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Gartmore short India, sees hedge fund rebound

Gartmore head of global emerging markets Chris Palmer is net short Indian stocks and is concerned about government interference in private enterprise and a lack of financing for growing firms, he told Reuters.

Palmer, who manages a range of portfolios including the $1 billion (513 million pounds) Gartmore Sicav Emerging Markets fund, said his long-only funds have been cutting back exposure to India, while his hedge funds are net short.

Shorting means betting on a lower price for a security in the future.

“Public policy in India has deteriorated substantially in the last two years,” he told the Reuters Investment Outlook Summit in London.

“Policy towards pricing, how private enterprise can price their services and goods, the level of government interference in the general price levels is accelerating,” he said.

“The government has taken an approach that they can afford certain subsidies, so if you can afford them you continue with them. But we know subsidy leads to distortion, leads to longer term problems. This is going to be an Achilles heel for India.”

His comments come after the 30-share BSE index , which has risen 374 percent over the past five years, fell 17.7 percent in the six months to end-May.

Palmer also said he had become concerned about the lack of financing available to some growth-oriented companies where price/earnings ratios were already high. “We also looked very carefully at which companies had the expectation that they were going to continue to receive relatively easy credit.

“If managements had come to us previously and said 'we're going to finance a new development outside of Delhi … using bank financing, well in India a lot of that bank financing is being squeezed, private enterprise is being crowded out through both a combination of high interest rates and also government borrowing.”

HEDGE FUNDS

Palmer also said emerging market hedge funds, which are in negative territory so far this year, have done well to avoid much larger losses and are still likely to make positive returns for the year as a whole.

“This year has probably thrown up fewer opportunities, it's a narrower group of companies that is going up … Emerging market hedge fund managers have avoided getting carted out … Compare that (number) to -30 or -40 for India and China,” he said.

According to Credit Suisse/Tremont, the average emerging markets hedge fund is down 4.04 percent for the first four months of the year, compared with a 1.45 percent decline in the Credit Suisse/Tremont Hedge Fund index.

“It reminds me a lot of 2004 — a lot of hyperactivity at the beginning of the year and then a slow recognition earnings growth is coming through.

“It's only half time … In some years like '04, '02 it can get incredibly backloaded. There's a lot of pessimism right now, how funds are positioned globally, the big deleveraging of the investment banks — it's easy to see that it should have been quite a poor first half of the year. All of those trends can be reversed very quickly.”

Source: Reuters

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