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Why Fund Managers Prefer China Over India

China and India may be seen as the two pillars of economic growth in Asia, but when it comes to investing, fund managers have a clear preference for China, according to global financial services firm Russell Investments.

"For China, the key theme that came out of our survey and discussions with managers, is the theme of domestic consumption," Sarah Lien, Senior Research Analyst at Russell Investments told CNBC on Monday, referring to a recent survey done by her company among Asian fund managers. The poll, released earlier this month, found managers most bullish about China and most bearish on India.

Lien noted that China's 5-year plan showed the government was focused on boosting domestic consumption, and developing the third and fourth tier cities; policies conducive to creating more investment opportunities. More than half the fund managers surveyed was shown to be bullish on the financial, consumer discretionary and consumer staples sectors.

While inflation is a key concern for both countries - 87 percent of managers flagged it as the biggest risk to growth in Asia in the report - Lien says China is doing a better job of containing runaway prices.

"There've been concerns over agricultural inflation and high commodities prices that China is addressing probably better than India at this point in time," she said.

China's latest consumer price index (CPI) data eased a touch to 5.3 percent in April, but it is still higher than the government's annual target of 4.2 - 4.3 percent. While India's inflation rate, at close to 9 percent, is Asia's highest.

Also working against India’s favor, is the country’s history of rampant corruption, which has the fund managers concerned, said Lien.

But overall, the survey found fund managers very optimistic about investment prospects in Asia, with 64 percent finding it the most attractive investment globally, compared to 14 percent who liked U.S. equities and 11 percent favoring Europe. Besides China, they were also bullish on Korea and Malaysia.

"Low levels of government debt, strong demographics, growing domestic demand and rapid urbanization continue to underpin Asian economies and the regional growth story," Lien said in her report.

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