Episode #499: Kevin Carter, EMQQ International – India is Taking place NOW – Meb Faber Analysis
40 min read
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 in the present day’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 keep watch over 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 – 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
Transcript:
Welcome Message:
Welcome to The Meb Faber Present, the place the main target is on serving to you develop and protect your wealth. Be a 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. Because of trade rules, he won’t 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 mirror the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb:
What’s up, everyone? We received a brilliant enjoyable present in the present day. We’re crossing some borders with our returning visitor, Kevin Carter, Founder and CIO of EMQQ International. In in the present day’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 keep watch over in India. Try 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 pal. Welcome again to the present.
Kevin:
Thanks, Meb. Good to be again.
Meb:
The place do we discover you in the present day?
Kevin:
I’m in Lafayette, California, 15 miles east of San Francisco.
Meb:
Certainly one of 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 advocate 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 reasonably 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 unique subject in the present day, however within the meantime, we had one in all your companions and mentors over the 12 months on the podcast, Burton Malkiel, who listeners will definitely know that identify. We have been joking as a result of we stated, “Burton, give us just a little one thing to ask Kevin on the present,” and he says, “Do you know once we have been touring across the rising markets, Kevin’s a little bit of a card participant.” So I all the time 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 principles. He’s received his guidelines. I don’t know for those who requested him for his guidelines, however he’ll give him to you. I can’t bear in mind what they’re precisely. I don’t play by these guidelines. I play just a little bit extra by intestine with some math as nicely, however sure, we’re in Australia collectively for some shows 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 amount of cash, however mine was just a little bit extra unstable.
Meb:
I believe 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 shortly you study so much about guess sizing as a gambler, whereby, listeners, for those who don’t know the Martin Gale, it’s basically you double down each time you lose. Theoretically, you probably have an infinite bankroll, you’ll by no means lose as a result of finally 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 for those who lose 5 10 in a row, the guess 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 lesson. There’s so many good classes in eager about place sizing and the best way to play and odds.
Kevin:
That’s proper. Just like brief promoting, the place you may have 100% upside and limitless draw back and your guess will get greater because it goes, in contrast to an extended place which will get smaller, it will get greater.
Meb:
Certainly one of my all-time early favourite podcast friends was the godfather of Blackjack card counting, Ed Thorpe. Additionally the most effective performing hedge fund managers of all time, who the unique beat the supplier and beat the market books. Listeners, you’ll be able to go discover an outdated copy. They’re definitely classics. Properly, let’s discuss 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 common allocation sits down round 2% or 3% as a proportion of their inventory portfolio. So large underweight. Speak to me just a little bit about the way you see them broadly after which we’ll begin to dial in additional particularly to 1 nation particularly.
Kevin:
I inform folks there’s actually two issues to learn about investing within the rising markets. The primary is that the factor that’s rising are the folks. You’ve received 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 need a car, they usually need their children to go to Harvard, and that’s a very powerful factor, and that’s a really lengthy one-directional secular development that has been very well-documented. So for those who’re investing in rising markets, it’s my perception that that’s what you have to be making an attempt to seize.
The second factor about rising markets is that there’s a giant drawback, and the issue is the index itself. The MSCI index, which we use to trace the efficiency of rising markets, has plenty 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 plenty 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 superb, 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 an inventory of all the businesses within the China ETF as a result of we had these traders that have been thinking about investing in China after listening to Burton discuss 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 have been the businesses. I don’t care concerning the identify of the ETF, I need to know what are the companies we’re going to personal.
So I requested for that record and that’s when Burton pulled me apart and defined to me that 80% of the index was government-owned banks and oil firms and the way the government-owned banks would make loans to firms that have been already bankrupt, mainly, to maintain the staff paid. In order that’s a giant drawback and I don’t have an answer for it. A whole lot of traders have given up on rising markets they usually have very small allocations as a result of they’ve had plenty of promise for a very long time, however nobody’s actually received any actual return from investing there.
Actually, I believe the 12 or 13 12 months return is about 25%. I do know that for the ten years ended with 2022, the earnings progress was damaging. So in Omaha, investing is basically easy. The rationale companies have worth is as a result of they make income for the homeowners. 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, filled with banks and oil firms and mineral firms which can be state-owned and not likely for-profit in a standard sense.
Meb:
We spend plenty of time most likely means an excessive amount of for this to be wholesome and useful to our obtain statistics, however we spend plenty 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 change into fairly suboptimal given some circumstances, significantly instances when issues go completely bananas.
The fascinating 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 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 once we have 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 dimensions of rising markets is basically staggering, significantly for most individuals who’ve by no means executed any touring, which is, in fact, 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 have 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 reasonably large alternative right here?
Kevin:
Properly, 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 when they’d these pocket-sized supercomputers, they have 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 change into digital customers, and since we’ve had such an evolutionary expertise with info and with know-how, we don’t notice that not everyone else on the earth has traveled that path as we now have.
So unexpectedly, what I used to be seeing was that each one of those billions of customers have been logging on and getting their first checking account, nevertheless 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 taking place in China. As it’s possible you’ll know, I launched plenty of 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 web 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 the earth 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 probably the most developed nation on the earth 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 USA within the 12 months 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 12 months 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 folks that aren’t in China, and India is the most important a part of the story and South Asia, for those who embrace Pakistan and Bangladesh to the west and east, that is virtually two billion folks and about 850 million Gen Z. So that is probably 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 most effective alternative in rising markets when it comes to a single nation that we’ve seen, and it’s due to plenty of 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. After I noticed you for dinner just a few months in the past, I might inform you you would 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 once they received on-line, they have been on PCs they usually, like us, migrated onto the smartphone, nicely, these persons are skipping the PC altogether and the India story is simply extremely compelling.
Meb:
Let’s dig in. So you may have the plain demographic. I really feel like most traders can recognize that. You simply talked about there’s multiples extra Gen Z than there are Individuals in whole, simply the dimensions 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 just a little bit about what the macro image. Stroll down what took you from, “Okay. That is curious and fascinating,” to, “Okay. That is really actually fascinating.”
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 firms, however what I noticed was that there was dozens of unicorns that have 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 unimaginable 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 now have tapped into. As you already know, we launched INQQ, the India-only product final 12 months as quickly as there was sufficient firms. So as soon as there was over 20 firms 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. Nearly 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 the earth. It handed China in April in accordance with 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 significant financial system. They’re about 11 and a half years youthful on common than China. So that you’ve received 600 million folks which can be simply moving into their early a part of their prime. You’ve gotten the quickest rising main financial system. Most of that progress is coming in a swelling center class that may actually 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 quicker than Brazil, about 28% a 12 months.
Lastly, and that is the half that I didn’t recognize 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 mainly 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 they’d executed plenty of initiatives to assist the digitization of the nation, however I had no concept how well-developed these methods and this digital public infrastructure had change into, which is an summary factor, which I hope we go into intimately. So you may have all these basic items, large, younger, simply the guidelines, and it’s onerous to, with phrases or photos or numbers, to elucidate the dimensions of this chance, the sheer variety of people, the density.
Meb:
Properly, you may have an precise fairly good chart and a few of the stats we’ve talked about earlier I believe hit house, however you may have 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.
Kevin:
No, it’s staggering. There’s 170 million folks and it’s the scale of Illinois. Additionally, a 3rd of its all the time flooded. So it’s mainly two-thirds the scale of Illinois. You’d should take the third by means of ninth largest international locations 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 just a little bit forward of India when it comes to its GDP per capita, however not very far, however what you would 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 have been doing this, India was mired in paperwork and mainly sat on its palms and didn’t actually put money into its infrastructure, and China blasted forward and mainly quadrupled the scale of their financial system. Plus in that interval, nicely, India didn’t actually get shifting and the paperwork that the British left India or I believe largely guilty.
Properly, 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 once they vote subsequent 12 months and a fourth time period if he desires it. There’s no time period limits. He’s liked. He’s received an 80% approval ranking. 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 underneath Modi within the final 10 years. They’re at present in the course of a trillion and a half greenback complete infrastructure plan that entails modernizing the gorgeous intensive rail community they’ve, electrifying it, including lots of of recent 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 top of 2025. So all elements of the infrastructure now are catching up. Again 17, 18 years in the past, they’d issues with the ability grid to the factories they usually had brownouts and so forth. They mounted most of that they usually’re making large investments.
Now, plenty 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 need to do anyhow, however the actuality is China’s received the most effective infrastructure they usually’re in a position to make the most effective 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 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 the earth, 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 have been, however I didn’t fairly recognize how they’d developed 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 novel 12-digit quantity on a card given formally from the federal government as a result of one of many issues they have been having with growing was that no one 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 onerous to develop your financial system the place no one 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 plenty of know-how as a result of,” as he stated, “I didn’t see as a lot know-how as I might’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 most effective know-how of in the present day, however we’re going to look to the longer term, and never solely will we give everyone a card, everyone can 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, once 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 observe its improvement. 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 would go into any financial institution. In the event you have been within the Aadhaar system, you would 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 digital camera.
In 2016, they launched this different initiative, the Unified Funds Interface or UPI. Once more, this received plenty of protection. It was a part of Digital India. I put the brand in my presentation about India, however I didn’t actually observe the event, however the headline of the UPI was that it might enable instantaneous, utterly free switch of cash from any individual to another individual or enterprise, no delay, no friction. I may ship you $10, you would ship it again to me. We may do it 20,000 instances, it might nonetheless be $10.
So I stated, “Okay.” Properly, however to be completely trustworthy, the principle factor I felt about that program was a priority as a result of one in all our firms 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 Huge bang second. This can be a personal enterprise referred to 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 12 months that the UPI was launched, Mukesh Ambani, who runs Reliance Industries, had made a really decisive resolution 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 have been on 2G, they usually have been all locked in a value battle, and their steadiness sheets have been horrible they usually couldn’t even make investments to maintain their 2G operating very nicely. So Jio is available in after which they launched within the November of 2006, similar 12 months 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 offer you free voice calls perpetually, 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 provide.
Then the objective that Mukesh put ahead was that they’d enroll 100 million folks by the top of the subsequent 12 months, so by the top of 2017, and that was a reasonably daring objective. It was particularly daring as a result of again then for those who 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 have 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, they’d mainly the eyeball reader and the fingerprint reader, they usually 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 for those who quick ahead to in the present day 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 immediate cash transfers, and the slope of the curve remains 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 outdated world to modernize their monetary system, they usually’ve executed it in seven years.
So this India Stack, no one 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 international locations. Actually, a number of international locations have signed as much as take a replica of the UPI, together with France. Aadhaar will most likely be just a little more durable to promote folks due to the privateness, however anyhow, this digital stack is a secret weapon and other people I don’t assume recognize it and perceive it as a result of I didn’t perceive it or recognize it till just lately and it’s not executed.
The opposite essential factor to India is you say, “Okay. Properly, for those who’re going to have e-commerce, what’s the present commerce? The place are folks getting their stuff in the present day?” 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 they usually’re extra formal retail. Huge field shops have been launched, however they’ve not been in a position to 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 change into digitized. It’s already taking place. Actually, Paytm, who I referenced earlier, it actually has a stronghold in these service provider markets. Paytm’s discovered a strategy to generate profits. They make mortgage now, they change into 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 nicely, and I don’t assume for those who … There’s an ideal 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 ahead to what’s coming down the pipe, however he says that this explicit new program may be probably the most highly effective factor that they’ve launched. It’s onerous for me to imagine something will be extra highly effective than that basis, but-
Meb:
Properly, it’s fascinating. Once you discuss this, listening to it, it’s extremely optimistic and apparent and thrilling, and you then do it by means of the American lens of Huge 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 best 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 really, whereas we might imagine it’s a possible, everybody sees the China Huge 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 believe on the flip aspect of that, there’s a ton of positives and alternative that appear like an Indian instance is fairly fascinating.
Kevin:
I believe it’s simply getting began. I believe there are …. Once more, whenever you hear this man, an, discuss it, he stated, “A whole lot of the stuff they’d no concept 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 plenty of international locations, the inhabitants goes to have a look at that as a Huge Brother kind of factor and never comply with it, not less than not anytime quickly, and possibly that was a part of the success with Aadhaar was voluntary. No person needed to do it, however I believe folks noticed that there was a profit. You could possibly show who you have been simply by simply 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 may be a beneficial factor or not less than a liquefier of issues. You concentrate on going by means of safety traces in airports or what have you ever that may be accelerated with that platform that, once more, I believe is kind of distinctive.
The opposite factor that I believe is fascinating about this, and Nandan Nilekani talks about this as nicely, 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 once they have 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 folks have credit score and use it, that might 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, nicely, now that you’ve this what he calls informational collateral, that it’s going to set the muse for a doubtlessly very massive progress in shopper credit score, which then accelerates the GDP progress, which the estimates are 6%-6.5%.
By the best way, that’s one of many different issues. I’ve made through the years plenty of pals 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. 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 improper? What are the issues that I’m not understanding?” Certainly one of these people who has most likely in some ways an unimaginable pedigree, Wharton, early enterprise investor in India, he’s the actual 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 they’d in and of itself may very well be value some incremental GDP progress charge. Simply if you concentrate on the working capital cycles for folks once they’re immediately shifting cash, so it’s going to be the thrilling 20 years in India and it seems actually good.
Meb:
So let’s speak just a little bit concerning the funding alternative set. I believe there’s a common apathy with regards to rising markets. A part of that as we all know is simply traders’ sentiment is all the time drawn to what’s going up probably 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 just a little 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 an entire 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 unexpectedly a digital adoption and the numbers simply in a short time change into staggering. So it’s positively been fascinating and curious to observe. As you discuss this message, and also you’ve executed it earlier than, speaking about these markets, what are the most important pushbacks from traders on why they is probably not or why they’d be not fairly but or turned off by this chance?
Kevin:
A whole lot of our narrative of our India analysis is, is India like China 15 years in the past? As I discussed that the GDPs have been about the identical, there wasn’t smartphones again then so we are able to’t have 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’ll have talked about earlier, the issue is for those who 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,” nicely, you have 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, nicely you need to put money into India, the PE multiples for the broad indexes are fairly excessive, the best on the earth in accordance with Shiller CAPE ratios that Burton likes to make use of. In order we are saying in Omaha, you pay a excessive value for a cheery consensus. The truth that India has all these constructive 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 means amongst rising markets the place you’ve received wars occurring and other people 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 12 months 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 current major product, EMQQ, it’s obtainable at locations like Morgan Stanley and UBS with advisors that we all know, and the India product remains to be small and it’s not obtainable in these locations. So the principle pushback we get is I can’t purchase it as a result of it’s not accredited 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 folks that may purchase it, however the efficiency this 12 months is fairly good. It’s up about 20%. As you already know, there was a reasonably important correction in our principal product, EMQQ, and that was so much 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 believe they have 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 firms additionally went down about 75% from their high. Now once we launched, they have been already down so much. So our monitor report’s damaging, 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. After I have a look at the PE for the Indian inventory market, so for those who 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 progress charge as a result of the highest line to me is probably 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 perpetually. So I have a look at the PE to income progress first.
After I have a look at the PE to income progress for the INDA, the INDY, it’s 3.5. You’ve received a 21 PE and a progress charge of 6%. Now, the INQQ has received the identical PE and it’s received 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 mirror a really rosy outlook with these 3.5 PEGs. These firms, 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 in the present day and also you’ve received 10 or 15 years, I believe you’ll do fairly nicely.
Meb:
There’s a few issues that you simply delivered to thoughts. One is, listeners, we’ll put so much … Kevin’s talked about plenty of assets, PDFs, movies. We received the worldwide CAPE ratios from Barclays. All these items we’ll put within the present word 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 means out of order. I believe it’s a enjoyable experiment and likewise to verify the magnitude of a few of these which can be possibly already there that you could be not assume that may be, and even just a few that don’t commerce an entire 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 international and rising international locations over the past 40, 50 years that has seen a wider spectrum of agony and ecstasy than China. The previous isn’t all the time prologue to the longer term, however 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 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 12 months one, then 190, 90. So you may 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 believe, to rope Burton into this.
I 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 means of India, Bangladesh, Pakistan, China even, any explicit reminiscences or tales that basically stand out? It may very well be from assembly firms, from chatting with traders to authorities officers, something that you simply’re like, “Wow, it is a nice story,” or, “This left a giant impression”?
Kevin:
Properly, let me converse to the South Asia a part of that. To begin with, we began in Dhaka in Bangladesh, which may be probably 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 folks pulling carts, folks pushing carts, cement vehicles, bicycles, rickshaws, bike rickshaw, every thing, 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 have 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 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 have 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 folks. It’s like a 3rd of a sq. mile. It’s very small and dense.
What I didn’t recognize is it’s mainly a enterprise as nicely. Principally, one aspect of the slum, they bring about 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 manufactured 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 were 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 brink of redevelop the Dharavi slum, which will likely be fascinating as a result of just like the hutongs and the lilongs in China, they’re historic neighborhoods, and that’s most likely purpose to modernize it. By the best way, the actual property costs within the slum are off the charts. So for those who personal a home, you already are a slum canine millionaire, mainly. In order that was fascinating.
Meb:
I used to be going to say, as I strive to consider the danger to any funding on the macro, on the micro, on every thing … By the best way, listeners, two actually excellent books, Shantaram, in fact, is known, White Tiger, additionally a wonderful e-book. It’s been made right into a present, however the e-book, like many, might be significantly better. Are there any issues that you simply assume are typically 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 steady. Is there something that’s on the record, 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, not less than, I don’t see the headlines as a lot.
Kevin:
I’m looking for the danger. Those which can be apparent are, to begin with, Modi. Modi, it is a danger … Finally, one of many issues I believe we’ve realized within the final 10 years is it doesn’t actually matter what type of authorities you may 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 could be a drawback.
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 danger, the Modi danger. 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 an entire lot of racial violence. Really, one of many issues that India does once 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 plenty 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 making an attempt 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 superb, I believe, because the Taj Mahal.
Whereas we have been there that afternoon, the web went out, and what we came upon was there’s a Sikh separatist that had sprung one in all his followers from a jail someplace, they usually shut off the web so he couldn’t talk together with his different separatists. My colleagues have been unable to e-book 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 convey 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 lots of the folks stay alongside the Ganges River they usually’re having very large warmth. Actually, it might change into uninhabitable, they usually’ve seen plenty 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 nicely. Once more, plenty of the water comes down from the Himalayas, and there’s most likely extra environmental danger in India than different locations.
I believe that, as with plenty of different dangers, you don’t actually understand it’s a danger till it exhibits 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. Aside from these two principal ones, it looks as if … As a result of plenty of the India tales, that inner story, whereas the China story was an export pushed story, I believe what India goes to finish up with is much more inner progress versus pure export progress, which is what China led with.
Meb:
Properly, it’s thrilling. Once we talked final time, you stated you have been going to assist me once we have been beginning the Kevin Carter Journey Capitalist Journey Company to come back give some excursions. So I’m going to tag alongside and be a part of you on one in all these subsequent time, however first, we’ll begin with just a little boat tour of Tahoe. How’s that sound?
Kevin:
That sounds nice.
Meb:
Superior, my pal. Greatest 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?
Kevin:
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.
Meb:
Superior. Thanks a lot for becoming a member of us once more in the present day.
Kevin:
All proper. Thanks, Meb.
Meb:
Podcast listeners, will submit present notes to in the present day’s dialog at mebfaber.com/podcast. In the event you love the present, for those who hate it, shoot us suggestions at [email protected]. We like to learn the evaluations. Please overview us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, pals, and good investing.
