DIARY OF A FUND MANAGER - INFERNO OF OPPORTUNITY- 13.01.20
In this week’s Diary, a quick market update, London life and more about India. And a bit of swimming to add to the mix.
No more public holidays or half days. Stock markets were open all week, which for most of us was a bit of a shock to the system. Despite events in Iran and Iraq, equities, bonds and currencies traded within a narrow range with only gold moving higher on a sustained basis. Heavyweight annual strategy reports remained in over supply, but investors seemed more preoccupied with the approaching company results season where rhetoric and bluff will be tested by reality. If there is a trend to keep an eye on it is the weakness of the US dollar which peaked in October.
My week was a curate’s egg of reporting to clients, meetings and team appraisals, mixed with getting my bike back on the road after someone had vandalised the front wheel during the Christmas break. There was plenty of space to reflect on my recent trip to India.
Meetings with investors, fund managers, entrepreneurs, established companies and government advisers in Mumbai, Bangalore and Delhi was a rich mix. To start with some numbers. India is now somewhere between the fifth and seventh largest economy in the world depending upon whose numbers you use. The UK oscillates between fifth and sixth.
India’s annual growth has been slowing recently, but is still about 5%. To put this in perspective, the US is crawling along at less than 2% and over here in Europe the ‘par’ is about 1%. The population is closing in on 1.4 billion or about 18% of all those currently living and is young. It is estimated that 65% are under 35. Average income is $2,000 per annum, whereas in China it is $9,000, $42,000 in the UK and the US comes in at $63,000. The exact numbers are subject to debate, but the relative differences are clear. The interest rate set by the Reserve Bank of India is 6.5% and inflation is about 7%. All very different to what we have come to accept as normal in the developed economies.
Ahead of my visit I collected a range of reports and articles most of which were critical of government policy and pessimistic about economic growth. I dutifully started to review these in the Heathrow departures lounge, but after a few minutes I binned the lot concluding that it would be much better to refrain from prior judgement and instead throw myself into this extraordinary inferno of the living to see what I could see. What happens today and in the future is what matters when it comes to investment. Or as Shakespeare put it; ‘Time hath, my lord, a wallet at his back wherein he puts alms for oblivion’.
It was at a breakfast meeting in Mumbai on day three of my visit that I first started to think about the UK in 1983. Perhaps it was the after effects of the febrile atmosphere created by the British election campaign that had concluded only the day before, but what I had been hearing in India sounded a lot like the Thatcher decade of change.
Last year the Indian Prime Minister Narendra Modi was re-elected for a second five year term with an increased majority. He does not come from the old elite having started life selling tea from his father’s stall and not making it into higher education until he was nearly 30. As Prime Minister, he seems prepared to make decisions based on a long-term plan irrespective of short-term unpopularity. The government’s plan seems to be that the old order needs to be changed for the greater good of all. Raising per capita income over the next decade is the number one priority. To say that not everyone approves is an understatement, but goes a long way to explaining why what we hear and read about India in the media is generally so negative.
When investing in an emerging market, it is important to assess both the competence and trustworthiness of the government. Earning a return is a given, but just as importantly we need to be confident that our capital will be returned on demand. India is a thriving and chaotic democracy and so the answers are more nuanced than in a command and increasingly controlled country like China, but my preliminary judgement is that the answer is yes.
Summing up the government’s approach, it is experiment, monitor the results, acknowledge mistakes and make better decisions next time. As in the Thatcher years, the government is advised by think tanks with change mandates, including the roll-out this year of an ambitious privatisation programme. Strong stuff and certainly not the focus group, rear view mirror style of government that we have become used to in recent years.
On my last day I ‘floated’ the Thatcher analogy whilst visiting the Ministry of Finance in order to test the reaction. ‘I can see what you mean, but what is going on at the moment is more like England at the time of the Reformation.’ I rather enjoyed discussing what Henry VIII did 500 years ago, 4,000 miles away in the grand surrounding of a Lutyens building designed for a different empire.
Unless events intervene my plan is to write more about India next time with a focus on investment opportunities.
My week ended with a swim at the London Fields Lido in Hackney. Open-air swimming in January may seem eccentric, but in a heated pool it is an exhilarating experience. As I was slightly late for the start of the session I jumped in a black cab expecting not only to have to persuade the driver to take me outside his normal comfort zone, but also to help with directions. Not a bit of it. He turned out to be a dedicated open-water swimmer at all times of the year in places ranging from the reservoir at Manor House to Lake Windermere. I nearly managed to cajole him into taking some time off to join me.