The Sleeping Elephant Awakens
It is difficult to appreciate the economic transformation occurring in Asia unless you’ve seen it for yourself. In the past 20 years Asia has made tremendous strides in catching up to western living standards, and in the case of public and energy infrastructure, it is exceeding our own standards. For example, North America doesn’t have any high speed ‘bullet’ trains. Meanwhile, China boasts a network of 27,000 km of railroads capable of ferrying passengers at speeds of 250–350 km per hour (155–217 mph). By 2025 China’s high-speed rail network will equal the total distance of all of Canada’s motor highways. In another example, in just 1 year after India introduced a mobile 4G/LTE network, it rose from 155th to 1st in broadband subscribers per 100 inhabitants and has overtaken the US and China in mobile data usage. The ability to connect people and move goods quickly and efficiently allows for a more productive and faster growing economy.
As China finishes its construction boom and is pivoting to a service based economy, India is in the first innings of its own transition. The country is a collection of 29 states and is arguably the most ethnically, and by result, economically diverse nation in the world. To drive change in such a diverse country, governments need a strong mandate for change. The 2014 general election marked the first time in 30 years that a party has won enough seats to govern without the support of other parties. The winning BJP party and its leader, Narendra Modi, used this majority to enact transformational changes, some of which include: a nationwide harmonized sales tax, a unique electronic identity number for all residents of India, and an overhaul of the country’s bankruptcy laws. It’s hard to articulate all the changes within the scope of this article, but they culminated in India becoming the fastest growing economy, with the most recent datapoint indicating an 8.2% annual growth.
As a holistic wealth management firm that looks after all aspects of our client’s wealth, including investments, we would be remiss if we didn’t research the opportunity presented by investing in India. In September 2018 a member of Northland Wealth attended the Invest India Conference hosted by the Canada-India Business Council, the Consulate General of India and Prem Watsa’s Fairfax Financial. The event brought together government officials and investors from both countries. It featured candid conversations from the likes of OMERS, Brookfield and University of California who shared their thoughts on the Indian economy, the investment landscape and their approach to investing in India. Each has allocated more than $1B in the country – mostly in the last 3 years.
There are two broad approaches to investing in India. The first is in stocks through the public markets. A significant number of the portfolios Northland Wealth advises on include an allocation to India via an emerging markets exchange traded fund. The second is through investment in private companies and real-estate. Many of the formerly mentioned institutional investors have chosen this approach as it provides greater control in a country still mired in corruption, bureaucracy and inefficiencies. All are building investment portfolios to last a generation; and are therefore choosing highly cyclical industries that will grow as India’s middle class grows. We learned that their favoured areas are financials, consumer discretionary and real estate, focused on offices, malls, and logistics assets.
The attendees acknowledged the many risks that investing in India poses such as currency devaluation, political instability, and effects of changing climate. Investors who converted their US dollars to Indian rupees 30 years ago to invest lost 80% on the currency exchange. That’s hard to make up in investment returns.
There is a general election in May 2019 and the current government needs to win another strong mandate to continue its reform policies. If recent global elections taught us anything, it’s that there are no sure things. This combined with India’s significant impoverished population and underdeveloped infrastructure, major migrations and food shortages can become a large impediment on India’s economy due to any natural catastrophe.
Northland’s investment team continues to study the global investment landscape and use a measured approach when allocating our clients’ monies. We recognize we are stewards of family’s capital and take that responsibility seriously.