Episode #499: Kevin Carter, EMQQ International – India is Taking place NOW
Visitor: Kevin Carter is the Founder & Chief Funding Officer of EMQQ International. Whereas he principally considers himself an energetic “worth” investor, he has collaborated with Princeton economist and indexing legend, Dr. Burton G. Malkiel, for greater than 20 years.
Date Recorded: 8/30/2023 | Run-Time: 55:41
Abstract: In immediately’s episode, Kevin kilos the desk for India’s tech sector. He covers the demographic traits, The India Stack, the distinction from China 15 years in the past and the present valuations. He additionally explains why environmental dangers are one thing to control in India.
Hearken to Kevin’s Kevin’s first look on the podcast.
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Hyperlinks from the Episode:
- 1:13 – Welcome again Kevin to the present; Episode #187: Kevin Carter,
- 1:35 – Classes discovered from playing
- 4:18 – Rising markets and points with the MSCI index
- 13:52 – The demographic shifts fueling India’s booming digital financial system INQQ ETF
- 18:01 – India’s tech stack
- 22:17 – API-driven digital infrastructure for a paperless, cashless, and presence-less society; India Stack; UPI; GEO; ONDC;
- 33:00 – India’s digital platform sparks each optimism & privateness considerations
- 37:32 – Rising markets funding alternatives and challenges
- 44:15 – Global CAPE ratios from Barclays
- 45:03 – Reflecting on experiences in South Asia
- 49:16 – Shantaram by Gregory David Roberts; The White Tiger by Aravind Adiga;
- 49:39 – India’s potential dangers
- Be taught extra about Kevin: EMQQ Global; LinkedIn
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Meb Faber is the Co-Founder and Chief Funding Officer at Cambria Funding Administration. As a consequence of trade rules, he won’t talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast contributors are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
What’s up, everyone? We obtained a brilliant enjoyable present immediately. We’re crossing some borders with our returning visitor, Kevin Carter, Founder and CIO of EMQQ International. In immediately’s episode, Kevin kilos the desk for India’s tech sector. He covers the demographic traits, the India tech stack, comparisons to China 15 years in the past within the present Indian inventory valuations. He additionally explains why environmental dangers are one thing to control in India. Take a look at the hyperlink within the present notes for Kevin’s first look on the present, which is a superb hear earlier than this episode. Please take pleasure in this episode with Kevin Carter.
Kevin, my good friend. Welcome again to the present.
Thanks, Meb. Good to be again.
The place do we discover you immediately?
I’m in Lafayette, California, 15 miles east of San Francisco.
Considered one of our mutual favourite locations on the planet, Lake Tahoe. When’s your subsequent journey up there, man?
I’ll be going up this weekend.
Final time we talked to you and, listeners, I’d truly extremely suggest to take heed to the primary episode with Kevin as a result of we go into his background, which is fairly fascinating. We speak so much about China and it’s a fairly good half one to this episode. So we’ll put it within the present word hyperlinks, possibly we’ll publish it within the feed once more simply to have each there. We’re going to hit on a distinct subject immediately, however within the meantime, we had one in every of your companions and mentors over the yr on the podcast, Burton Malkiel, who listeners will definitely know that title. We had been joking as a result of we stated, “Burton, give us a bit one thing to ask Kevin on the present,” and he says, “Do you know after we had been touring across the rising markets, Kevin’s a little bit of a card participant.” So I at all times say, what does that imply? Is that Bridge, Blackjack? Are you a craps gambler? What’s the story? You simply doing your individual due diligence in Macau?
That’s humorous. I’ve been to Macau. It’s arduous to discover a Blackjack desk at Macau and Blackjack’s the sport I prefer to play, however Burton and I, Burton likes Blackjack and he performs by the foundations. He’s obtained his guidelines. I don’t know if you happen to requested him for his guidelines, however he’ll give him to you. I can’t keep in mind what they’re precisely. I don’t play by these guidelines. I play a bit bit extra by intestine with some math as effectively, however sure, we’re in Australia collectively for some displays about China and we performed on the Star On line casino in Sydney is the place Burton taught me his guidelines of Blackjack. I believe we each walked out with the identical sum of money, however mine was a bit bit extra risky.
I believe each younger particular person goes by a second in time the place there’s this attraction to this idea of the Martin Gale, and really rapidly you study so much about wager sizing as a gambler, whereby, listeners, if you happen to don’t know the Martin Gale, it’s primarily you double down each time you lose. Theoretically, when you’ve got an infinite bankroll, you’ll by no means lose as a result of ultimately you’ll win. The issue comes, you study a really fast lesson and the ability of exponentials as a result of in a short time if you happen to lose 5 10 in a row, the wager dimension will get greater than any bankroll anybody will ever have, however assume that’s a enjoyable lesson. Playing, so long as you don’t go broke and even then it may be a very good lesson. There’s so many good classes in fascinated with place sizing and methods to play and odds.
That’s proper. Just like brief promoting, the place you’ve 100% upside and limitless draw back and your wager will get greater because it goes, in contrast to an extended place which will get smaller, it will get greater.
Considered one of my all-time early favourite podcast friends was the godfather of Blackjack card counting, Ed Thorpe. Additionally among the finest performing hedge fund managers of all time, who the unique beat the vendor and beat the market books. Listeners, you’ll be able to go discover an previous copy. They’re definitely classics. Nicely, let’s speak about rising markets. Like many cycles, this cycle feels, like within the inventory markets, they’re persevering with to emerge. I believe as a proportion of world market cap, we’re within the low teenagers, however once I talked to advisors over the previous variety of years, and Goldman has give you some stats on this, I believe the typical allocation sits down round 2% or 3% as a proportion of their inventory portfolio. So massive underweight. Speak to me a bit bit about the way you see them broadly after which we’ll begin to dial in additional particularly to at least one nation particularly.
I inform folks there’s actually two issues to find out about investing within the rising markets. The primary is that the factor that’s rising are the folks. You’ve obtained six and a half billion folks they usually’re shifting up. They’re rising they usually need stuff. They need extra and higher meals, extra and higher clothes. They need home equipment. They need to go to films and take holidays they usually desire a automobile, they usually need their children to go to Harvard, and that’s an important factor, and that’s a really lengthy one-directional secular development that has been very well-documented. So if you happen to’re investing in rising markets, it’s my perception that that’s what you need to be attempting to seize.
The second factor about rising markets is that there’s an enormous downside, and the issue is the index itself. The MSCI index, which we use to trace the efficiency of rising markets, has a whole lot of issues. The primary and largest downside, which I encountered my first 5 minutes into being a part of rising markets 18 years in the past, is that the rising markets have a whole lot of these government-owned banks and oil firm, these state-owned enterprises which can be inefficient, they’ve conflicts of curiosity with you as an investor, and the governance isn’t excellent, and the corruption is all over the place.
So what you discover, and I obtained pulled into China 18 years in the past, due to Burton, the very first thing I did was I requested for a listing of all the businesses within the China ETF as a result of we had these traders that had been desirous about investing in China after listening to Burton speak about China. I assumed we’d use the ETF that iShares had. There was just one China ETF again then. It was the FXI, however since I’m an Omaha particular person, I needed to see what had been the businesses. I don’t care concerning the title of the ETF, I need to know what are the companies we’re going to personal.
So I requested for that checklist and that’s when Burton pulled me apart and defined to me that 80% of the index was government-owned banks and oil corporations and the way the government-owned banks would make loans to corporations that had been already bankrupt, principally, to maintain the workers paid. In order that’s an enormous downside and I don’t have an answer for it. Quite a lot of traders have given up on rising markets they usually have very small allocations as a result of they’ve had a whole lot of promise for a very long time, however nobody’s actually obtained any actual return from investing there.
In reality, I believe the 12 or 13 yr return is about 25%. I do know that for the ten years ended with 2022, the earnings progress was unfavorable. So in Omaha, investing is basically easy. The explanation companies have worth is as a result of they make earnings for the homeowners. The one method to make the worth go up is to make the earnings go up, and that hasn’t occurred within the conventional indexes, that are, once more, stuffed with banks and oil corporations and mineral corporations which can be state-owned and probably not for-profit in a standard sense.
We spend a whole lot of time most likely manner an excessive amount of for this to be wholesome and useful to our obtain statistics, however we spend a whole lot of time speaking about market cap investing and the way it’s an fascinating and good first step, and it enabled some issues within the ’70s, however so far as an investing methodology can grow to be fairly suboptimal given some circumstances, notably instances when issues go completely bananas.
The fascinating half that I really feel like is without doubt one of the largest dislocations for me when speaking about rising markets as a result of I really like my polls on Twitter, and we’ll ask folks what proportion of world GDP is rising markets, and virtually everybody says zero to twenty%, 20% to 40%. We each know that that’s completely improper. Rising markets find yourself being most of world GDP, which surprises so many individuals. Then wanting on all the varied statistics, like after we had been speaking about Macau earlier and also you Google Macau On line casino annual income and Vegas annual income, in a short time folks can be stunned that Macau is multiples of Las Vegas already. So simply the size of rising markets is basically staggering, notably for most individuals who’ve by no means performed any touring, which is, after all, many, if not most.
So that you and I sat right down to dinner and looking back, we most likely ought to have gone to an Indian restaurant. There’s some good ones round right here versus the one we went to, which was good, however you had been very excited and animated, which is your pure state, however give me the lead in. What was the preliminary attractant to what you see as a fairly large alternative right here?
Nicely, 9 years in the past, first recognized was the truth that all of these billions of shoppers in rising markets we’re going to get their first ever pc in type of an Android-based smartphone, and that when that they had these pocket-sized supercomputers, they had been going to get on the web, and that as a result of they didn’t have financial institution accounts they usually didn’t have vehicles and there was no goal shops, that they’d leapfrog and grow to be digital shoppers, and since we’ve had such an evolutionary expertise with info and with expertise, we don’t notice that not everyone else on this planet has traveled that path as now we have.
So swiftly, what I used to be seeing was that every one of those billions of shoppers had been logging on and getting their first checking account, however it wasn’t a standard checking account. It was a smartphone-based place to maintain your cash and make funds. Once more, I first noticed that in China. That began occurring in China. As it’s possible you’ll know, I launched numerous China ETFs with Guggenheim, however we launched a China expertise ETF, CQQQ, most likely 13 years in the past to seize that story, the net client.
Then I noticed that it was evolving and it wasn’t simply China, it was Mercado Libre, which went public out of South America. That was the amazon.com of Brazil and Mexico. Now, what we see is that since this story began in China, China’s e-commerce market, it’s the biggest on this planet by far. So China is an rising market in a standard sense, however when it comes to the digitization story and e-commerce, China’s essentially the most developed nation on this planet by far.
So what we began to see was that whereas there’s the opposite 45 rising markets, they’re principally the place China was 15 years in the past. So if you consider shoppers and the web and private computer systems, that principally began in america within the yr 2000. When might you actually have a pc at your home, get on the web and do some enterprise on the web? That principally began within the yr 2000, and we noticed this 15-year S-curve because the FANG shares took over our lives and our inventory market.
The China wave, the second wave was principally proper behind us, 2005 to 2020, Alibaba and Tencent main the way in which, and now what’s coming is the third wave, and that is the opposite 5 and a half billion folks that aren’t in China, and India is the most important a part of the story and South Asia, if you happen to embody Pakistan and Bangladesh to the west and east, that is virtually two billion folks and about 850 million Gen Z. So that is essentially the most fertile floor for this story going ahead.
India stands alone in my thoughts proper no longer solely as the most important alternative in rising markets, however possibly the perfect alternative in rising markets when it comes to a single nation that we’ve seen, and it’s due to numerous causes which have simply lined up they usually’re lined up at a time when now you can get a $12 smartphone model new in India. Once I noticed you for dinner a couple of months in the past, I’d let you know you possibly can get a $50 smartphone model new in India. That is an Android-based smartphone, however simply seven weeks in the past, Reliance Jio launched a $12 smartphone, a $12 supercomputer. So whereas China after they obtained on-line, they had been on PCs they usually, like us, migrated onto the smartphone, effectively, these persons are skipping the PC altogether and the India story is simply extremely compelling.
Let’s dig in. So you’ve the plain demographic. I really feel like most traders can admire that. You simply talked about there’s multiples extra Gen Z than there are Individuals in whole, simply the size of the quantity of individuals, the density. I’ve by no means been to India. I actually need to go, so you’ll be able to assist be my tour information, however inform me a bit bit about what the macro image. Stroll down what took you from, “Okay. That is curious and fascinating,” to, “Okay. That is truly actually fascinating.”
Meb, three years in the past, we solely had one half of 1% of EMQQ inside India, and we solely had three publicly traded corporations, however what I noticed was that there was dozens of unicorns that had been lined as much as IPO. So I’d initially deliberate to go to India within the spring of 2020, however then the COVID got here and I used to be unable to go, however the IPOs occurred. There have been 23 Indian web IPOs within the first 18 months of the COVID, however all of them went public in India, so that they didn’t get a lot protection right here. What was given me unbelievable quantity of conviction is the final 9 months. I’ve principally devoted all the final 9 months to a deep, deep dive into all issues India, together with the web alternative there, the digital alternative that now we have tapped into. As you recognize, we launched INQQ, the India-only product final yr as quickly as there was sufficient corporations. So as soon as there was over 20 corporations sufficient to make a diversified portfolio is after we registered and launched.
So the story for India, which, by the way in which, this isn’t a secret. Virtually each main funding agency has some report outlining the bullish a part of the India story, however there’s principally eight bullet factors. First, it’s now the biggest nation on this planet. It handed China in April in response to World Financial institution, so 1.4 billion folks in India. In the event you have a look at the chart because it goes out, it’s going to get greater and larger than China as a result of it’s younger. It has the youngest financial system, a serious financial system. They’re about 11 and a half years youthful on common than China. So that you’ve obtained 600 million folks which can be simply stepping into their early a part of their prime. You may have the quickest rising main financial system. Most of that progress is coming in a swelling center class that may in actual fact go China and have extra consumption inside a decade by most estimates, and also you’ve obtained the quickest rising e-commerce market. India’s rising just a bit quicker than Brazil, about 28% a yr.
Lastly, and that is the half that I didn’t admire utterly till just lately, India has a authorities that’s a democracy, which lots of people favor, and it’s a democracy that’s led by a authorities that has principally gone all in on digitization. Modi, who’s been the chief for the final decade, his complete platform is Digital India. So I knew that that they had performed numerous initiatives to assist the digitization of the nation, however I had no thought how well-developed these programs and this digital public infrastructure had grow to be, which is an summary factor, which I hope we go into intimately. So you’ve all these basic items, massive, younger, simply the guidelines, and it’s arduous to, with phrases or footage or numbers, to clarify the size of this chance, the sheer variety of people, the density.
Nicely, you’ve an precise fairly good chart and a few of the stats we’ve talked about earlier I believe hit residence, however you’ve a very good chart that we’ll put within the present notes on Bangladesh, however you stated the scale of Bangladesh after which if half of the US moved to Illinois is the inhabitants of Bangladesh, which simply places it in perspective, the density.
No, it’s staggering. There’s 170 million folks and it’s the scale of Illinois. Additionally, a 3rd of its at all times flooded. So it’s principally two-thirds the scale of Illinois. You’d should take the third by ninth largest nations and mix them to get to the scale of India. It’s very, very younger, it’s very dense, and it’s fairly chaotic. Not like China, which is homogenous, 95% Han Chinese language, India has obtained 1600 totally different languages and 24 of them the federal government publishes each doc in. So there’s 1,580 languages that aren’t even acknowledged formally. So it’s extremely numerous and it’s very dense.
The opposite factor that India has going ahead now is also infrastructure. Once I obtained concerned with China 18 years in the past, it was principally tied with India. It was a bit bit forward of India when it comes to its GDP per capita, however not very far, however what you possibly can see was China had begun this huge infrastructure funding to construct the world’s greatest infrastructure, high-speed rail, airports, highways, high-speed trains, and seaports to load up the manufactured merchandise and get them on a ship.
Whereas they had been doing this, India was mired in forms and principally sat on its fingers and didn’t actually spend money on its infrastructure, and China blasted forward and principally quadrupled the scale of their financial system. Plus in that interval, effectively, India didn’t actually get shifting and the forms that the British left India or I believe largely responsible.
Nicely, proper now, Modi is the chief of India, and he’s been the chief for the final 10 years. So he’s ending up his second five-year time period. He’ll virtually definitely get one other five-year time period after they vote subsequent yr and a fourth time period if he needs it. There’s no time period limits. He’s liked. He’s obtained an 80% approval score. Not everybody likes him, however the overwhelming majority do, and he has obtained the federal government organized and environment friendly and really business-like, and that features the infrastructure investments. So all the infrastructure numbers have exploded underneath Modi within the final 10 years. They’re presently in the course of a trillion and a half greenback complete infrastructure plan that includes modernizing the beautiful in depth rail community they’ve, electrifying it, including a whole bunch of latest stations, modernizing the stations. They’re constructing their very own high-speed trains now. They’ll ship 400 of these trains within the subsequent a number of years connecting the cities, clearly, with the excessive pace rail.
The Indian air journey market’s going to blow up. That’s one of many early luxurious spends of individuals as they transfer up the patron ladder, they need to go see the websites of their very own nation. So the home air journey market will explode in India. It’s already exploding. The airports are going to triple by the tip of 2025. So all elements of the infrastructure now are catching up. Again 17, 18 years in the past, that they had issues with the ability grid to the factories they usually had brownouts and so forth. They fastened most of that they usually’re making massive investments.
Now, a whole lot of this has to do with this China plus one technique, looking for different provide chains and different suppliers so everybody’s not completely depending on China, and that’s most likely a sensible factor to need to do anyhow, however the actuality is China’s obtained the perfect infrastructure they usually’re capable of make the perfect merchandise, get them on a ship higher than anyone, and it’s the port capability that’s going to be a bottleneck as a result of China’s port capability is 10 instances India’s, and it apparently takes a very long time to construct a port.
So that you’ll see manufacturing jobs go to India. Apple’s going to make 1 / 4 of their iPhones, the newest iPhones, by the tip of 2025 by estimates. So the infrastructure is lastly there they usually’re actually taking it significantly and it exhibits, and it does feel and appear like Shanghai and China did once I first went there 17 years in the past.
Now, right here’s the third a part of this setup that India has, and that is the half that I alluded to earlier that’s it’s distinctive on this planet, no different nation developed or rising has this, and it’s what they name the digital public infrastructure or the India Stack. Many of the parts of this digital public infrastructure whereas summary to me, I knew what they had been, however I didn’t fairly admire how that they had advanced and developed. It began in 2009 when the Indian authorities had determined it was lastly time to create a nationwide identification card so that everyone within the nation would have a singular 12-digit quantity on a card given formally from the federal government as a result of one of many issues they had been having with creating was that no person had identification. Only a few folks had driver’s licenses or passports or any type of official authorities identification. As you’ll be able to think about, it’s arduous to develop your financial system the place no person can show who they’re.
They requested the chairman of Infosys, Nandan Nilekani, if he can be in cost. Mr. Nilekani stated, “Look, I’ll be accountable for this, but when we’re going to do that, I’m going to make use of a whole lot of expertise as a result of,” as he stated, “I didn’t see as a lot expertise as I’d’ve anticipated once I helped the folks in Bangalore, and now if I’m going to do that, we’re not solely going to make use of the perfect expertise of immediately, however we’re going to look to the longer term, and never solely will we give everyone a card, everyone will even have their 12-digit quantity linked to their eyeball scan and fingerprints.” So each quantity has a human being tied to it, biometric information.
Now, after they launched it in 2010, it was completely voluntary. You didn’t have to enroll. So I knew about this program. I had the brand in my presentation. It’s the nationwide identification quantity. That’s going to be good for the financial system, however I didn’t fairly comply with its growth. Then about three years later, they put one other layer onto the stack. So the Basis Aadhaar, then they put a KYC, know your buyer, layer on high. With this program, they began initiatives in order that you possibly can go into any financial institution. In the event you had been within the Aadhaar system, you possibly can stroll right into a financial institution and open a checking account in three minutes with no paperwork simply by placing your fingers on a pad and searching into the digital camera.
In 2016, they launched this different initiative, the Unified Funds Interface or UPI. Once more, this obtained a whole lot of protection. It was a part of Digital India. I put the brand in my presentation about India, however I didn’t actually comply with the event, however the headline of the UPI was that it might permit instantaneous, utterly free switch of cash from any particular person to another particular person or enterprise, no delay, no friction. I might ship you $10, you possibly can ship it again to me. We might do it 20,000 instances, it might nonetheless be $10.
So I stated, “Okay.” Nicely, however to be completely sincere, the principle factor I felt about that program was a priority as a result of one in every of our corporations that we talked about, it hadn’t gone public but, however it was the Indian Funds Chief, Paytm, which I began that includes in my presentation after Berkshire Hathaway invested within the firm about eight years in the past and it was nonetheless non-public.
The following a part of this isn’t a part of the digital public infrastructure, however it successfully acts prefer it, and this was type of the Huge bang second. This can be a non-public enterprise referred to as Jio or the Jio Community. That is the biggest cellphone service, the cell phone subscriptions. Jio is a part of Reliance Industries. What occurred, the identical yr that the UPI was launched, Mukesh Ambani, who runs Reliance Industries, had made a really decisive determination that Jio wanted to go all digital and that Reliance wanted to go massive on the digitization of India’s story, and their first and really daring transfer was to purchase the one 4G license, the one 4G spectrum within the nation, and make investments $25 billion to construct a national state-of-the-art 4G community that was additionally contemplated 5G and 6G coming down the road.
Now, on the time, there was a couple of dozen different carriers and all of them had been on 2G, they usually had been all locked in a worth conflict, and their stability sheets had been horrible they usually couldn’t even make investments to maintain their 2G operating very effectively. So Jio is available in after which they launched within the November of 2006, identical yr because the UPI, and their pitch is fairly easy, “We’ve the one 4G community. In the event you enroll with us, we’re going to provide you free voice calls eternally, limitless, and we’ll offer you six months of free information, after which after your six months is over of free information, we’ll nonetheless be the one 4G community and we’ll even have the bottom costs.” In order that was their supply.
Then the objective that Mukesh put ahead was that they’d enroll 100 million folks by the tip of the subsequent yr, so by the tip of 2017, and that was a fairly daring objective. It was particularly daring as a result of again then if you happen to needed to get a brand new cell phone, it took about three hours on common if you went to the cellphone retailer since you would, once more, should show who you had been they usually must confirm you manually.
When Reliance Jio launched, they used the Aadhaar system as a result of it’s open for folks to make use of, and of their shops, that they had principally the eyeball reader and the fingerprint reader, they usually opened 100 million accounts in 4 months, a median flip time of 5 minutes down from three hours. So this was the primary time the industrial energy of this India Stack actually made itself seen.
So now if you happen to quick ahead to immediately and what’s occurred within the final three and a half years as a result of COVID accelerated as greater than anyone, another nation, that cellular funds have exploded, that UPI platform now accounts for 40% of the world’s real-time on the spot cash transfers, and the slope of the curve continues to be at 45%, 50% progress. What has occurred along with that’s the authorities additionally took out the excessive denomination payments they usually simplified the tax code.
So seven years in the past, the Indian financial system was 95% cash-based, paper-based money. Now, it’s 75% digital. So it went from 4.5% digital to 75% digital. Once more, the funds numbers have exploded. The tax revenues to the federal government have exploded as a result of everybody’s now within the correct monetary system not dodging taxes and dealing off of money. So that you’ve taken what would’ve taken 60 years within the previous world to modernize their monetary system, they usually’ve performed it in seven years.
So this India Stack, no person else on the planet has this, and curiously now, Nandan Nilekani, the chief of all of this, he’s now providing it as much as different nations. In reality, a number of nations have signed as much as take a replica of the UPI, together with France. Aadhaar will most likely be a bit more durable to promote folks due to the privateness, however anyhow, this digital stack is a secret weapon and folks I don’t assume admire it and perceive it as a result of I didn’t perceive it or admire it till just lately and it’s not performed.
The opposite vital ingredient to India is you say, “Okay. Nicely, if you happen to’re going to have e-commerce, what’s the present commerce? The place are folks getting their stuff immediately?” In South Asia, in India particularly, they get their stuff from 13 million mother and pop shops. So 90% of all client spending occurs in these little like a bodega in New York Metropolis. It’s a small store that has 200 gadgets of what you want each day. Once more, there’s 13 million of those shops they usually’re extra formal retail. Huge field shops have been launched, however they’ve not been capable of take very a lot market share.
So what I believe India goes to finish up with is a hybrid, the place the kirana shops are going to grow to be digitized. It’s already occurring. In reality, Paytm, who I referenced earlier, it actually has a stronghold in these service provider markets. Paytm’s discovered a method to become profitable. They make mortgage now, they grow to be the banker for the kirana retailer homeowners and make loans. So, I believe what you’re going to finish up with is a extremely digital mother and pop, hyperlocal e-commerce, and there’s a brand new layer to the stack to drive this. It’s referred to as the ONDC, and that is the newest, once more, led by Nandan Nilekani.
The ONDC is the Open Community for Digital Commerce. It’s designed to assist additional combine these mother and pops into the nation’s e-commerce. I can’t clarify it effectively, and I don’t assume if you happen to … There’s an awesome Morgan Stanley interview with this man, Nandan Nilekani. It’s a 12-minute interview the place he talks about all of this stuff from the start after which appears to be like ahead to what’s coming down the pipe, however he says that this explicit new program is likely to be essentially the most highly effective factor that they’ve launched. It’s arduous for me to imagine something might be extra highly effective than that basis, but-
Nicely, it’s fascinating. Once you speak about this, listening to it, it’s extremely optimistic and apparent and thrilling, and then you definately do it by the American lens of Huge Brother and, don’t know, if it’s even libertarianism. It simply needs the federal government out of their life. The prospect of doing one thing like this in a rustic like US, I put it at close to zero.
That appears proper. That looks like the best quantity.
Rounds to zero is the phrase from Oppenheimer. It’s humorous as a result of I’m wondering what a part of the story after we arrive at analyzing these alternatives and investments, we include our preconditioned bias of considering of the world in American phrases or Western phrases or no matter, after which it’s a completely totally different perspective in India that really, whereas we might imagine it’s a possible, everybody sees the China Huge Brother, you’re strolling by the intersection, they’re going to zap your face after which eternally you’re shamed and in a database, however I believe on the flip facet of that, there’s a ton of positives and alternative that appear like an Indian instance is fairly fascinating.
I believe it’s simply getting began. I believe there are …. Once more, if you hear this man, an, speak about it, he stated, “Quite a lot of the stuff that they had no thought of the way it was going to work out. They simply knew it might be highly effective.” Like I stated, I believe it’s a secret weapon and for a lot of causes, together with what you simply talked about, like a whole lot of nations, the inhabitants goes to have a look at that as a Huge Brother sort of factor and never conform to it, at the very least not anytime quickly, and possibly that was a part of the success with Aadhaar was voluntary. No one needed to do it, however I believe folks noticed that there was a profit. You possibly can show who you had been simply by simply taking a look at a digital camera, and simply as utilizing your QR code to pay for one thing is best than utilizing money. There’s so much aside from commerce causes that that is likely to be a worthwhile factor or at the very least a liquefier of issues. You consider going by safety traces in airports or what have you ever that may be accelerated with that platform that, once more, I believe is sort of distinctive.
The opposite factor that I believe is fascinating about this, and Nandan Nilekani talks about this as effectively, however India doesn’t have a really well-developed client credit score market. I’m not an economist, however what I’ve seen from some economists after they have a look at India’s client credit score market and if it begins to develop and look extra like a developed world’s client credit score market the place extra folks have credit score and use it, that would add two or three proportion factors to their GDP progress on an annual foundation, and that’s one of many issues now that Nandan is speaking about is, effectively, now that you’ve this what he calls informational collateral, that it’ll set the inspiration for a doubtlessly very massive progress in client credit score, which then accelerates the GDP progress, which the estimates are 6%-6.5%.
By the way in which, that’s one of many different issues. I’ve made through the years numerous associates which can be Indian traders, they usually’re extra skilled than me, definitely in India, however they’re extra skilled than me additionally simply in years. A lot of them have been very profitable in enterprise capital or hedge funds, non-public fairness. I’ve tried to determine, “Okay. What am I lacking right here? What can go improper? What are the issues that I’m not understanding?” Considered one of these people who has most likely in some ways an unbelievable pedigree, Wharton, early enterprise investor in India, he’s the true deal and he stated, “The factor persons are lacking is we are able to most likely develop quicker, and why not? China grew. It died 10%, 11% for some time. Why can’t India try this?”
I believe, once more, I’m not an economist, however I really feel like the ability of this digital platform that they had in and of itself may very well be price some incremental GDP progress charge. Simply if you consider the working capital cycles for folks after they’re immediately shifting cash, so it’s going to be the thrilling 20 years in India and it appears to be like actually good.
So let’s speak a bit bit concerning the funding alternative set. I believe there’s a normal apathy with regards to rising markets. A part of that as we all know is simply traders’ sentiment is at all times drawn to what’s going up essentially the most, however one of many causes I do angel investing is with the hope that attempting to remain present and hopefully see across the nook a bit bit, and I believe we talked about at dinner, however I stated a really massive variety of my startup investments over the previous 5 years particularly however actually over the past 10 have been XUS and a few of the greatest performers have been XUS, Latin America, Africa, which we did a complete sequence on the podcast, however then India, Pakistan, and Bangladesh.
These three particularly, you see these exponential traction alternatives such as you talked about, the place you’re going from yellow pen and paper to swiftly a digital adoption and the numbers simply in a short time grow to be staggering. So it’s positively been fascinating and curious to observe. As you speak about this message, and also you’ve performed it earlier than, speaking about these markets, what are the most important pushbacks from traders on why they might not be or why they’d be not fairly but or turned off by this chance?
Quite a lot of our narrative of our India analysis is, is India like China 15 years in the past? As I discussed that the GDPs had been about the identical, there wasn’t smartphones again then so we are able to’t have a look at smartphone penetration, however it does look statistically like China. Then there’s anecdotal issues. My second journey to Beijing was 15 years in the past, and I visited the model new Apple retailer, the primary Apple retailer that was opened in China, and two weeks after I left India, the primary two Apple shops opened there. Now as I’ll have talked about earlier, the issue is if you happen to had invested in China 15 years in the past, regarded and stated, “All proper, I believe China’s going to develop so much. I’m going to purchase the China ETF,” effectively, you had been proper, the Chinese language financial system grew 409%, however the FXI went down 51, so that you misplaced half your cash.
So now the query is, okay, effectively you need to spend money on India, the PE multiples for the broad indexes are fairly excessive, the very best on this planet in response to Shiller CAPE ratios that Burton likes to make use of. In order we are saying in Omaha, you pay a excessive worth for a cheery consensus. The truth that India has all these optimistic issues, that it’s not concerned with Russia, that it’s not concerned with China and Taiwan, it’s like a secure haven in a manner amongst rising markets the place you’ve obtained wars occurring and folks assume China’s going to do one thing with Taiwan. There’s all that stuff. India stands alone.
Frankly, we’re discovering fairly good reception for it. We didn’t speak concerning the product for actually the primary yr till I went and noticed what I noticed and got here again and processed all of it, however we’ve had some, once more, coming off of a really, very small base, we’ve had some flows and persons are , however one of many challenges that we face as a enterprise is that our present main product, EMQQ, it’s out there at locations like Morgan Stanley and UBS with advisors that we all know, and the India product continues to be small and it’s not out there in these locations. So the principle pushback we get is I can’t purchase it as a result of it’s not permitted on my dealer’s platform.
Say, “Good, simply go open up a private PA account and you should buy it in your personal-”
We’re doing what we are able to to seek out folks that may purchase it, however the efficiency this yr is fairly good. It’s up about 20%. As you recognize, there was a fairly important correction in our principal product, EMQQ, and that was so much due to the China tensions and the delisting threat and the federal government crackdown, each of that are performed and probably not … I don’t consider them the way in which most individuals do. I believe they had been simply noise, however they’re additionally each behind us. The China shares weren’t the one ones that go down. All of the Indian web corporations additionally went down about 75% from their high. Now after we launched, they had been already down so much. So our observe report’s unfavorable, however it might’ve been a massacre if we had launched 9 months earlier.
I’ll say that the valuations proper now for the INQQ portfolio I believe are very compelling. Once I have a look at the PE for the Indian inventory market, so if you happen to purchased the iShares India product, both the Nifty 50 or the MSCI, they’re principally the identical, INDA and INDY. These merchandise proper now, the PEG ratios are very excessive. I like to make use of the PEG ratio. That’s the one ratio I care about. I like to have a look at it two methods. I like to have a look at the PE over the income progress charge as a result of the highest line to me is essentially the most pure type of progress. You may have a enterprise that’s even shrinking and purchase again inventory and in any other case develop your earnings, however that may’t go on eternally. So I have a look at the PE to income progress first.
Once I have a look at the PE to income progress for the INDA, the INDY, it’s 3.5. You’ve obtained a 21 PE and a progress charge of 6%. Now, the INQQ has obtained the identical PE and it’s obtained a progress charge that’s thrice that. So the PEG ratio is 1.28 or name it 1.3. So whereas the India market broadly, the Nifty 50 and the MSCI, they replicate a really rosy outlook with these 3.5 PEGs. These corporations, which they’re not included within the indexes, most of them, have a PEG on a income foundation that’s 1.3. On an earnings progress foundation, the PEG ratio for INDA and INDY isn’t as dangerous. It’s like one seven-ish, however the PEG ratio for the INQQ portfolio is 0.98. So a long-term investor, and if you should buy the digitization of India at a PEG ratio of 1 immediately and also you’ve obtained 10 or 15 years, I believe you’ll do fairly effectively.
There’s a few issues that you simply delivered to thoughts. One is, listeners, we’ll put so much … Kevin’s talked about a whole lot of sources, PDFs, movies. We obtained the worldwide CAPE ratios from Barclays. All this stuff we’ll put within the present word hyperlinks at mebfaber.com. Right here’s a enjoyable experiment, listeners, to test your biases is you’ll be able to pull out a chunk of paper and write down, see what number of you’ll be able to guess and see what number of you’ll be able to guess so as the world’s 10 largest inventory markets. There’ll be a pair in there that’ll most likely shock you, and there’ll be a pair in there that you simply’ll most likely get manner out of order. I believe it’s a enjoyable experiment and in addition to test the magnitude of a few of these which can be possibly already there that you could be not assume that might be, and even a couple of that don’t commerce a complete lot. So test it out.
Once you’re speaking about China and the efficiency, I don’t know that there’s been a rustic over this previous cycle. There’s definitely been overseas and rising nations over the past 40, 50 years that has seen a wider spectrum of agony and ecstasy than China. The previous isn’t at all times prologue to the longer term, however taking a look at your fund, I used to be smiling as a result of I’m interested in stuff that’s in drawdowns. That’s my factor, however taking a look at your fund particularly, which is extra concentrated probably than the broad mark cap index, however the percentile rank, which is waffled between, primary, and it goes to 96, one, 100, two, two, sorry, one yr one, then 190, 90. So you’ve this era the place simply the flip flop of individuals being binary, so excited and optimistic, after which so despondent, and simply the emotional swings on this nation would make a random walker blush, I believe, to rope Burton into this.
I really like the issues which can be unloved, and the rising story, my goodness, throughout the board appears like that. As you look again at touring by India, Bangladesh, Pakistan, China even, any explicit reminiscences or tales that actually stand out? It may very well be from assembly corporations, from chatting with traders to authorities officers, something that you simply’re like, “Wow, it is a nice story,” or, “This left an enormous impression”?
Nicely, let me communicate to the South Asia a part of that. To start with, we began in Dhaka in Bangladesh, which is likely to be essentially the most intense metropolis on the planet. The density of Bangladesh we talked about, however the density of Dhaka itself, it simply will get arduous, you’ll be able to’t put it into phrases. The opposite factor about South Asia is it’s fairly chaotic. The streets themselves are type of emblematic of the entire thing. You’ve obtained donkeys pulling carts, you’ve obtained folks pulling carts, folks pushing carts, cement vans, bicycles, rickshaws, bike rickshaw, the whole lot, and it’s simply chaos, and due to the density of Dhaka, it’s intense, and there have been a number of instances after we had been strolling and we actually couldn’t transfer anymore. We might cease, and it only a … It was a site visitors jam, however there have been extra than simply automobiles concerned and also you’d should step backwards three steps and take two steps to the best simply to go ahead.
So I’d say my first day in Dhaka was fairly intense. I believe the issues we selected to go see had been notably its heads, the wholesale market and so forth. The Dharavi slum in India can also be fascinating. That is the place the Slum Canine Millionaire got here from. It is without doubt one of the densest locations on the planet. There’s virtually 1,000,000 folks. It’s like a 3rd of a sq. mile. It’s very small and dense.
What I didn’t admire is it’s principally a enterprise as effectively. Principally, one facet of the slum, they convey in waste merchandise and plastic remnants and so forth, they usually undergo the alleys and there’s all these little artisan or craftsman, I don’t know what the suitable phrase is, however they’re breaking apart issues fabricated from plastic and separating them, after which the subsequent station, they’re melting. Principally, by the tip of the road, they’re model new completed backpacks with tags on them which have been all made between the junk pile and the opposite facet of the slum. It was very fascinating.
Additionally, that is very well timed as a result of Tata is on the point of redevelop the Dharavi slum, which will probably be fascinating as a result of just like the hutongs and the lilongs in China, they’re historic neighborhoods, and that’s most likely a very good purpose to modernize it. By the way in which, the true property costs within the slum are off the charts. So if you happen to personal a home, you already are a slum canine millionaire, principally. In order that was fascinating.
I used to be going to say, as I attempt to think about the danger to any funding on the macro, on the micro, on the whole lot … By the way in which, listeners, two actually excellent books, Shantaram, after all, is legendary, White Tiger, additionally a superb guide. It’s been made right into a present, however the guide, like many, might be significantly better. Are there any issues that you simply assume are usually one thing that individuals ascribe to being a threat for India? Is the caste system? Is there any political? You talked about it’s democracy and it appears to be fairly a bit extra secure. Is there something that’s on the checklist, whether or not it’s for you or for different folks which can be speaking about … China, there’s so many entrance of thoughts ones with Taiwan and their interactions, however India, at the very least, I don’t see the headlines as a lot.
I’m looking for the danger. Those which can be apparent are, initially, Modi. Modi, it is a threat … In the end, one of many issues I believe we’ve discovered within the final 10 years is it doesn’t actually matter what type of authorities you’ve. If the man in cost goes loopy or in any other case does belongings you don’t like, then all bets are off, and it doesn’t matter if it’s a monarchy or a communist social gathering or a democracy. The particular person in cost is usually a downside.
Now, the excellent news is I believe Modi, he’s an asset, however he’s not in his 30s, so there’s positively the political threat, the Modi threat. The nation has had different leaders which have left workplace prematurely for unplanned causes. So there’s positively racial tensions. Up within the very, very far east of the nation, there’s been a complete lot of racial violence. Truly, one of many issues that India does after they have issues is that they shut off the web. So there’s a area, a small area in India the place they’ve had a whole lot of sectarian violence they usually haven’t had the web for 3 months both.
One of many different fascinating issues I did once I was in India is I went and crossed into Pakistan on the Wahga border, the land border, and it’s the place the Indian guards and the Pakistani rangers do their ceremonial march and attempting to out excessive step one another. We flew to Amritsar, which is the principle metropolis there, and it’s the place the Golden Temple is, which is the middle of the key faith, which is an incredible place, equally as spectacular and wonderful, I believe, because the Taj Mahal.
Whereas we had been there that afternoon, the web went out, and what we discovered was there’s a Sikh separatist that had sprung one in every of his followers from a jail someplace, they usually shut off the web so he couldn’t talk along with his different separatists. My colleagues had been unable to guide flights to get out of city that afternoon.
You bought to hold round Elon’s Starlink, man.
No, I’ve one someplace, however I didn’t deliver it with me, however I crossed the border in time to get protection on the Pakistan facet. The opposite threat that appears fairly clear to me is the environmental threat. The nation is … So lots of the folks dwell alongside the Ganges River they usually’re having very massive warmth. Actually, it might grow to be uninhabitable, they usually’ve seen a whole lot of issues in the previous few years with excessive, excessive warmth in and round Delhi. Air pollution is a large downside throughout South Asia as effectively. Once more, a whole lot of the water comes down from the Himalayas, and there’s most likely extra environmental threat in India than different locations.
I believe that, as with a whole lot of different dangers, you don’t actually understand it’s a threat till it exhibits up and also you say, “Oh, sure, that was a threat,” however I’d say the political stability, which is nice now, however issues can change in a single day for any variety of causes, and the environmental threat appears actual. Apart from these two principal ones, it looks like … As a result of a whole lot of the India tales, that inside story, whereas the China story was an export pushed story, I believe what India goes to finish up with is much more inside progress versus pure export progress, which is what China led with.
Nicely, it’s thrilling. After we talked final time, you stated you had been going to assist me after we had been beginning the Kevin Carter Journey Capitalist Journey Company to return give some excursions. So I’m going to tag alongside and be a part of you on one in every of these subsequent time, however first, we’ll begin with a bit boat tour of Tahoe. How’s that sound?
That sounds nice.
Superior, my good friend. Finest locations for folks to take a look at your funds, web sites? I don’t assume you try this a lot on Twitter. The place do they go?
Emqqglobal.com is our web site, after which you will discover me on LinkedIn, Kevin T. Carter, and yeah, you’ll discover us if you wish to.
Superior. Thanks a lot for becoming a member of us once more immediately.
All proper. Thanks, Meb.
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