The Indian Economy Is Domestically Oriented

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India is the sixth largest economy in the world. According to IMF data, India’s GDP in 2017 was $2.6 Trillion. The trade wars initiated President Trump with China and other countries may not impact India severely as the economy is domestically oriented noted Sukumar Rajah of Franklin Templeton in an article last month.

76% of revenues of companies in the Nifty 500 Index were generated in India as the chart below shows:

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Source: Trade Turmoil Doesn’t Derail Our Outlook for India, Franklin Templeton

From an investment perspective, stocks of Indian firms that are mostly domestic oriented are better bets than those exposed to the US and the global economy. For example, the IT sector is highly dependent on the US and hence investments in the sector can be avoided.

Related ETFs:

  • PowerShares India (PIN)
  • WisdomTree India Earnings (EPI)

Disclosure: No Positions

Foreign Stocks To Watch: What is Veoneer and Energizing Ecopetrol

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In this new series I will list out select foreign stocks to watch for the following week. In addition, this post will also include economic events, oil prices, earnings and other related items of interest.

1. Ecopetrol(EC): The Colombia oil producer has been on fire in recent months and its movement is highly related to the price of oil. Brent crude for November 2018 delivery closed at $78.09 on Friday. Rising oil prices together with better earnings and new discoveries should propel the stock further. Last week the stock broke out and reached a new 52-week high of $25.60 on heavy volume. EC is up 72% year-to-date. Related Colombian bank to watch is Bancolombia (CIB).

2.Continental AG(CTTAY): German Auto-parts maker plunged recently on second earnings warning in a span of few months. Stock reached 52-week low of 34$ recently all the way down from a peak of about $62. Market is over reacting to news and further declines may offer potential entry points. Related company to consider is Sweden-based Autoliv(ALV). From a 52-week high of $115 the ADR reached about $84 recently.On Sept 11th, S&P raised its rating on the stock to Strong Buy. Investors can also look into the spinoff Veoneer(VNE) as autonomous driving continues to evolve.

3.Select most fallen year-to-date(YTD) club members: The following stocks have declined sharply YTD. Value investors can research these for possible investment options. Brazilian oil distributor Ultrapar(UGP) is off by 59%. India’s Tata Motors(TTM) is down by over 45%. Others with declines of over 25% YTD include British American Tobacco(BTI), Trivago(TRVG), LG Display(LPL), Telekomunikasi Indonesia(TLK).

4.Notable top performers YTD: Some of the best performing foreign stocks YTD are listed below:

Logitech (LOGI): 41%

Grupo Aeroportuario-OMA (OMAB): 30%

China National Offshore Oil-CNOOC (CEO): 29%

5.Stocks on my radar: Canadian National Railway Co(CNI), Anheuser Busch Inbev NV(BUD), Grupo Aeroportuario del Sureste (ASR), Grupo Aeroportuario del Pacifico (PAC) and Novo Nordisk(NVO)

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Mount Teide National Park, Tenerife, Spain

Disclosure: Long EC, CIB, CNI, CTTAY, CIB

Emerging Markets Have Diverse Macroeconomic Profiles: Chart

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Emerging market equities have taken a strong beating this year with countries like Turkey, China, etc. falling by double digit percentage points. The benchmark MSCI Emerging Markets Index has fallen sharply so far this year.

Even with the selloff, fears of a meltdown in these markets are still in investors’ minds. However not all markets are equal and some countries such as Taiwan, Thailand, etc. have stronger economic profiles than others like India, Poland, Argentina, Turkey, etc. according to a note published by Alliance Bernstein.

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Source: Emerging Markets: It’s Not All About Turkey, Alliance Bernstein Blog

On The Lost Decade Of The BRICs

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The BRIC countries were hyped to be the top investment destination before the Global Financial Crisis. As the craze for emerging markets soared Wall Street came up with a nice-sounding term BRIC to denote the next emerging countries of Brazil, Russia, India and China. The simple catch phrase caught on and investors couldn’t get enough of the stocks from these countries during the bubble phase.

From the beginning the term and the logic behind it made no sense. Still no one cared as long as everyone was able to make profits. For instance, there was nothing in common between these countries other than all being developing countries. Brazil was democratic but has so many structural political and economic issues and always remains to be the country of the future. Russia obviously was never democratic and is a superpower in military might but the economy is average. India is another democracy but is plagued by issues even worse than Brazil. China is also neither a democracy nor a military dictatorship but is communist. Somehow these four countries were grouped together to form the BRIC. In reality investors in the BRICs have seen their returned almost turned into worthless bricks in the past decade. In fact, the BRICs have experienced a lost decade.

The MSCI BRIC Index reached its peak in 2007 and is still well below 30% of that peak as shown in the chart below:

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Source: August 2018 Client Letter: BRICs and FAANGs by Matthew Young, Young Investments Ltd.

The key takeaway for investors is to not get carried away by hype such as the BRICs. Or for that matter the newer versions such as MINT, CIVETS, NUTS, EAGLES, etc.

Related ETFs:

  • iShares MSCI Brazil Index (EWZ)
  • iShares FTSE/Xinhua China 25 Index (FXI)
  • Market Vectors Russia ETF (RSX)
  • iShares S&P India Nifty 50 Index (INDY)

Disclosure: No Positions

Stocks Deliver Strong Returns Following Bear Markets

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One of the very important factors needed for success with equity investing is the ability to stay invested during any market including bear markets. To put it another way, simply selling out when stocks crash 20% or more is a foolish idea.Investors who are unable to hold stocks when punishing market events occur should not bother venturing into stocks.

When stocks are mauled by the bear, like in 2008-09 with the Global Financial Crisis, it is critical to be patient and not sell out. Many investors who sold out at the peak of that crisis lost out big time. On the other hand, people who dived into stocks at the trough or held on to their stocks have earned excellent returns in the ensuing bull market that continues to roar ahead.

The following chart shows equity returns in various periods following bear markets since the 1960s:
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Source: The Case for Staying Invested in Stocks by Roger Young, T.Rowe Price

As the chart above shows, stocks not only yielded positive returns in the years following bear markets but also earned a double-digit average annual return.

So the key takeaway is that patience and staying invested during all times is the key. Trying to time
the market never works out even for supposdely sophisticated professional investors.

Related ETF:

  • SPDR S&P 500 ETF (SPY)

Disclosure: No Positions