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Episode #499: Kevin Carter, EMQQ International – India is Occurring NOW
Visitor: Kevin Carter is the Founder & Chief Funding Officer of EMQQ International. Whereas he principally considers himself an lively “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 at the moment’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 regulate 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 realized 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 – International 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
- Study extra about Kevin: EMQQ International; LinkedIn
Transcript:
Welcome Message:
Welcome to The Meb Faber Present, the place the main focus is on serving to you develop and protect your wealth. Be part of us as we focus on the craft of investing and uncover new and worthwhile concepts, all that can assist you develop wealthier and wiser. Higher investing begins right here.
Disclaimer:
Meb Faber is the Co-Founder and Chief Funding Officer at Cambria Funding Administration. As a consequence of trade laws, he is not going to focus on 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 data, go to cambriainvestments.com.
Meb:
What’s up, all people? We received a brilliant enjoyable present at the moment. We’re crossing some borders with our returning visitor, Kevin Carter, Founder and CIO of EMQQ International. In at the moment’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 regulate in India. Take a look at the hyperlink within the present notes for Kevin’s first look on the present, which is a superb pay attention earlier than this episode. Please take pleasure in this episode with Kevin Carter.
Kevin, my buddy. Welcome again to the present.
Kevin:
Thanks, Meb. Good to be again.
Meb:
The place do we discover you at the moment?
Kevin:
I’m in Lafayette, California, 15 miles east of San Francisco.
Meb:
One in all our mutual favourite locations on the planet, Lake Tahoe. When’s your subsequent journey up there, man?
Kevin:
I’ll be going up this weekend.
Meb:
Final time we talked to you and, listeners, I might really extremely suggest to take heed to the primary episode with Kevin as a result of we go into his background, which is fairly attention-grabbing. We speak lots about China and it’s a reasonably good half one to this episode. So we’ll put it within the present observe hyperlinks, perhaps we’ll publish it within the feed once more simply to have each there. We’re going to hit on a distinct matter at the moment, however within the meantime, we had certainly one of your companions and mentors over the yr on the podcast, Burton Malkiel, who listeners will definitely know that identify. We had been joking as a result of we mentioned, “Burton, give us a little bit one thing to ask Kevin on the present,” and he says, “Do you know once 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 personal due diligence in Macau?
Kevin:
That’s humorous. I’ve been to Macau. It’s onerous to discover a Blackjack desk at Macau and Blackjack’s the sport I wish to play, however Burton and I, Burton likes Blackjack and he performs by the foundations. He’s received his guidelines. I don’t know in the event you 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 little bit bit extra by intestine with some math as properly, 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 feel we each walked out with the identical amount of cash, however mine was a little bit bit extra unstable.
Meb:
I feel each younger individual goes by means of a second in time the place there’s this attraction to this idea of the Martin Gale, and really rapidly you be taught lots about guess sizing as a gambler, whereby, listeners, in the event you don’t know the Martin Gale, it’s primarily you double down each time you lose. Theoretically, you probably have an infinite bankroll, you’ll by no means lose as a result of ultimately you’ll win. The issue comes, you be taught a really fast lesson and the facility of exponentials as a result of in a short time in the event you lose 5 10 in a row, the guess measurement will get greater than any bankroll anybody will ever have, however suppose that’s a enjoyable lesson. Playing, so long as you don’t go broke and even then it may be an excellent lesson. There’s so many good classes in eager about place sizing and how you can play and odds.
Kevin:
That’s proper. Much like quick promoting, the place you will have 100% upside and limitless draw back and your guess will get larger because it goes, not like an extended place which will get smaller, it will get larger.
Meb:
One in all my all-time early favourite podcast friends was the godfather of Blackjack card counting, Ed Thorpe. Additionally top-of-the-line performing hedge fund managers of all time, who the unique beat the seller and beat the market books. Listeners, you’ll be able to go discover an outdated copy. They’re definitely classics. Effectively, let’s speak about rising markets. Like many cycles, this cycle feels, like within the inventory markets, they’re persevering with to emerge. I feel as a share 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 provide you with some stats on this, I feel the common allocation sits down round 2% or 3% as a share of their inventory portfolio. So large underweight. Speak to me a little bit bit about the way you see them broadly after which we’ll begin to dial in additional particularly to at least one nation specifically.
Kevin:
I inform individuals 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 individuals. You’ve received six and a half billion individuals and so they’re shifting up. They’re rising and so they need stuff. They need extra and higher meals, extra and higher clothes. They need home equipment. They wish to go to motion pictures and take holidays and so they need a car, and so they need their children to go to Harvard, and that’s a very powerful factor, and that’s a really lengthy one-directional secular pattern that has been very well-documented. So in the event you’re investing in rising markets, it’s my perception that that’s what try to be making an attempt to seize.
The second factor about rising markets is that there’s an enormous drawback, 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 drawback, 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 might be inefficient, they’ve conflicts of curiosity with you as an investor, and the governance isn’t excellent, and the corruption is in every single place.
So what you discover, and I received 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 buyers that had been eager 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 individual, I wished to see what had been the businesses. I don’t care concerning the identify of the ETF, I wish 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, mainly, to maintain the staff paid. In order that’s an enormous drawback and I don’t have an answer for it. Quite a lot of buyers have given up on rising markets and so they 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 received any actual return from investing there.
The truth is, I feel the 12 or 13 yr return is about 25%. I do know that for the ten years ended with 2022, the earnings development was damaging. So in Omaha, investing is admittedly easy. The rationale companies have worth is as a result of they make income for the house owners. The one strategy to make the worth go up is to make the income 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 might be state-owned and not likely for-profit in a conventional sense.
Meb:
We spend a whole lot of time most likely approach 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 attention-grabbing and good first step, and it enabled some issues within the ’70s, however so far as an investing methodology can develop into fairly suboptimal given some circumstances, significantly instances when issues go completely bananas.
The attention-grabbing half that I really feel like is without doubt one of the greatest dislocations for me when speaking about rising markets as a result of I like my polls on Twitter, and we’ll ask individuals what share of world GDP is rising markets, and virtually everybody says zero to twenty%, 20% to 40%. We each know that that’s completely flawed. Rising markets find yourself being most of world GDP, which surprises so many individuals. Then wanting on all the assorted statistics, like once 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 individuals could be stunned that Macau is multiples of Las Vegas already. So simply the size of rising markets is admittedly staggering, significantly for most individuals who’ve by no means executed any touring, which is, after all, many, if not most.
So that you and I sat right down to dinner and on reflection, 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?
Kevin:
Effectively, 9 years in the past, first recognized was the truth that all of these billions of customers in rising markets we’re going to get their first ever laptop in type of an Android-based smartphone, and that after they’d 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 and so they didn’t have cars and there was no goal shops, that they’d leapfrog and develop into digital customers, and since we’ve had such an evolutionary expertise with data and with know-how, we don’t understand that not all people else on this planet has traveled that path as we’ve.
So impulsively, what I used to be seeing was that every one of those billions of customers had been logging on and getting their first checking account, nevertheless it wasn’t a conventional 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 taking place in China. As it’s possible you’ll know, I launched quite a few China ETFs with Guggenheim, however we launched a China know-how ETF, CQQQ, most likely 13 years in the past to seize that story, the net shopper.
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 most important on this planet by far. So China is an rising market in a conventional sense, however by way of 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 mainly the place China was 15 years in the past. So if you concentrate on customers and the web and private computer systems, that mainly began in the US within the yr 2000. When may you actually have a pc at your home, get on the web and do some enterprise on the web? That mainly 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 mainly proper behind us, 2005 to 2020, Alibaba and Tencent main the best way, and now what’s coming is the third wave, and that is the opposite 5 and a half billion individuals that aren’t in China, and India is the largest a part of the story and South Asia, in the event you embrace Pakistan and Bangladesh to the west and east, that is virtually two billion individuals 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 largest alternative in rising markets, however perhaps one of the best alternative in rising markets by way of a single nation that we’ve seen, and it’s due to quite a few causes which have simply lined up and so they’re lined up at a time when now you can get a $12 smartphone model new in India. After I noticed you for dinner just a few months in the past, I might inform you you could possibly 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 received on-line, they had been on PCs and so they, like us, migrated onto the smartphone, properly, these individuals are skipping the PC altogether and the India story is simply extremely compelling.
Meb:
Let’s dig in. So you will have the plain demographic. I really feel like most buyers can admire that. You simply talked about there’s multiples extra Gen Z than there are Individuals in complete, simply the size of the quantity of individuals, the density. I’ve by no means been to India. I actually wish to go, so you’ll be able to assist be my tour information, however inform me a little bit bit about what the macro image. Stroll down what took you from, “Okay. That is curious and attention-grabbing,” to, “Okay. That is really actually attention-grabbing.”
Kevin:
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, in order 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 mainly 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 we’ve tapped into. As you realize, 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 once we registered and launched.
So the story for India, which, by the best way, 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 mainly eight bullet factors. First, it’s now the most important nation on this planet. It handed China in April in accordance with World Financial institution, so 1.4 billion individuals in India. When you take a look at the chart because it goes out, it’s going to get larger and greater 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 received 600 million individuals which might be simply moving into their early a part of their prime. You could have the quickest rising main financial system. Most of that development is coming in a swelling center class that may the truth is go China and have extra consumption inside a decade by most estimates, and also you’ve received the quickest rising e-commerce market. India’s rising just a bit sooner than Brazil, about 28% a yr.
Lastly, and that is the half that I didn’t admire utterly till 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 mainly gone all in on digitization. Modi, who’s been the chief for the final decade, his entire platform is Digital India. So I knew that they’d executed quite a few initiatives to assist the digitization of the nation, however I had no thought how well-developed these methods and this digital public infrastructure had develop into, which is an summary factor, which I hope we go into intimately. So you will have all these basic items, large, younger, simply the guidelines, and it’s onerous to, with phrases or photos or numbers, to elucidate the size of this chance, the sheer variety of people, the density.
Meb:
Effectively, you will have an precise fairly good chart and a number of the stats we’ve talked about earlier I feel hit house, however you will have an excellent chart that we’ll put within the present notes on Bangladesh, however you mentioned 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.
Kevin:
No, it’s staggering. There’s 170 million individuals and it’s the scale of Illinois. Additionally, a 3rd of its at all times flooded. So it’s mainly two-thirds the scale of Illinois. You’d should take the third by means of 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. In contrast to China, which is homogenous, 95% Han Chinese language, India has received 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 various and it’s very dense.
The opposite factor that India has going ahead now is also infrastructure. After I received concerned with China 18 years in the past, it was mainly tied with India. It was a little bit bit forward of India by way of its GDP per capita, however not very far, however what you could possibly 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 paperwork and mainly sat on its palms and didn’t actually spend money on its infrastructure, and China blasted forward and mainly quadrupled the scale of their financial system. Plus in that interval, properly, India didn’t actually get shifting and the paperwork that the British left India or I feel largely in charge.
Effectively, 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 desires it. There’s no time period limits. He’s liked. He’s received an 80% approval score. Not everybody likes him, however the overwhelming majority do, and he has received the federal government organized and environment friendly and really business-like, and that features the infrastructure investments. So all the infrastructure numbers have exploded below Modi within the final 10 years. They’re at present in the midst of a trillion and a half greenback complete infrastructure plan that entails modernizing the beautiful in depth rail community they’ve, electrifying it, including tons of 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 velocity 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 buyer ladder, they wish 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 top of 2025. So all components of the infrastructure now are catching up. Again 17, 18 years in the past, they’d issues with the facility grid to the factories and so they had brownouts and so forth. They fastened most of that and so they’re making large investments.
Now, a whole lot of this has to do with this China plus one technique, looking for various provide chains and various suppliers so everybody’s not completely depending on China, and that’s most likely a sensible factor to wish to do anyhow, however the actuality is China’s received one of the best infrastructure and so they’re capable of make one of the best 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 top of 2025 by estimates. So the infrastructure is lastly there and so they’re actually taking it significantly and it reveals, and it does appear and feel 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. A lot 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 they’d 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 individuals had driver’s licenses or passports or any type of official authorities identification. As you’ll be able to think about, it’s onerous to develop your financial system the place no person can show who they’re.
They requested the chairman of Infosys, Nandan Nilekani, if he could be in cost. Mr. Nilekani mentioned, “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 know-how as a result of,” as he mentioned, “I didn’t see as a lot know-how as I might’ve anticipated once I helped the individuals in Bangalore, and now if I’m going to do that, we’re not solely going to make use of one of the best know-how of at the moment, however we’re going to look to the longer term, and never solely will we give all people a card, all people 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 knowledge.
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 emblem in my presentation. It’s the nationwide identification quantity. That’s going to be good for the financial system, however I didn’t fairly observe 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 prime. With this program, they began initiatives in order that you could possibly go into any financial institution. When you had been within the Aadhaar system, you could possibly 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 looking out into the digicam.
In 2016, they launched this different initiative, the Unified Funds Interface or UPI. Once more, this received a whole lot of protection. It was a part of Digital India. I put the emblem in my presentation about India, however I didn’t actually observe the event, however the headline of the UPI was that it will permit instantaneous, utterly free switch of cash from any individual to every other individual or enterprise, no delay, no friction. I may ship you $10, you could possibly ship it again to me. We may do it 20,000 instances, it will nonetheless be $10.
So I mentioned, “Okay.” Effectively, however to be completely sincere, the primary factor I felt about that program was a priority as a result of certainly one of our corporations that we talked about, it hadn’t gone public but, nevertheless 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 personal.
The following a part of this isn’t a part of the digital public infrastructure, nevertheless it successfully acts prefer it, and this was type of the Large bang second. It is a personal enterprise known as Jio or the Jio Community. That is the most important 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 choice that Jio wanted to go all digital and that Reliance wanted to go large 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 few dozen different carriers and all of them had been on 2G, and so they had been all locked in a worth warfare, and their steadiness sheets had been horrible and so they couldn’t even make investments to maintain their 2G operating very properly. 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, “Now we have the one 4G community. When you enroll with us, we’re going to present you free voice calls perpetually, limitless, and we’ll offer you six months of free knowledge, after which after your six months is over of free knowledge, we’ll nonetheless be the one 4G community and we’ll even have the bottom costs.” In order that was their provide.
Then the purpose that Mukesh put ahead was that they’d enroll 100 million individuals by the top of the subsequent yr, so by the top of 2017, and that was a reasonably daring purpose. It was particularly daring as a result of again then in the event you wished to get a brand new cell phone, it took about three hours on common whenever you went to the cellphone retailer since you would, once more, should show who you had been and so they must confirm you manually.
When Reliance Jio launched, they used the Aadhaar system as a result of it’s open for individuals to make use of, and of their shops, they’d mainly the eyeball reader and the fingerprint reader, and so they opened 100 million accounts in 4 months, a mean 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 in the event you quick ahead to at the moment and what’s occurred within the final three and a half years as a result of COVID accelerated as greater than anyone, every other nation, that cellular funds have exploded, that UPI platform now accounts for 40% of the world’s real-time prompt cash transfers, and the slope of the curve continues to be at 45%, 50% development. What has occurred along with that’s the authorities additionally took out the excessive denomination payments and so they 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 outdated world to modernize their monetary system, and so they’ve executed it in seven years.
So this India Stack, no person else on the planet has this, and apparently now, Nandan Nilekani, the chief of all of this, he’s now providing it as much as different nations. The truth is, a number of nations have signed as much as take a duplicate of the UPI, together with France. Aadhaar will most likely be a little bit more durable to promote individuals due to the privateness, however anyhow, this digital stack is a secret weapon and other people I don’t suppose admire it and perceive it as a result of I didn’t perceive it or admire it till lately and it’s not executed.
The opposite essential component to India is you say, “Okay. Effectively, in the event you’re going to have e-commerce, what’s the present commerce? The place are individuals getting their stuff at the moment?” In South Asia, in India particularly, they get their stuff from 13 million mother and pop shops. So 90% of all shopper 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 every single day. Once more, there’s 13 million of those shops and so they’re extra formal retail. Large field shops have been launched, however they’ve not been capable of take very a lot market share.
So what I feel India goes to finish up with is a hybrid, the place the kirana shops are going to develop into digitized. It’s already taking place. The truth is, Paytm, who I referenced earlier, it actually has a stronghold in these service provider markets. Paytm’s discovered a strategy to make cash. They make mortgage now, they develop into the banker for the kirana retailer house owners and make loans. So, I feel 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 known 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 properly, and I don’t suppose in the event you … There’s an important Morgan Stanley interview with this man, Nandan Nilekani. It’s a 12-minute interview the place he talks about all of these items from the start after which seems to be 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 onerous for me to imagine something might be extra highly effective than that basis, but-
Meb:
Effectively, it’s fascinating. If you speak about this, listening to it, it’s extremely optimistic and apparent and thrilling, and then you definately do it by means of the American lens of Large Brother and, don’t know, if it’s even libertarianism. It simply desires 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.
Kevin:
That appears proper. That looks as if the proper quantity.
Meb:
Rounds to zero is the phrase from Oppenheimer. It’s humorous as a result of I ponder what a part of the story once 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 truly, whereas we might imagine it’s a possible, everybody sees the China Large Brother, you’re strolling by means of the intersection, they’re going to zap your face after which perpetually you’re shamed and in a database, however I feel on the flip aspect of that, there’s a ton of positives and alternative that appear like an Indian instance is fairly attention-grabbing.
Kevin:
I feel it’s simply getting began. I feel there are …. Once more, whenever you hear this man, an, speak about it, he mentioned, “Quite a lot of the stuff they’d no thought of the way it was going to work out. They simply knew it will be highly effective.” Like I mentioned, I feel 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 Large Brother kind of factor and never conform to it, no less than not anytime quickly, and perhaps that was a part of the success with Aadhaar was voluntary. No person needed to do it, however I feel individuals noticed that there was a profit. You could possibly show who you had been simply by simply taking a look at a digicam, and simply as utilizing your QR code to pay for one thing is healthier than utilizing money. There’s lots apart from commerce causes that that is likely to be a precious factor or no less than a liquefier of issues. You concentrate on going by means of safety strains in airports or what have you ever that may be accelerated with that platform that, once more, I feel is sort of distinctive.
The opposite factor that I feel is attention-grabbing about this, and Nandan Nilekani talks about this as properly, however India doesn’t have a really well-developed shopper credit score market. I’m not an economist, however what I’ve seen from some economists after they take a look at India’s shopper credit score market and if it begins to develop and look extra like a developed world’s shopper credit score market the place extra individuals have credit score and use it, that would add two or three share factors to their GDP development on an annual foundation, and that’s one of many issues now that Nandan is speaking about is, properly, now that you’ve got this what he calls informational collateral, that it’ll set the inspiration for a probably very massive development in shopper credit score, which then accelerates the GDP development, which the estimates are 6%-6.5%.
By the best way, that’s one of many different issues. I’ve made over time quite a few pals which might be Indian buyers, and so they’re extra skilled than me, definitely in India, however they’re extra skilled than me additionally simply in years. Lots of them have been very profitable in enterprise capital or hedge funds, personal fairness. I’ve tried to determine, “Okay. What am I lacking right here? What can go flawed? What are the issues that I’m not understanding?” One in all these people who has most likely in some ways an unbelievable pedigree, Wharton, early enterprise investor in India, he’s the actual deal and he mentioned, “The factor individuals are lacking is we are able to most likely develop sooner, and why not? China grew. It died 10%, 11% for some time. Why can’t India do this?”
I feel, once more, I’m not an economist, however I really feel like the facility of this digital platform they’d in and of itself could possibly be value some incremental GDP development price. Simply if you concentrate on the working capital cycles for individuals after they’re immediately shifting cash, so it’s going to be the thrilling 20 years in India and it seems to be actually good.
Meb:
So let’s speak a little bit bit concerning the funding alternative set. I feel there’s a basic apathy in terms of rising markets. A part of that as we all know is simply buyers’ 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 making an attempt to remain present and hopefully see across the nook a little bit bit, and I feel we talked about at dinner, however I mentioned a really massive variety of my startup investments over the previous 5 years specifically however actually during the last 10 have been XUS and a number of the greatest performers have been XUS, Latin America, Africa, which we did a complete collection on the podcast, however then India, Pakistan, and Bangladesh.
These three specifically, you see these exponential traction alternatives such as you talked about, the place you’re going from yellow pen and paper to impulsively a digital adoption and the numbers simply in a short time develop into staggering. So it’s undoubtedly been attention-grabbing and curious to look at. As you speak about this message, and also you’ve executed it earlier than, speaking about these markets, what are the largest pushbacks from buyers on why they is probably not or why they’d be not fairly but or turned off by this chance?
Kevin:
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 take a look at smartphone penetration, nevertheless 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 could have talked about earlier, the issue is in the event you had invested in China 15 years in the past, regarded and mentioned, “All proper, I feel China’s going to develop lots. I’m going to purchase the China ETF,” properly, 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, properly you wish to spend money on India, the PE multiples for the broad indexes are fairly excessive, the best on this planet in accordance with 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 protected haven in a approach amongst rising markets the place you’ve received wars occurring and other people suppose 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 individuals are , however one of many challenges that we face as a enterprise is that our current major product, EMQQ, it’s obtainable 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 obtainable in these locations. So the primary pushback we get is I can’t purchase it as a result of it’s not accepted on my dealer’s platform.
Meb:
Say, “Good, simply go open up a private PA account and you should buy it in your personal-”
Kevin:
We’re doing what we are able to to search out individuals that may purchase it, however the efficiency this yr is fairly good. It’s up about 20%. As you realize, there was a reasonably important correction in our essential product, EMQQ, and that was lots due to the China tensions and the delisting danger and the federal government crackdown, each of that are executed and not likely … I don’t consider them the best way most individuals do. I feel 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 prime. Now once we launched, they had been already down lots. So our observe document’s damaging, however it will’ve been a massacre if we had launched 9 months earlier.
I’ll say that the valuations proper now for the INQQ portfolio I feel are very compelling. After I take a look at the PE for the Indian inventory market, so in the event you purchased the iShares India product, both the Nifty 50 or the MSCI, they’re mainly 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 development price as a result of the highest line to me is essentially the most pure type of development. You possibly can 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 perpetually. So I take a look at the PE to income development first.
After I take a look at the PE to income development for the INDA, the INDY, it’s 3.5. You’ve received a 21 PE and a development price of 6%. Now, the INQQ has received the identical PE and it’s received a development price that’s 3 times 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 development 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 at the moment and also you’ve received 10 or 15 years, I feel you’ll do fairly properly.
Meb:
There’s a few issues that you simply delivered to thoughts. One is, listeners, we’ll put lots … Kevin’s talked about a whole lot of assets, PDFs, movies. We received the worldwide CAPE ratios from Barclays. All these items we’ll put within the present observe hyperlinks at mebfaber.com. Right here’s a enjoyable experiment, listeners, to verify your biases is you’ll be able to pull out a bit 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 approach out of order. I feel it’s a enjoyable experiment and likewise to verify the magnitude of a few of these which might be perhaps already there that you could be not suppose that might be, and even just a few that don’t commerce a complete lot. So test it out.
If 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 international and rising nations during the last 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 drawn to stuff that’s in drawdowns. That’s my factor, however taking a look at your fund specifically, which is extra concentrated doubtless 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 will have 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 feel, to rope Burton into this.
I like the issues which might be unloved, and the rising story, my goodness, throughout the board looks like that. As you look again at touring by means of India, Bangladesh, Pakistan, China even, any explicit recollections or tales that actually stand out? It could possibly be from assembly corporations, from chatting with buyers to authorities officers, something that you simply’re like, “Wow, this can be a nice story,” or, “This left an enormous impression”?
Kevin:
Effectively, let me converse to the South Asia a part of that. To begin 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 onerous, 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 received donkeys pulling carts, you’ve received individuals pulling carts, individuals pushing carts, cement vehicles, bicycles, rickshaws, motorbike 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 once we had been strolling and we actually couldn’t transfer anymore. We may cease, and it only a … It was a 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 proper simply to go ahead.
So I’d say my first day in Dhaka was fairly intense. I feel the issues we selected to go see had been significantly 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 one million individuals. It’s like a 3rd of a sq. mile. It’s very small and dense.
What I didn’t admire is it’s mainly a enterprise as properly. Principally, one aspect of the slum, they create in waste merchandise and plastic remnants and so forth, and so they 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 made from plastic and separating them, after which the subsequent station, they’re melting. Principally, by the top 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 aspect 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 might be attention-grabbing as a result of just like the hutongs and the lilongs in China, they’re historic neighborhoods, and that’s most likely an excellent motive to modernize it. By the best way, the actual property costs within the slum are off the charts. So in the event you personal a home, you already are a slum canine millionaire, mainly. In order that was attention-grabbing.
Meb:
I used to be going to say, as I strive to consider the chance to any funding on the macro, on the micro, on the whole lot … By the best way, listeners, two actually excellent books, Shantaram, after all, is known, White Tiger, additionally a superb ebook. It’s been made right into a present, however the ebook, like many, might be a lot better. Are there any issues that you simply suppose are usually one thing that folks ascribe to being a danger 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 individuals which might be speaking about … China, there’s so many entrance of thoughts ones with Taiwan and their interactions, however India, no less than, I don’t see the headlines as a lot.
Kevin:
I’m looking for the chance. Those which might be apparent are, to start with, Modi. Modi, this can be a danger … In the end, one of many issues I feel we’ve realized within the final 10 years is it doesn’t actually matter what type of authorities you will have. 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 get together or a democracy. The individual in cost generally is a drawback.
Now, the excellent news is I feel Modi, he’s an asset, however he’s not in his 30s, so there’s undoubtedly the political danger, the Modi danger. The nation has had different leaders which have left workplace prematurely for unplanned causes. So there’s undoubtedly racial tensions. Up within the very, very far east of the nation, there’s been a complete lot of racial violence. Really, 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 and so they haven’t had the web for 3 months both.
One of many different attention-grabbing 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 making an attempt to out excessive step one another. We flew to Amritsar, which is the primary metropolis there, and it’s the place the Golden Temple is, which is the middle of the key faith, which is a tremendous place, equally as spectacular and wonderful, I feel, because the Taj Mahal.
Whereas we had been there that afternoon, the web went out, and what we came upon was there’s a Sikh separatist that had sprung certainly one of his followers from a jail someplace, and so they shut off the web so he couldn’t talk together with his different separatists. My colleagues had been unable to ebook flights to get out of city that afternoon.
Meb:
You bought to hold round Elon’s Starlink, man.
Kevin:
No, I’ve one someplace, however I didn’t carry it with me, however I crossed the border in time to get protection on the Pakistan aspect. The opposite danger that appears fairly clear to me is the environmental danger. The nation is … So most of the individuals stay alongside the Ganges River and so they’re having very large warmth. Actually, it could develop into uninhabitable, and so they’ve seen a whole lot of issues in the previous few years with excessive, excessive warmth in and round Delhi. Air pollution is a big drawback throughout South Asia as properly. Once more, a whole lot of the water comes down from the Himalayas, and there’s most likely extra environmental danger in India than different locations.
I feel that, as with a whole lot of different dangers, you don’t actually comprehend it’s a danger till it reveals up and also you say, “Oh, sure, that was a danger,” however I’d say the political stability, which is sweet now, however issues can change in a single day for any variety of causes, and the environmental danger appears actual. Apart from these two essential ones, it looks as if … As a result of a whole lot of the India tales, that inside story, whereas the China story was an export pushed story, I feel what India goes to finish up with is much more inside development versus pure export development, which is what China led with.
Meb:
Effectively, it’s thrilling. After we talked final time, you mentioned you had been going to assist me once 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 certainly one of these subsequent time, however first, we’ll begin with a little bit boat tour of Tahoe. How’s that sound?
Kevin:
That sounds nice.
Meb:
Superior, my buddy. Finest locations for individuals to take a look at your funds, web sites? I don’t suppose you do this a lot on Twitter. The place do they go?
Kevin:
Emqqglobal.com is our web site, after which you’ll find me on LinkedIn, Kevin T. Carter, and yeah, you’ll discover us if you wish to.
Meb:
Superior. Thanks a lot for becoming a member of us once more at the moment.
Kevin:
All proper. Thanks, Meb.
Meb:
Podcast listeners, will publish present notes to at the moment’s dialog at mebfaber.com/podcast. When you love the present, in the event you hate it, shoot us suggestions at suggestions@themebfabershow.com. We like to learn the opinions. Please evaluation us on iTunes and subscribe to the present anyplace good podcasts are discovered. Thanks for listening, pals, and good investing.
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