The Middle East turmoil is creating some winning stocks but mostly losers.
You can think of higher energy prices as a global tax that hits energy-intensive and energy-importing countries the hardest.
For example, energy is up to 40% of the operating costs of mining companies. This is one reason they have pulled back.
Asian countries are largely net importers of oil and LNG and receive most of the throughput of the Strait of Hormuz (this visualization from the New York Times shows it well).
China and India lead the list, and this is why India’s stock market is down about 15% so far this year. India’s leading stocks always seem expensive to me, but the overall market looks like more of a bargain, now trading at about 16 times forward earnings.
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India is also benefiting from mega-cap tech’s AI investments, as well as other foreign direct investments from multinationals such as Apple (AAPL), which now assembles about a third of iPhones in India as they move some operations out of China.
There are India boosters and skeptics, but there’s no doubt the country has made progress.
When Prime Minister Modi first took office in 2014, India was the world’s 10th-largest economy by gross domestic product at market exchange rates. It’s now the fifth-largest economy, behind the U.S., China, Germany and Japan. The IMF estimates that by 2027 India will become the world’s third-largest economy, after the U.S. and China.
India has also sharply reduced poverty over the past two decades, and some estimate that almost 500 million citizens have escaped extreme poverty.
The Modi government has also pushed an Eisenhower-sized infrastructure buildout. About 34,000 miles of national highway have been built, as well as numerous ports and airports.
India also has a first-class engineering cadre focused on computer science. IBM’s (IBM) global staff is 30% based in India, equal to the 30% in America. JPMorgan Chase now employs about 60,000 people in India.
Besides India’s engineering talent (1.5 million engineering graduates per year), a big draw is India’s massive data. This is drawn from India’s 800 million internet users, 700 million smartphone users, and the diversity of data useful in testing apps. In the AI era, this is even more important since access to China’s data is completely closed. U.S. mega-cap tech is reportedly investing $200 billion in India’s AI sector over the coming years.
India’s widespread internet access has spurred a ramp in new bank accounts, and India’s service exports have continued to boom.
Finally, India’s workforce is youthful – with a median age of 28 – and India has catch-up growth potential, with a per capita income of about one-fifth of China’s ($13,140).
India does have challenges. India is protectionist and bureaucratic, plus elementary education needs a great deal of improvement.
Mr. Modi has an ambitious goal of propelling India to be a developed economy by 2047, when the country will celebrate 100 years of independence.
We wish for the best, but how should you invest in India now?
You could go with a shotgun approach using the WisdomTree India Earnings ETF (EPI). This ETF has an earnings-weighted approach, which funnels capital toward profitable Indian companies rather than high-valuation growth names.
A more targeted strategy would be to add a couple of individual Indian stocks. I am just about ready to recommend an idea and encourage you to join the Cabot Explorer to discover the best stocks in India, as well as around the world, including the United States.
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