Category Archives: India


If You’re Thinking About Global Diversification, You Should Read This

  • The developed world is depending, and will continue to depend, more and more on the developing world.
  • The focus of productivity and GDP growth is in Asia.
  • The U.S. is the only country with trade deficits since 1976.


Nobody knows where the market will go in the next week, month, or year, but what can give investors an edge is to look at macro trends that are bound to influence economies and returns on investments.

In this article we are going to analyze productivity and trade balances among the most important global economic powers, and try to derive a long term trend from it in order to improve the international exposure in our portfolios.


Productivity is essential for economic development in the long term, and in the short term is only beaten by credit. But as credit has its cycles in the long term, productivity is what determines if a country is a success or not because credit can only be used up to a point. Productivity is the mechanism through which societies progress.

The issue with productivity is that it is stuck globally. This is because productivity is falling in the U.S. and Japan, slowing down in China, and countries like India still don’t manage to compensate for the declines of these superpowers. However, the trend is clear.

figure 1 productivity
Figure 1: Labor productivity growth rates. Source: Conference Board.

The trend shows how the largest global productivity and GDP growth comes from Asia with some bright spots in Africa. As Africa is still undiscovered as an investment opportunity and complicated to invest in, it is good to focus on Asia for international long term diversification.

Higher productivity means that people are achieving more with their own means, education and capital, which improves economics and living standards. This further improves education and healthcare which creates an upward spiral. As Asian countries have a low baseline, there is plenty of room and time for them to develop and grow.

Jim Rogers, co-founder of the famous Quantum Fund with George Soros, is heavily invested in Vietnam. Of course, such an investment is difficult to make as it has many capital constraints at the moment, but it shows you where smart money is going.

A country that is easier to invest in is India, which had a GDP growth rate of 7.3% and productivity growth of 5.2% in 2015. The fact that productivity growth in the U.S. was 0.7% in 2015 and GDP growth was at 2.4% means that GDP growth isn’t exclusively influenced by long term, healthy productivity increases, as is the case in India, but is also greatly influenced by debt. We all know that debt works in cycles, so sooner or later we will see some deleveraging take place that will send the U.S. into a recession, hopefully later than sooner so that we can still enjoy this bull market for a while longer. The situation is the same in Europe; productivity grew at 0.9% while GDP grew at 2.0% in 2015.

Balance of Trade

Among other factors like productivity and credit cycles, the balance of trade (BOT) is a very important factor for assessing the health of an economy. The BOT is often shunned by economist as one country has had a BOT deficit for 41 years and things seem to still go pretty well there. We are of course talking about the U.S. which saw its last trade surplus in 1976.

figure 2 U.s. balance of trade
Figure 2: U.S. BOT. Source: Trading Economics.

This means one thing: the U.S. is spending more than it is producing which is not news, but is good to have in mind when deciding where to go with your global investments.

Other countries—like the U.K., Canada and Brazil—also have BOT deficits, but they have evened out in the long term with past surpluses, with things being a little bit worse for the U.K.

figure 3 canada
Figure 3: Canada BOT. Source: Trading Economics.

Europe, China and Japan have a surplus in their trade balances.

figure 4 EU balance of trade
Figure 4: Europe BOT. Source: Trading Economics.

BOTs show only one side of the equation where usually net investments cover for the trade deficit. But the current account for the U.S. is also negative.

figure 5 current account
Figure 5: U.S. current account. Source: Trading Economics.


The world will be a very different place in 20 years as global trade, productivity and economic growth shifts from the western world toward Asia. With countries like India and Indonesia reminding us of what China was 20 years ago, we should not be surprised if such a scenario replicates itself in those and other emerging countries.

This doesn’t mean that we should be completely invested in emerging markets, but if we have to choose between a company that has sales only in the U.S. and a company that is selling globally for the same valuation, we ought to go for the global one as global macroeconomic long term trends are clear and unavoidable.

The good news is that emerging markets growth is what will push the currently stuck developed economies forward as increases in global demand will be good for everyone.



Emerging Markets Are Hot – Here Is Where You Should Put Your Money

  • Emerging markets are up 10% since our last article on the subject, but the FED’s rate action might quickly erase the gains.
  • Valuations are starting to diverge, but don’t fight the trend.
  • Keep an eye on China as it is relatively undervalued and still boosts economic growth of 6.7%.


In May we discussed how emerging markets have been rediscovered but are still undervalued. Since then, the emerging markets ETF is up 10%.

figure 1 emerging markets
Figure 1: iShares MSCI Emerging Markets ETF (EEM) since May. Source: iShares.

As emerging markets include a lot of countries and segments, in this article we are going to see which segments in emerging markets are the best investments and which hold the highest risks.

What Has Been Going On?

The central reason emerging markets have outperformed is because investors regained confidence in them and plowed more capital into them, unlike in 2015 when the story was the opposite. The fact that developed countries continue with their monetary easing increases risk appetite and forces investors to search for better returns in riskier assets such as emerging markets. This partly explains why emerging markets asset prices have been pushed higher.

Not only do stocks enjoy the benefit of global monetary easing, but so do bonds. As emerging markets have higher yields, desperate investors pursue those yields no matter the risks. But this is a common trap in which many investors have been caught in the past. Think of Argentina. This is a typical textbook situation, when yields are high and increasing, people pull their money out of emerging markets in fear that things might get worse. But when yields are falling, and it is unlikely that things will get better, people plow money into emerging markets. The emerging markets premium in comparison to U.S. junk bonds is minimal, but let’s not forget that by holding emerging market debt you are often exposed to currency risks.

figure 2 bond yields
Figure 2: Difference between yields on emerging markets and U.S. junk bonds. Source: Bloomberg.

Such a low premium suggest that investors should carefully assess the risks before investing in emerging markets at these low yields. But what is pushing emerging markets up is the opposite of what pushed them down in 2015, capital inflows and outflows. Since the beginning of 2016, capital inflows have been increasing.

figure 3 flows
Figure 3: Total non-resident capital inflows to emerging markets. Source: Institute of International Finance.

With increased capital inflows, asset prices are bound to go up, but not all emerging markets are enjoying the same investor confidence. China is a good example. Global funds toward China are negative as investors fear the further depreciation of the yuan and slower economic growth.

Fundamental Perspective

From a valuation perspective, emerging markets are still undervalued despite the recent upside. The iShares MSCI Emerging Markets ETF (EEM) has a PE ratio of 11.56 and a price-to-book value of 1.56 which is still far from the iShares S&P 500 ETF (IVV) PE ratio of 20.7 and price-to-book value of 2.88. Chinese stocks are the cheapest with a PE ratio of just 8.24 and a price-to-book value of 1.41 for the iShares MSCI China ETF (MCHI).

figure 4 emerging markets funds
Figure 3: Emerging markets funds. Source: Wall Street Journal.

As our primary investment thesis back in May was that emerging markets are undervalued, the current price increase and investor unwillingness to invest in China make it the probable future winner. To know more about recent developments in China read our recent article on it here.

As global emerging markets are in an uptrend and far from fair valuations, it might be premature to completely jump exclusively into China and ignore other emerging markets. However, as valuations in other emerging markets continue to increase, creating an even larger divergence from China, it might make sense to “overweight” your portfolio toward China, since in the long term earnings are all that matter.

As a point of reference, the Brazil ETF (EWZ) PE ratio is 13.29 while the Indian ETF (INDA) PE ratio is higher at 21.15. Compared to a PE ratio of 8.24 for China.  More daring investors might want to look at Russia where the situation has stabilized but still has low valuations with a PE ratio of 7.36 and a price-to-book ratio of 0.76 for the iShares Russian ETF (ERUS). We’ll discuss more about Russia in a future Investiv Daily article.

For specific investments, the “detailed holdings and analytics” document on the iShares ETFs’ page is a great resource.


When investing in emerging markets, don’t forget about risk. Drops are sudden and sharp, especially around high valuations and low yields. For example, the iShares China ETF (MCHI) is still 28.5% below its 2015 high.

figure 5 china ETF
Figure 4: China ETF. Source: iShares.

The moral of the story is to always look at valuations and don’t get euphoric about emerging markets. Boom and bust cycles are much more frequent than with developed markets due to lower market capitalizations that are strongly influenced by global capital flows which are fickle. We have witnessed two sharp emerging markets declines in the last 12 months—one in August 2015 and the second in January—both of which are a good reminder to not forget that volatility is on the daily menu and another downturn might be just around the corner.

The Fed poses an additional risk to emerging markets if it decides to increase rates due to the tightening U.S. labor market in order to stay ahead of the curve. Higher interest rates in the U.S. would quickly shift capital flows to the less risky U.S. from the riskier emerging markets.


Emerging market are and will stay difficult to navigate. Their volatility is based on low market capitalizations that can easily be influenced with relatively low capital flows when compared to developed markets. Therefore, a good idea is to watch them carefully and not fight the trend because emerging markets tend to move fast in various directions. In January 2016, it seemed like the end of emerging markets was near and now, just 8 months later, it seems all roses.

For investors not exposed to emerging markets, the best thing to do is to look at specific assets that have consistent cash flows and provide diversification. Diversification can also be found in individual companies that have revenues both in the developed world and emerging markets.

Chinese companies have relatively low PE ratios as investors are still not confident about the Chinese economy. Beware that we are not talking here about a recession, but only about growth worries related to China managing to continue growing at more than 6.7% a year.

Stay tuned to Investiv Daily for market updates and specific investment reports on emerging market stocks.


The Elephant In The Room – Is India The New China?

  • The Indian economy is growing at 7% and the demographics are still very positive.
  • The market is overvalued from a global perspective but the growth should remedy that.
  • Investment exposure to India can be achieved by investing directly in ADRs or ETFs.


A country often dwarfed by its northern neighbor and still not perceived by the investment community as significant is India. As most news is about China, this article is going to give a perspective on the investment potential India offers.

Investing is a function of timing, investing at peak euphoria usually means buying high and selling low when the bubble bursts. But for the more daring investors India still represents an opportunity to buy before it becomes a bubble.

India and Its Economy

India has a population of 1.29 billion and the population is expected to peak in 2065 at 1.64 billion. GDP per capita is $1,820 which is 29 times lower than the US GDP per capita and shows the potential India has. The average American earns $130 a day, a Chinese person $20 and an Indian $10 when adjusted for purchasing parity, so there is plenty of room to grow. The economy is currently growing at a 7.7% yearly rate and that is also the average for the last 10 years.

1 figure India growth
Figure 1: Indian GDP growth in the last 10 years. Source: Trading Economics.

The low starting point of the Indian economy and aggressive growth rate creates enormous potential. The Indian economy has to grow 3.7 times to reach the development level China currently has. A good side of the Indian economy is that the growth, unlike the Chinese based on manufacturing and construction, is based on services. India has become a major exporter of IT, business outsourcing and software. But the road to go is still long as 50% of the Indian population still works in agriculture although the trend is positive as about 11 million people a year are expected to shift from rural to urban employment.

Political Issues

On the political side India is a parliamentary democracy where the Prime Minister is the head of the government. As in many developing countries political issues cannot be avoided and corruption is a big issue.

2 figure India corruption
Figure 2: Global corruption index. Source: Transparency International.

India ranks 76th out of 168 on the global corruption list so investors have to be aware that the ways of doing business in India are different than in the Western world. Corruption is accompanied by a shaky bank system with the worst non-performing loan percentage in Asia.

3 figure non perfroming loans
Figure 3: Non-performing loans. Source: International Monetary Fund.

Apart from various negative issues that should be considered normal for such a big and developing country, a positive note is the ambition of the Indian prime minister Narendra Modi. Elected a year ago his goal is to make this century India’s century and to modernize the country by developing the poorer parts of India where many treatable diseases still linger and education is poor. Many of the goals seem trivial to us but opening 75 million bank accounts or building 100 million toilets would do a lot for the poor parts of India. Also the average Indian person is becoming more demanding which should push the economy forward. Indians want better phones, better internet connections, better infrastructure and more purchasing power.

India does not differ from other emerging countries apart from the enormous potential coming from its low starting point and still huge demographic growth.

Investing Fundamentals

The massive population and growth potential is not unknown, so the valuation of the Indian market is not really cheap. Indian markets have a PE ratio of 20.7 which is similar to the US but much higher than the global average for emerging markets.

4 figure india PE
Figure 4: Global PE ratio map. Source: Starcapital.

A PE ratio of 20 can be considered high, but with an economy growing at 7% and expected to grow at that rate for the foreseeable future, the PE ratio should become only higher.

Investing Opportunities

The Indian stock market has two major exchanges: The National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE). The market has been growing alongside the economy and has grown 10-fold since the beginning of this century.

5 bombay stock index
Figure 5: Indian stock market index. Source: Trading Economics.

A part of the growth is related to something that is also a risk when investing abroad. India has been constantly depreciating its currency by keeping a higher inflation rate and encouraging exports. In the last 10 years the Indian Rupee has depreciated by 50% in relation to the US dollar which would make the real return just a five bagger, which is still not bad.

If investing directly on Indian stock markets might be difficult and un-secure and you think that a part of your portfolio should be exposed to the potential India offers, an opportunity lies in Indian ADRs traded on US stock exchanges.

S. No.CompanyTickerExchange Industry
1Dr. Reddy's LaboratoriesRDYNYSEPharma. & Biotech.
4InfosysINFYNYSESoftware & Computer Svc
5MakeMyTrip LimitedMMYTNASDAQTravel & Leisure IndiaREDFNASDAQSoftware & Computer Svc
7Sify Technologies LimitedSIFYNASDAQSoftware & Computer Svc
8Tata MotorsTTMNYSEIndustrial Engineer
9VedantaVEDLNYSEIndust.Metals & Mining
10Videocon d2hVDTHNASDAQTV Services
11WiproWITNYSESoftware & Computer Svc
12WNS HoldingsWNSNYSESupport Services
Table 1: Indian ADRs. Source:


For the investors who like to be more diversified, there are various ETFs.

TickerCompanyPriceChange AssetsAvg VolYTD
INDAiShares MSCI India ETF$26.320.50%$3,399,4081,892,800.0-4.3%
EPIWisdomTree India Earnings Fund$18.840.91%$1,323,7503,753,153.0-5.1%
INDYiShares India 50 ETF$26.380.76%$758,205181,741.0-3.0%
PINPowerShares India Portfolio ETF$18.420.82%$372,708922,905.0-5.1%
INPiShares MSCI Spain Capped ETF$61.200.72%$238,4969,669.0-4.2%
SCIFVanEck Vectors India Small-Cap Index ETF$38.19-0.05%$173,84771,233.0-11.7%
INCOEGShares India Consumer ETF$30.940.98%$70,79414,889.0-3.6%
INDLDirexion Daily India Bull 3x Shares ETF$42.502.16%$66,44733,131.0-21.1%
SMINiShares MSCI India Small-Cap ETF$30.51-0.29%$53,97016,706.0-8.3%
INXXEGShares India Infrastructure ETF$10.160.10%$39,46816,442.0-3.8%
SCINEGShares India Small Cap ETF$13.00-1.14%$17,9826,734.0-17.1%
Figure 7: Indian ETFs by market capitalization. Source: ETF Database.



As an investment opportunity, India looks quite scary with its corruption, low income, shaky banking system and depreciating rupee but those are the illnesses that affect every emerging market. An investor who can withstand those issues and wait for India to grow into the country it has the potential to become can be rewarded with returns similar to the ones enjoyed by investors that invested in India 15 years ago. There will for sure be ups and downs but the long term trends are pretty clear: India is changing with new technologies pushing Indians to want a western lifestyle and demographic trends that are bound to result in more economic growth.