The Emerging Markets have received a lot of attention lately. This week, the country of India was presented with an investment endorsement from Warren Buffett’s Berkshire Hathaway (BRKA).
Recent talks about emerging markets have mostly centered around Turkey and its financial problems. Analysts and journalists on major networks have sited the poor performance of emerging markets by quoting the broad based MSCI Emerging Market Index. Year-to-date, the index is down 9.34% in U.S. dollars.
However, the index does not show the whole picture. When an investor buys an index, this person is purchasing everything inside of it, mostly based on market capitalization. In the case of the MSCI Emerging Market Index, investors are purchasing less of a country like India that has a 2019 real GDP forecast of 7.4% and more of a country like Taiwan that has a 2019 real GDP forecast of only 2.3%.
That is why it is important to look at the details. At the beginning of the year, the Surevest Investment Committee identified great investment opportunities in India. With 1.42 billion people, India is the second-most inhabited nation in the world.[i] WisdomTree cites that India is the fourth-largest economy in the world (based on purchasing power parity) yet is the 157th largest on a per capital basis. That leaves a tremendous amount for growth.[ii]
The S&P BSE SENSEX Index, which will be used as a proxy for the stock market in India, has returned year-to-date 2.73%.
In the local currency, the Rupee, the index year-to-date return is 12.31%
The reason for the diffrence in the two returns is due to the currency exchange rate between the U.S. Dollar and the Indian Rupee. When the U.S. Dollar appreciates, the domestic return of an international investment denominated in a foreign currency will decrease. The U.S. Dollar Index, which compares the American currency to a basket of foreign currencies, has increased year-to-date. However, we do not expect this trend to continue. In fact, it is down 2% from a couple of weeks ago and we think long term it will depreciate, which will create a positive tailwind for investments outside of the U.S.
Coming back to the investment made by the Oracle of Omaha this week, Berkshire Hathaway purchased a stake of about $300-350 million in One97 Communications LTD, which owns the Indian company called Paytm, the largest online payments firm in India.[i] This is the first investment by Berkshire Hathaway in an Indian company. In an interview last year, Buffett said, “If you tell me a wonderful company in India that might be available for sale, I’ll be there tomorrow.”[ii]
Warren Buffett is not the only one seeing the opportunity in India, Walmart Inc, (WMT) just finished a $16 billion deal to take a controlling interest in Flipkart Online Services Pvt, India’s leading e-commerce company. Jeff Bezos, founder of Amazon.com Inc (AMZN) and well known entrepreneur, has just negotiated an agreement with a large supermarket chain in India.[iii]
We have been saying for sometime now that India has many good investment opportunities, but it is always great to hear that legendary investors, like Buffett and Bezos, feel the same way.
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[1] International Monetary Fund (2015). Secondary Source: Bloomberg
[1] WisdomTree India Earnings Fund Sheet. Retrieved from https://www.wisdomtree.com/-/media/us-media-files/documents/resource-library/investment-case/wisdomtree-case-for-the-india-earnings_fund-1674.pdf
[1] Bloomberg Staff (2018, August 28). Warren Buffett’s Berkshire picks up stake in India’s Paytm. Bloomberg.
[1] Iyengar, R. (2018, August 27). Warren Buffett is investing in Paytm, his first Indian company. CNNMoney. Retrieved from https://money.cnn.com/2018/08/27/technology/paytm-warren-buffett/index.html
[1] Rai, S (2018, August 30). Bezos, Buffett Bet on a $250 Billion Unclaimed Internet Market. Bloomberg. Retrieved from https://www.bloomberg.com/amp/news/articles/2018-08-30/bezos-buffett-bet-on-a-250-billion-unclaimed-internet-market?__twitter_impression=true
