About 60 per cent of India’s GDP is from domestic consumption.FRANCIS MASCARENHAS/Reuters
Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor, visit our homepage.
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 higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
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.
