About 60 per cent of India’s GDP is from domestic consumption.FRANCIS MASCARENHAS/Reuters
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Investing in emerging markets brings opportunities as well as risks – there’s massive growth potential but a sizeable degree of uncertainty. That’s especially true of Canadian investments in surging India, with political tensions stemming from Prime Minister Justin Trudeau’s recent public statement accusing India of responsibility for the murder of a Canadian citizen.
Although Canadian portfolio managers say they have a watchful eye on Canada-India relations, they’re remaining invested in India because of its long-term outlook, which is overwhelmingly favourable.
“Volatility is always a part of being invested in emerging markets,” says Christine Tan, portfolio manager at SLGI Asset Management Inc. in Toronto.
The emerging-market specialist says she’s “not downplaying … the importance and the seriousness” of current tensions, “but it’s something that’s always there” with such allocations in a portfolio.
It’s hard to ignore the rise of India and investment opportunities with the world’s largest population and fastest-growing economy. The International Monetary Fund has forecast 6.3 per cent growth for 2023, compared with 5 per cent predicted for China.
“Despite the rising tensions, when you look at the long-term outlook in India, we think that there’s a multi-year upcycle,” says Regina Chi, vice president and portfolio manager with AGF Investments Inc. in Toronto.
Ms. Chi manages AGF Emerging Markets Fund, in which India represents 12.6 per cent of the portfolio – the fourth-highest concentration. She also manages AGF Emerging Markets ex China Fund, in which India accounts for 15.7 per cent of the portfolio – the third-highest concentration.
These two funds are underweight in India currently because Indian equities are “relatively expensive versus the rest of the emerging-market universe,” Ms. Chi says.
“[India is] a very deep market, it has 1.4 billion people. The depth of the market helps a lot for investors like us to diversify, but you definitely pay a premium for that.”
She looks for buying opportunities anytime there’s a weakness in the market there, supported by valuations.
“We want to make sure that we have investment catalysts to drive returns,” she says.
Companies with ‘very specific drivers’
The AGF funds are “broadly diversified across Indian equities,” Ms. Chi says, in companies she feels have a competitive advantage, strong market share and good management teams.
“These companies have very specific drivers and catalysts that are actually quite independent from what’s happening [globally], but are very specific to India itself,” she says.
They include Varun Beverages Ltd., one of the largest PepsiCo Inc. bottlers outside of the U.S. and the largest within India; Bharti Airtel Ltd., one of the largest private telecommunications operators in the country; and Larsen & Toubro Ltd., an engineering and consulting firm with a healthy balance sheet and strong earnings growth. It is especially a beneficiary of India’s widespread public infrastructure spending.
As for the Indian economy overall, banks have restructured and they’ve been cleaned up and “we’ve seen a sea change in terms of corporate structure and governance,” Ms. Chi adds.
India is also both an ally to the U.S. and a friend to Russia, benefiting from its cheap oil.
“If you think about who the next upcoming driver of global growth really is, it’s India,” says Ms. Tan, who expects to see surges in the country’s gross domestic product (GDP) per capita as well as urbanization rates. That means a coming consumption boom, in addition to demand for all types of infrastructure.
Getting ‘local exposure’
While there are passive exchanged-traded fund opportunities that include a fair bit of India exposure, Ms. Tan prefers to invest in the domestic story.
“We want that really local exposure, like what’s happening in the infrastructure space and telecommunications,” she says. “But we also believe that you need to know those companies and some of the fastest growing businesses might not be the largest mega caps that tend to sit in the highly concentrated large indexes.”
Sun Life Global Investments (Canada) Inc. has a strategic allocation to India representing about 20 per cent of the emerging market bucket within its multi-asset portfolio, such as its Sun Life Granite Managed Solutions.
These are managed actively through a local subadvisor, Aditya Birla Sun Life Asset Management Co. Pte. Ltd., which has extensive experience on the ground in India, she notes. It also offers the standalone retail Sun Life Aditya Birla India Fund, overseen by the same subadvisor.
Ms. Tan notes that while China started out as a manufacturing hub to the world, India has a domestically oriented economy. Indeed, some 60 per cent of its GDP is from domestic consumption.
A “Make in India” initiative has encouraged big manufacturers to invest in plants in exchange for incentives such as tax breaks. Ms. Tan likes the fact the program has been focused on high-value-added sectors such as active pharmaceutical ingredients and drugs, electronics, drones, electric vehicles and solar panels.
“Most of these goods are meant for domestic consumption,” she says, which is unusual for an emerging-market economy and brings a “positive multiplier,” creating jobs in manufacturing as well as in selling items.
“When you manufacture more of what you need domestically, you become more resilient as an economy. You’re less reliant on your neighbours or trade partners,” she says, which means that “India marches a bit more to the beat of its own drum.”
This makes India “an interesting diversifier for a portfolio,” although it’s critical to monitor events as they evolve, such as the current political tensions with Canada, Ms. Tan adds.
“Big picture – it’s a great investment opportunity,” she says. “But, we also have to be aware of the risks, and we are watching it very closely.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
