Tag Archives: africa

India has overtaken china as the fastest growing economy (of significance) in the world. One should take notice and start investing in India focused ETFs. With commodity prices falling off the cliff, India stands to gain as it is one of the major importers of all major commodities. There is a reasonable chance of double-digit growth in India compared to the low single digits in other parts of the world. The summary above highlights the reasons for my bullish stance on the Indian equity market, the next leader in this growth deprived world. “Bull markets”, they say, often climb a wall of worry and “bear markets” crash even with a lot of optimism. There is one question everyone would like an answer to – as the Dow Jones starts scaling back from its peaks of above 18,000 to today’s closing of slightly above 16,300 – “Will the bull market last?” History shows that most bull markets have come on the back of rising profits, lower interest rates, and tapering inflation. The present bull market, which can be termed the “Fed bull market”, has taken the Dow Jones from the lows of 8,000 to the peaks of 18,000 on the back of lacking company profits (for most part of the rising market), negative to very low inflation, and almost zero interest rates. The bull market was further given a “turbo boost” with additional liquidity through bond purchases (or simply printing money) – similar to cars in Formula 1 getting an extra boost out of their KERS systems to help accelerate from 0-60 mph. The worrying part of this bull market is that it was kick-started after bringing interest rates to almost zero and on the back of no inflation. The even bigger worry is that the stubborn inflation doesn’t want to go above the 1% mark, forget the 2% target the Fed has in mind. In the midst of all this, a no rate hike decision would only postpone the inevitable deflation scenario and only help fuel asset prices to even higher peaks. A good market correction might just be the best thing the equity markets need at this point. The problems are not that of the United states alone. France has been downgraded on growth fears ( WSJ article ), the UK is growing at less than 1% , Japan is going in and out of negative growth for the past few quarters, and Germany is growing at 0.5%. It seems growth is struggling to make a comeback in any of the developed economies (the US seems to be far better with 3.9% the past quarter). Remember, these are growth numbers reported after taking extreme measures to boost growth; to still have such numbers, in most cases not even inching 1%, is disheartening. At this point, the growth engine that all countries were feeding off, China, has given the biggest scare in over a decade with growth rates coming off the double digits to 7%. We need a new leader and clearly it is not coming from the developed markets. Amidst all the noise of crude at less that $50 and rate hikes looming, no wages growing, commodity prices crashing, and a currency war – we need another leader to replace China. Herein lies the central point I wish to make in this article. India can be the next China. With a solid political majority at the Upper house and one of the fastest growing economies in the world (faster than China with recent data), India is in a sweet spot. India imports 75% of its crude – crude prices have fallen more than half in the past one year. India is a net importer of commodities like gold, silver, zinc and other metals all of which are in severe bear markets India is one of a handful of countries in the world that have the ultimate “luxury” of inflation (approx. 5-6% in 2015), something most countries in the world wish they had. Interest rate in India has peaked at 9% last year and is on its way downwards after 2 rate cuts already implemented this year. The current account deficit (imports – exports) is sharply lower from over 4% to 1.2% in the past 18 months. The fiscal budget is balanced, and with oil at $50, it only looks better. The government has started a spending heavily on infrastructure and other investment activities. The economy has just started picking up and might be the growth engine we are all desperately looking forward to. Bull markets come on the back of rising profits, lower interest rates, and tapering inflation. Start a good investing plan on ETFs that invest in India, such as the iShares S&P India Nifty Fifty Index ETF (NASDAQ: INDY ), the iShares MSCI India Index ETF (BATS: INDA ), and the WisdomTree India Earnings ETF (NYSEARCA: EPI ). India has to be separated from the emerging market pack as they offer a lot more than any of the other BRICS countries do. Brazil and China rely heavily on the export of commodities, whereas India is an importer. Russia is almost in recession and with all the troubles it has with sanctions and currency, etc., it cannot be in the same basket for a while now. South Africa has struggled to live up to its potential with such wide corruption. The downside risk to these funds is going to be excessive volatility in the stock markets that no emerging market fund is immune to. The solidity of any of the developed countries will never be seen in any of the emerging market equities. Any jitters in the plans of government spending can lead to more volatility since that is the kick start needed for growth to pick up. Rains have been playing spoilsport the whole time and can have short-term effects on the earnings of some companies. Any spike in inflation to unmanageable levels will invariably halt the downward trend of interest rates and that will be a huge roadblock to reviving growth. The INR (Indian Rupee) has more potential for stability during these times than most other emerging markets. With the dollar appreciating, there is still a positive for India-focused ETFs. These funds invest in the “Nifty50” Index that has earnings of almost 50% coming in US dollar terms – heavyweight software and pharma industry players like Infosys, TCS, Sun Pharma make up a sizeable percentage of the index along with banks that have sizeable dollar earnings. The Indian story should be a part of every investor’s long-term portfolio.