India had failed to meet Calpers’ checklist for market efficiency, corporate governance practices, political stability and respect for human rights.

But the $165 billion-plus pension fund voted on Monday to allow investments in India, as well as Peru, as both markets have shifted to settling stock trades a day after they are made, in line with global standards.

“India is becoming more attractive to a wider range of institutional investor base,” said Geoff Lewis, head of investment services at JF Funds, on Tuesday. “It is one of the markets where the economic growth story is improving and valuations are still reasonable,” said Lewis, whose company manages about $53 billion of assets in Asia.

The California Public Employees’ Retirement System, known as Calpers, also decided to keep investing in the Philippines, following intense lobbying by Manila to prevent the fund from selling about $67 million in Philippine stocks.

At around $260 billion, India’s stock market is more than 10 times Manila’s market value of $22.5 billion and almost 15 times the size of the Peruvian market.

Calpers, which had just under $2 billion invested in emerging markets last year, has a reputation as an influential market watchdog and advocate for corporate reform. Its moves are widely watched — and imitated — by other international investors.

Booming economy

India’s booming economy — GDP in the October-December quarter rocketed more than 10 per cent from a year earlier — propelled the stock market up 73 per cent last year, making it the best performing Asian market after Thailand.

“We are very optimistic on India and have been overweight for quite a while now,” said Stephen Corry, regional equity strategist at Merrill Lynch.

“It’s primarily on the back of the continuous upgrade in GDP and earnings revisions, which helps to support market valuations. And there’s also been some significant corporate restructuring boosting returns,” Corry said. India’s weighting in the benchmark MSCI Asia ex-Japan Index is 7.4 per cent compared with China’s 10.1 per cent, South Korea’s 25.7 per cent and Taiwan’s 16.7 per cent.

Market watchers say India could attract $10 billion in foreign portfolio investment this year, after $3.5 billion in the first quarter. Scorching economic growth and reforms in telecom, infrastructure and financial services spurred a record $7.7 billion inflows into Indian stocks and bonds in 2003.

India’s benchmark stock index was down about half a per cent as voting began in national elections in the world’s biggest democracy.

Philippine surprise

Fund managers and strategists were surprised by Calpers’ move to keep the Philippines on its list of investments. The country has a 0.6 per cent weighting in the MSCI Asia ex-Japan Index.

“The move on the Philippines is a surprise given that they have presidential elections next month, ” Corry said.

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