WEBVTT - The Bull Case for India 0:00:06.280 --> 0:00:14.400 Welcome Chrillion's I'm Joel Webber and I'm Eric belchunis Eric. 0:00:14.960 --> 0:00:19.120 There's a country that just hosted the G twenty and 0:00:19.160 --> 0:00:21.000 it's been in a lot of the headlines this year, 0:00:21.600 --> 0:00:23.079 and so I felt like it was a good time 0:00:23.120 --> 0:00:24.680 for us to talk about India. 0:00:26.079 --> 0:00:26.840 Yeah. 0:00:26.920 --> 0:00:29.600 In fact, the ETFs India ETFs are doing very well. 0:00:29.600 --> 0:00:31.840 They've taken in about two billion, that's you know, something 0:00:31.840 --> 0:00:34.360 around twenty twenty five percent organic growth. So a lot 0:00:34.400 --> 0:00:36.479 of international has kind of cooled off this year, but 0:00:36.520 --> 0:00:37.960 India is still pretty hot. 0:00:38.080 --> 0:00:38.279 You know. 0:00:38.520 --> 0:00:41.120 This is why it's scraping in ETF analyst troll. You 0:00:41.159 --> 0:00:43.680 get to go everywhere. And I've been to India a 0:00:43.720 --> 0:00:46.680 few times in terms of like focusing on it, writing 0:00:46.720 --> 0:00:49.199 about it. And when I think of India, I think 0:00:49.200 --> 0:00:52.120 of a couple things. First, you hear they've got a 0:00:52.200 --> 0:00:55.520 really young population, like half the country of one point 0:00:55.560 --> 0:00:58.400 like four billion people is under the age of twenty five. 0:00:58.760 --> 0:01:02.960 They're pretty tech savvy. Their leader Modi is pretty business oriented, 0:01:04.200 --> 0:01:06.959 and they've got a lot of consumers. This is sort 0:01:06.959 --> 0:01:09.960 of the story you hear. And one thing I always 0:01:10.000 --> 0:01:12.600 learn about India is Jeff Gunlock, the famous bond manager 0:01:12.600 --> 0:01:16.280 said in twenty fifteen, I recommend buying India and then 0:01:16.319 --> 0:01:19.080 not looking at your statement for twenty five years. So 0:01:19.200 --> 0:01:21.880 I went and looked. He said that about eight years ago. 0:01:21.920 --> 0:01:24.319 India's up eighty six percent since then. Now the US 0:01:24.360 --> 0:01:26.600 is up more. But you're doing pretty good, Joel. But 0:01:26.640 --> 0:01:28.520 there is a lot of volatility. India can have a 0:01:28.560 --> 0:01:31.720 really bad year or a bad stretch as an emerging 0:01:31.760 --> 0:01:35.240 market country. So it's just interesting to you know, all 0:01:35.280 --> 0:01:37.480 these things are available to you via ETFs, and there's 0:01:37.720 --> 0:01:39.560 about a dozen India ats. Since I think it's a 0:01:39.560 --> 0:01:41.920 good time to revisit India. 0:01:42.319 --> 0:01:44.560 And joining us. On this episode, we're going to have 0:01:45.040 --> 0:01:49.200 Kevin Carter of i n QQ, which is the India 0:01:49.320 --> 0:01:54.840 Internet and e Commerce ETF. He's with EMQQ Global, as 0:01:54.880 --> 0:01:58.880 well as Rebecca Sen, an ETF analyst with Bloomberg Intelligence, 0:02:01.240 --> 0:02:08.240 this time on trillions revisiting India. Kevin, Rebecca wocome tow trillions. 0:02:08.520 --> 0:02:09.919 Thank you, Thank you for having us. 0:02:10.919 --> 0:02:16.040 Okay, Rebecca. Eric mainly focuses on the US and you 0:02:16.200 --> 0:02:20.240 focus on Asia and some internationals. So I just want 0:02:20.280 --> 0:02:22.160 to start with you give me a context of like 0:02:22.200 --> 0:02:25.160 what India and ETFs look like. 0:02:26.720 --> 0:02:30.440 So India's having a milestone moment where they hosted their 0:02:30.480 --> 0:02:34.400 first Average twenty summit and they're showing that they're really 0:02:34.400 --> 0:02:39.200 a clear leader for Asian investors. India is really taking 0:02:39.240 --> 0:02:41.840 away a lot of the flows from China at the moment. 0:02:41.919 --> 0:02:46.920 International companies are seeking supply chain diversification to India, with 0:02:47.120 --> 0:02:50.799 Apple supplier Fox Con building plants in India. iPhone is 0:02:50.840 --> 0:02:54.519 shifting some of their plants to India away from China, 0:02:54.919 --> 0:02:58.400 and a few interesting stats about India is that more 0:02:58.440 --> 0:03:01.040 than half of their population is under the age of thirty. 0:03:01.080 --> 0:03:04.200 They have the largest youth unemployment rate in the world, 0:03:04.560 --> 0:03:09.360 but they're also the fastest growing large economy. They rank 0:03:09.639 --> 0:03:13.480 third by highest number of billionaires, but on a per 0:03:13.600 --> 0:03:16.760 capital income they ranked tenth, so to put this into perspective, 0:03:16.800 --> 0:03:19.960 the US GDP per capital is seventy six thousand, while 0:03:20.040 --> 0:03:22.560 India is only two point three thousand, so that's a 0:03:22.639 --> 0:03:27.040 huge difference. Mainland China, for instance, is twelve thousand, seven hundred, 0:03:27.160 --> 0:03:30.120 Japan is forty three thousand. So India is growing at 0:03:30.240 --> 0:03:34.200 very rapid pace. Their wealth is growing roughly twelve percent 0:03:34.400 --> 0:03:37.960 annually and from a performance standpoint MSCI. Most of the 0:03:38.000 --> 0:03:42.040 Indian induses have performed roughly ten percent this year, and 0:03:42.480 --> 0:03:45.200 from a funds perspective, India is one of the cheapest 0:03:45.280 --> 0:03:47.640 region by management fees, so on average they only have 0:03:47.760 --> 0:03:50.920 twenty eight basis points the average management fee on their products, 0:03:51.160 --> 0:03:53.960 and for the US it's roughly fifty five basis points. 0:03:54.000 --> 0:03:57.000 Hong Kong is ninety five basis points, Taiwan is seventy 0:03:57.000 --> 0:03:59.320 five basis points. So a lot of people are looking 0:03:59.360 --> 0:04:01.880 to India right now because not only is it performing well, 0:04:01.920 --> 0:04:04.800 but it's also a very cheap area to invest in too. 0:04:05.680 --> 0:04:09.720 Okay, Kevin, I want to better understand something though, because 0:04:09.800 --> 0:04:15.680 earlier this year, short seller Hindenburg Research pretty much shook 0:04:15.840 --> 0:04:19.680 the world when he shorted a billionaire Indian billionaire a 0:04:19.760 --> 0:04:23.760 Gautam Adanni. So here we are in the aftermath of that. Yes, 0:04:23.880 --> 0:04:27.719 there's some reasons to be bullish on on India. I 0:04:27.720 --> 0:04:30.839 think the fact that the new iPhone is coming directly 0:04:30.880 --> 0:04:35.159 from Fox con factories in India in addition to China, 0:04:35.320 --> 0:04:39.560 is extremely noteworthy. So talk to us about why iron 0:04:39.680 --> 0:04:42.120 QQ is a good idea for you. 0:04:43.320 --> 0:04:45.720 Well, I think that you know when you look at 0:04:45.720 --> 0:04:48.800 emerging markets. You know, the thing that's emerging are the people. 0:04:49.000 --> 0:04:52.279 You've got six and a half billion people and they're 0:04:52.320 --> 0:04:54.480 moving on up and they want stuff. They want more 0:04:54.520 --> 0:04:59.520 and better food, better clothing, appliances, They want to take vacations, 0:04:59.560 --> 0:05:03.159 go to boom we get automobiles or some other motorized vehicles, 0:05:03.160 --> 0:05:04.839 and they want their kids to go to college. And 0:05:04.880 --> 0:05:08.040 so that's that's the story, and that's been the story 0:05:08.120 --> 0:05:11.280 and that'll continue to be the story. And India right 0:05:11.360 --> 0:05:16.840 now is not just the most exciting emerging market today, 0:05:16.960 --> 0:05:23.120 but it's kind of like the perfect emerging market. And 0:05:23.200 --> 0:05:25.960 the reason is that and we saw this in China. 0:05:26.080 --> 0:05:28.920 I mean, this is basically like China fifteen or seventeen 0:05:29.000 --> 0:05:32.600 years ago when I first got involved with the emerging markets. 0:05:32.920 --> 0:05:36.680 And what's happening is that those consumers they're becoming consumers, 0:05:36.720 --> 0:05:41.279 but they're also experiencing two things that we've had for decades. First, 0:05:41.279 --> 0:05:44.480 they're getting their first ever computer and it's not a 0:05:44.560 --> 0:05:48.720 desktop computer and it doesn't have an Apple logo in 0:05:48.760 --> 0:05:53.000 most cases. The sub one hundred dollars android based smartphone 0:05:53.120 --> 0:05:55.360 is bringing the computer to the world for the first time. 0:05:55.560 --> 0:05:58.240 And you know, three months ago, I would have told 0:05:58.279 --> 0:06:01.320 you you could get a brand new Android based smartphone 0:06:01.360 --> 0:06:05.240 in India for fifty dollars and that's still true. But 0:06:05.400 --> 0:06:07.839 now you can get one for twelve dollars. So Geo 0:06:08.480 --> 0:06:13.080 Digital introduced the Geo barta smartphone, which is a twelve 0:06:13.120 --> 0:06:15.559 dollars smartphone. It's you know, it's not a fifteen hundred 0:06:15.560 --> 0:06:18.240 dollars iPhone in terms of its capacity and power, but 0:06:18.320 --> 0:06:21.920 it works for you know, making digital payments and watching video, 0:06:21.960 --> 0:06:25.280 which are the two primary things the Indian smartphone user 0:06:25.320 --> 0:06:28.640 wants to do right now. And in addition to being 0:06:28.640 --> 0:06:30.839 the first ever computer for these people, it's their first 0:06:30.920 --> 0:06:35.160 ever Internet access. Again, when China got to this stage, 0:06:35.400 --> 0:06:39.039 they barely had any personal computers and there was no smartphones. 0:06:39.720 --> 0:06:43.000 Now India, you know, fifteen year later, fifteen years later, 0:06:43.080 --> 0:06:46.840 it looks demographically like China. Did you know, It's the 0:06:46.880 --> 0:06:49.880 biggest country, it's the youngest country, it's got the fastest 0:06:49.880 --> 0:06:53.200 growing economy. But it's also coming online. When the arc 0:06:53.240 --> 0:06:57.120 of technology is at a point where you know, the smartphone, 0:06:57.279 --> 0:07:00.400 the supercomputer in the pocket is somewhat ubiquitous, and India 0:07:00.480 --> 0:07:01.920 represents the biggest part of that. 0:07:02.520 --> 0:07:04.960 To add to what Kevin said, there was a survey 0:07:05.000 --> 0:07:07.600 that was done and it's said that every day three 0:07:07.640 --> 0:07:11.000 individuals in India are expected to join the group of 0:07:11.080 --> 0:07:14.600 wealthy in Indians whose net worth will be more than 0:07:14.720 --> 0:07:17.680 thirty million over the next five years. So every day 0:07:17.880 --> 0:07:20.160 three people are going to join this networth of more 0:07:20.160 --> 0:07:22.800 than thirty million. So in India, to Kevin's point, there's 0:07:22.840 --> 0:07:29.200 a huge retail adoption, mainly because of their use of 0:07:29.520 --> 0:07:31.720 digital payments, and so India is one of the world's 0:07:31.760 --> 0:07:36.640 leading digital payments. And in India they have this systematic 0:07:36.720 --> 0:07:38.920 investment plan. It's similar to a four oh one K 0:07:39.120 --> 0:07:42.560 in the US, but you can start depositing fixed amounts 0:07:42.720 --> 0:07:45.400 at a regular interval and in India you can deposit 0:07:45.480 --> 0:07:47.840 as little as six US dollars per month. And so 0:07:48.040 --> 0:07:50.720 this plan has really helped a lot of the Indian 0:07:50.760 --> 0:07:54.680 funds get tons of inflows. And so roughly the estimate 0:07:54.720 --> 0:07:57.800 is this year nineteen billion of equity inflows are as 0:07:57.840 --> 0:08:00.480 a result of this fund. And this is the use 0:08:00.560 --> 0:08:04.000 of technology. Because everyone's getting a smartphone, they're now able 0:08:04.040 --> 0:08:06.760 to invest more easily, while previously they'd have to go 0:08:06.800 --> 0:08:07.400 to a bank. 0:08:08.720 --> 0:08:11.560 So Kevin I did some research for this podcast Believe 0:08:11.600 --> 0:08:14.560 or Natural, I do research for these and I was 0:08:14.640 --> 0:08:17.320 listening to these VC guys talk about India and they 0:08:17.360 --> 0:08:18.720 had said two things that stuck out to me. I 0:08:18.760 --> 0:08:21.200 want to get your reaction to this, because all this 0:08:21.280 --> 0:08:23.800 sounds so good. It sounds like an investor's dream, right. 0:08:24.200 --> 0:08:26.640 He said two things A couple things ready. One is 0:08:27.160 --> 0:08:30.520 only thirty million credit cards are in the country, so 0:08:30.880 --> 0:08:34.680 people don't use credit, which it's got to limit how 0:08:34.720 --> 0:08:37.960 fast an economy can grow. The other thing he said 0:08:38.080 --> 0:08:40.679 was they tried to set up a Shopify type company 0:08:40.679 --> 0:08:44.440 there and it failed because there's just no way to 0:08:44.480 --> 0:08:47.680 get stuff to people quickly like here where there's streets 0:08:47.720 --> 0:08:51.600 and everything's very much like there's postal service or UPS 0:08:51.679 --> 0:08:55.040 or FedEx. And so that company that did Shopify actually 0:08:55.040 --> 0:08:59.280 switched gears and did a courier service that grouped a 0:08:59.280 --> 0:09:03.360 bunch of couriers together to make the infrastructure first before 0:09:03.360 --> 0:09:06.640 you could even attempt to shopify. So I guess it 0:09:07.080 --> 0:09:10.960 did this. What I heard laid a rougher landscape, not 0:09:11.120 --> 0:09:13.760 quite as tech oriented and not quite as ready. 0:09:15.200 --> 0:09:20.000 Well, Eric, this is the secret sauce of the India story, 0:09:20.040 --> 0:09:21.640 and to be frank with you. You know, I've been 0:09:21.679 --> 0:09:27.000 investing in emerging market internet companies that they started again, 0:09:27.280 --> 0:09:31.440 mainly in China where this all started as well. And 0:09:32.000 --> 0:09:35.000 actually the things that you've pointed out are part of 0:09:35.160 --> 0:09:40.200 what I think are the upsides beyond the expectations. The 0:09:40.240 --> 0:09:46.160 credit market, as you mentioned, is very very small, and 0:09:46.320 --> 0:09:49.120 the you know, very few people had a bank account, 0:09:49.400 --> 0:09:52.320 and even to go a step further, you know, almost 0:09:52.320 --> 0:09:56.000 nobody had a government identification card fifteen years ago, and 0:09:56.080 --> 0:10:00.280 so it's hard to modernize your economy if no has 0:10:00.280 --> 0:10:05.320 a digital payments form and nobody has an identification But 0:10:05.559 --> 0:10:08.640 this is this is going to change, and it's already changing, 0:10:08.679 --> 0:10:11.800 and it's because of the digital public infrastructure they've built, 0:10:12.000 --> 0:10:16.400 which again is the secret sauce, the so called India stack. 0:10:16.480 --> 0:10:21.079 And what I believe is that that growth of consumer 0:10:21.200 --> 0:10:24.240 credit is actually going to happen. It's not going to 0:10:24.320 --> 0:10:27.640 happen with traditional credit cards and traditional banks, and it's 0:10:27.679 --> 0:10:32.080 going to happen with digital providers. And what's exciting about 0:10:32.080 --> 0:10:35.520 that is if and these are you know, numbers I've 0:10:35.559 --> 0:10:37.840 seen from economists that have studied this closely, but if 0:10:38.640 --> 0:10:42.559 China's or rather if India is able to develop its 0:10:42.640 --> 0:10:45.200 consumer credit market to look more like a you know, 0:10:45.280 --> 0:10:49.160 developed world, it could add two or three full percentage 0:10:49.160 --> 0:10:52.520 points to the country's growth rate. And that's one thing 0:10:52.559 --> 0:10:55.840 I think that you know, I think it's quite possible 0:10:55.880 --> 0:10:59.000 that the growth hasmates for India are understated because of 0:10:59.559 --> 0:11:02.040 the power of this digital platform they've built for the 0:11:02.080 --> 0:11:06.760 country and the potential introduction of consumer credit. Now to 0:11:06.800 --> 0:11:12.360 your second point about logistical challenges, Yes, this is you know, 0:11:12.400 --> 0:11:14.640 one of the things that I saw seventeen years ago 0:11:14.720 --> 0:11:17.480 when I got you know, focused on emerging markets was 0:11:17.520 --> 0:11:21.360 that China and India were actually pretty close. China was 0:11:21.360 --> 0:11:23.440 a little bit ahead of India, but not very far. 0:11:23.559 --> 0:11:26.200 And but what you can see was China was building 0:11:26.200 --> 0:11:30.959 the world's greatest infrastructure to create products and get them 0:11:31.480 --> 0:11:33.600 to the water and onto a boat. And they've got 0:11:33.640 --> 0:11:37.400 the world's best infrastructure and India has lagged in that 0:11:37.520 --> 0:11:43.280 and that certainly includes higher logistics costs. And I think 0:11:43.320 --> 0:11:47.120 the reality is that the Indian e commerce market is 0:11:47.200 --> 0:11:51.200 going to look different than the other you know, e 0:11:51.240 --> 0:11:54.040 commerce markets out there, and it's going to be hyper localized. 0:11:54.160 --> 0:11:56.880 So if you think about, you know, where is commerce 0:11:56.920 --> 0:12:03.479 happening now in India of you know, consumer spending happens, 0:12:03.840 --> 0:12:07.199 you know, retail spending at the thirteen million mom and 0:12:07.280 --> 0:12:10.320 pop Karana stores, which are like you know, Bodega's with 0:12:10.400 --> 0:12:14.920 a couple hundred items. And while you know, more formal 0:12:15.040 --> 0:12:17.440 retail has gone to India, it hasn't really you know, 0:12:17.480 --> 0:12:19.640 taken much share. So ninety percent is still in these 0:12:19.640 --> 0:12:23.679 mom and pop stores. And what's what's already happening is 0:12:23.720 --> 0:12:27.160 you're going to see a hyper localized e commerce market 0:12:27.160 --> 0:12:30.560 where rather than replace the mom and pop stores with 0:12:30.640 --> 0:12:33.000 a you know, first a Target store, then an Amazon, 0:12:33.040 --> 0:12:36.400 they're going to leap frog. And indeed, those mom and 0:12:36.440 --> 0:12:38.240 pops are going to be an important part of the 0:12:38.320 --> 0:12:41.560 e commerce story in India. And that's again already happening, 0:12:41.600 --> 0:12:42.800 and they're getting digitized. 0:12:49.520 --> 0:12:54.520 So how do you build a portfolio to capture what 0:12:54.559 --> 0:12:59.400 you're this growth opportunity that you're describing Kevin Well, you know, as. 0:12:59.520 --> 0:13:01.679 Has been my long conviction that if you're going to 0:13:01.760 --> 0:13:03.760 invest in emerging markets, you want to invest in the 0:13:03.760 --> 0:13:07.520 consumer story. But what makes that consumer story even more 0:13:07.520 --> 0:13:11.520 exciting in emerging markets in India is that it's they're 0:13:11.600 --> 0:13:14.640 leapfrogging the bank account, the credit card and going straight 0:13:14.679 --> 0:13:18.600 to mobile phone based money. They're leapfrogging you know, all 0:13:18.640 --> 0:13:22.719 of those that consumption infrastructure we take for granted. And 0:13:22.920 --> 0:13:27.000 and so the internet companies have been the best way 0:13:27.040 --> 0:13:28.960 to invest in the United States, They've been the best 0:13:29.000 --> 0:13:32.800 way to invest in China, and I am quite confident 0:13:32.840 --> 0:13:35.960 they will be the best way to invest in in India. 0:13:36.000 --> 0:13:38.800 That you know, the expectations are that India's economy will 0:13:39.559 --> 0:13:41.840 you know, nearly double by the end of the decade, 0:13:41.880 --> 0:13:44.760 but the internet economy is going to grow five hundred 0:13:44.760 --> 0:13:48.720 percent in that period. So I think that it's you know, 0:13:48.840 --> 0:13:51.520 just as we've seen all over the world, the internet 0:13:51.559 --> 0:13:53.800 companies lead the way and growth. And one of the 0:13:53.840 --> 0:13:59.480 other advantages in emerging markets in India in particular, is 0:13:59.559 --> 0:14:03.920 that if you look at, you know, the existing market 0:14:03.960 --> 0:14:07.040 cap and where are the companies, you have companies like 0:14:07.040 --> 0:14:10.840 Adannie and these large family controlled conglomerates that may be 0:14:11.440 --> 0:14:14.959 somewhat opaque well with the internet companies. And this isn't 0:14:15.000 --> 0:14:17.480 just in India, this is in Brazil and everywhere else. 0:14:18.200 --> 0:14:21.480 That basically the founders are going to the best colleges 0:14:21.520 --> 0:14:23.560 of the world, and then they're working for Google or 0:14:23.600 --> 0:14:27.440 Microsoft or Apple or whoever, and then they get their 0:14:27.560 --> 0:14:29.720 MBAs at the best colleges in the world, and then 0:14:29.760 --> 0:14:32.240 they start these companies and they're clean. They start them 0:14:32.280 --> 0:14:36.760 from scratch. They're funded by US or local institutions. And 0:14:36.800 --> 0:14:39.440 so the capital formation process of the internet companies, I 0:14:39.440 --> 0:14:43.480 think lends to better corporate governance in a part of 0:14:43.520 --> 0:14:46.800 the world where that's one of your biggest problems. And 0:14:46.920 --> 0:14:49.640 the other and important thing I would say is, you know, 0:14:49.680 --> 0:14:54.360 when I got involved with China fifteen years ago, the 0:14:54.440 --> 0:14:57.440 first question I had for our portfolio managers was get, 0:14:57.480 --> 0:14:59.000 you know, give me a list of all the companies 0:14:59.040 --> 0:15:03.680 in the China et Because when I was first asked 0:15:03.720 --> 0:15:07.960 to help people invest in China, I assumed that we 0:15:07.960 --> 0:15:11.480 would buy the FXI, which was the only Chinese ETF 0:15:11.520 --> 0:15:15.040 on the planet. And I was horrified when I saw 0:15:15.080 --> 0:15:18.160 that the holdings of the FXI were eighty percent government 0:15:18.200 --> 0:15:21.080 owned banks and oil companies. And so if you look 0:15:21.120 --> 0:15:25.800 back now and say, okay, yes, you know, looking out 0:15:25.880 --> 0:15:28.360 from two thousand and five, say oh, yes, it looks 0:15:28.400 --> 0:15:29.920 like China is going to grow a lot. 0:15:30.000 --> 0:15:30.520 And it did. 0:15:30.600 --> 0:15:33.400 It's economy grew, you know, more than four hundred percent. 0:15:34.320 --> 0:15:37.080 But if you bought the FXI, you lost half your money. 0:15:37.600 --> 0:15:40.640 So now if we take the India story, we say, okay, 0:15:41.560 --> 0:15:43.800 India looks like it's going to grow it. You know, 0:15:43.880 --> 0:15:47.160 everything looks good. It's populations young, it's economies growing fast, 0:15:47.720 --> 0:15:50.720 and those things are all true. But if you look 0:15:50.760 --> 0:15:54.320 at the India Index, the broad indexes, the MSCI, the 0:15:54.400 --> 0:15:57.720 nifty to fifty, they're not as bad as the China ETF. 0:15:57.720 --> 0:16:01.640 They're about seven percent stat owned enterprises. These are again 0:16:01.720 --> 0:16:04.360 government owned banks and oil companies. China has kept their 0:16:04.520 --> 0:16:08.560 SOEs more, you know, relevant India has let their SOEs, 0:16:09.160 --> 0:16:12.360 the state on enterprises get eaten by capitalism or acquired 0:16:12.400 --> 0:16:14.360 and so forth. So it's only about seven percent of 0:16:14.400 --> 0:16:20.000 the India Index. But another problem is that their biggest companies, 0:16:20.080 --> 0:16:24.320 the Infosys, Tata, these companies that are about twenty percent 0:16:24.360 --> 0:16:27.960 of the index and the largest holdings, they're not really 0:16:28.680 --> 0:16:31.320 you know, capturing the India growth story. They get almost 0:16:31.360 --> 0:16:34.000 one hundred percent of their revenue from the Fortune five hundred, 0:16:34.560 --> 0:16:36.960 you know, doing outsourcing for US companies. So if you 0:16:36.960 --> 0:16:40.720 take that twenty percent and the seven percent, SOEs, Yes, 0:16:40.760 --> 0:16:43.240 India is going to grow a lot, but I think 0:16:43.320 --> 0:16:46.160 if you really want to capture the growth, there's a 0:16:46.200 --> 0:16:47.840 better way to do it than just to buy the 0:16:47.880 --> 0:16:51.080 traditional broad index that you know is usually the problem 0:16:51.080 --> 0:16:52.320 in emerging markets. 0:16:53.600 --> 0:16:55.880 Yeah, let's let's jump into that real quick, because most 0:16:55.880 --> 0:17:00.640 people probably get their India through in Emerging markets ETF. Right, 0:17:00.680 --> 0:17:04.000 So IMG and VWO are very popular India seventeen percent 0:17:05.440 --> 0:17:10.280 waiting in IMG, so that's a good chunk. Now your 0:17:10.320 --> 0:17:16.000 fund I NQQ has almost no overlap with the stocks 0:17:16.000 --> 0:17:21.960 in IMG, So I definitely agree that. It just seems 0:17:21.960 --> 0:17:24.720 like if you are going to go, you have a 0:17:24.720 --> 0:17:29.480 differentiated exposure, probably more volatile than a straight India ETF. 0:17:30.080 --> 0:17:33.760 But what's the problem. I guess you're going to probably 0:17:33.880 --> 0:17:36.720 be a little bit redundant. But do you think people 0:17:36.920 --> 0:17:40.760 should add on to their Emerging markets ETF with I 0:17:40.960 --> 0:17:44.800 NQQ or don't even buy an emerging markets ETF and 0:17:44.880 --> 0:17:49.600 go pick just tech versions of these countries. 0:17:50.520 --> 0:17:53.199 You know, the biggest problem in emerging markets is the 0:17:53.240 --> 0:17:56.840 index itself. I mean, everybody looks at the MSCI index 0:17:56.880 --> 0:17:59.160 and they and they use that as their barometer of 0:17:59.240 --> 0:18:00.840 you know, whether or not you can make money in 0:18:00.880 --> 0:18:05.520 emerging markets, and they look at that to reference valuations, 0:18:05.520 --> 0:18:07.320 and it's a big problem. I think it's the biggest 0:18:07.359 --> 0:18:09.359 value trap in the world because the you know, the 0:18:09.359 --> 0:18:12.440 pe looks really low. But if you look underneath the 0:18:12.480 --> 0:18:15.280 hood and you see the Agricultural Bank of China and 0:18:15.359 --> 0:18:19.320 Petro Bra, you know, these government owned businesses that aren't 0:18:19.440 --> 0:18:22.639 on your side, I think it becomes clear that you 0:18:22.720 --> 0:18:25.879 don't you know, you know, you're not going to optimize 0:18:25.920 --> 0:18:29.119 your returns by buying the broad traditional index, and you 0:18:29.240 --> 0:18:31.879 have to get more targeted. That could be as easy 0:18:31.880 --> 0:18:36.000 as leaving out the ses. There's a large etf that is, 0:18:36.080 --> 0:18:39.760 you know, merging markets without state owned enterprises. But I 0:18:39.800 --> 0:18:41.800 think that the real you know, the tip of the 0:18:41.840 --> 0:18:44.879 sphere of this, and you know, implicit in the word 0:18:44.960 --> 0:18:47.840 emerging is some sort of growth. And I can tell 0:18:47.880 --> 0:18:52.760 you with great conviction that where the growth is in 0:18:52.760 --> 0:18:56.440 India and in other emerging markets is in smartphones, in 0:18:56.480 --> 0:18:59.200 the internet economy. And again it's this leap frogging effect 0:18:59.800 --> 0:19:03.359 that it's so powerful, and it's that leapfrogging the bank 0:19:03.400 --> 0:19:06.480 account and credit card, that first step that's the most 0:19:06.520 --> 0:19:08.080 powerful and important. 0:19:08.119 --> 0:19:10.840 Okay, all that said, you know what kind of valuations 0:19:10.880 --> 0:19:12.359 are we looking at to buy this? Right? So the 0:19:12.440 --> 0:19:13.920 S and P has a price to earnings ratio of 0:19:13.960 --> 0:19:17.480 about twenty five? What's India tech? What's I in QQ? 0:19:17.640 --> 0:19:20.639 And it is the high valuation, which I'm guessing it 0:19:20.680 --> 0:19:24.120 has a problem or is it something you should watch 0:19:24.119 --> 0:19:24.480 out for? 0:19:25.040 --> 0:19:30.080 Sure? Well, valuation, of course is quite important. And when 0:19:30.119 --> 0:19:32.720 I look at valuation, I don't care about the PE ratio. 0:19:32.960 --> 0:19:35.520 I care about the peg ratio. The PE without the 0:19:35.560 --> 0:19:38.200 growth rate doesn't mean anything to me because I'm buying 0:19:38.240 --> 0:19:41.240 the future. So I want to know what the future 0:19:41.240 --> 0:19:46.199 earnings look like, not the current or past. And you know, 0:19:46.240 --> 0:19:48.800 the one thing about India is because it looks so good. 0:19:48.880 --> 0:19:52.600 I mean, as mentioned the fundamental case, the biggest population, 0:19:52.800 --> 0:19:56.199 the youngest population, the fastest growing economy, a middle class 0:19:56.240 --> 0:20:01.880 that's exploding, the fastest growing e commerce market. 0:20:00.960 --> 0:20:01.040 A. 0:20:03.320 --> 0:20:06.760 Government that in a you know, very troubled geopolitical world 0:20:06.840 --> 0:20:12.919 is in this very tranquil relative spot and you know, 0:20:13.000 --> 0:20:15.720 not part of the China tensions or the Russian tensions. 0:20:16.440 --> 0:20:18.960 And the valuations reflect this. I mean, you pay a 0:20:19.000 --> 0:20:21.840 high price for a cheery consensus and there's lots of 0:20:21.880 --> 0:20:25.080 people saying, yes, India has a bright future. So when 0:20:25.119 --> 0:20:28.600 you look at the broad Index, the valuations are amongst 0:20:28.600 --> 0:20:31.240 the highest in the world on a relative basis. And 0:20:31.320 --> 0:20:35.400 you know, Burton likes to use the the Schiller cape ratios, 0:20:35.960 --> 0:20:38.800 and I know that on his chart it's always the 0:20:38.880 --> 0:20:43.600 US first, India second in terms of valuations. And another 0:20:43.680 --> 0:20:46.919 thing that's happening is, as Rebecca mentioned, is there's a 0:20:46.920 --> 0:20:50.040 lot of money getting funneled into the index funds, into 0:20:50.080 --> 0:20:53.639 the ETFs. The government program is funneling a lot of 0:20:53.680 --> 0:20:56.760 money into that relatively narrow index. They're using the nifty 0:20:56.760 --> 0:21:00.800 to fifty, not the MSCI, which is what the US 0:21:01.160 --> 0:21:05.560 largest ETF tracks. And so the valuations of the broad 0:21:05.600 --> 0:21:10.040 index are high, and the pe is you know, twenty 0:21:10.080 --> 0:21:14.840 one or twenty two. The earnings growth rate might be, 0:21:15.080 --> 0:21:17.800 you know, eleven percent, So you've got a PEG ratio 0:21:17.920 --> 0:21:23.119 of two ish or or higher. Actually, because they're actually 0:21:24.160 --> 0:21:27.520 on a revenue growth basis, the PEG ratio for the 0:21:27.560 --> 0:21:29.440 India broad market is about. 0:21:29.160 --> 0:21:30.440 Three to three and a half. 0:21:30.640 --> 0:21:32.720 And when I look at the internet companies, the PEG 0:21:32.840 --> 0:21:36.680 ratio is about one to one and a half. And 0:21:37.800 --> 0:21:41.320 so and I think that perhaps the reason that the 0:21:41.400 --> 0:21:45.320 valuations are more reasonable is it doesn't have that forced buy. 0:21:45.440 --> 0:21:47.639 You don't have all the you know, all the flows 0:21:47.640 --> 0:21:49.399 that are going to the ETF that are buying that 0:21:49.520 --> 0:21:51.920 narrow list of stocks. And as you pointed out, most 0:21:51.960 --> 0:21:54.880 of the Internet companies are not in the index, which 0:21:54.880 --> 0:21:57.040 has been a problem in a lot of emerging markets. 0:21:57.040 --> 0:22:01.879 And that's another problem with Emerging Market Index is they 0:22:01.920 --> 0:22:04.920 don't seem to be paying attention to the Internet companies 0:22:05.119 --> 0:22:07.080 because a lot of them end up listing in the 0:22:07.200 --> 0:22:11.200 United States or you know, domiciling themselves outside of their 0:22:11.920 --> 0:22:13.480 markets where they're doing their business. 0:22:14.640 --> 0:22:16.520 Okay, Kevin, I've got one more question for you. It's 0:22:16.560 --> 0:22:20.760 one that we ask everybody on trillions. What is your 0:22:20.800 --> 0:22:23.000 favorite ETF ticker other than your own? 0:22:26.520 --> 0:22:32.200 Oh geez, I know what he's gonna say, q q 0:22:32.440 --> 0:22:35.320 q Q. I know it, I know it, I know it, 0:22:35.840 --> 0:22:40.959 easy way out. But still, honestly, the Cues is a 0:22:41.000 --> 0:22:44.040 powerhouse and a juggernaut. You're actually smart to use the 0:22:44.080 --> 0:22:47.400 cues and your tickers in my opinion, given how famous 0:22:47.400 --> 0:22:51.080 and awesome that the cues are. But I had a 0:22:51.080 --> 0:22:53.119 feeling you'd guess that you'd guess that. I don't know 0:22:53.280 --> 0:22:53.800 I was right. 0:22:56.040 --> 0:22:58.000 No one's ever asked me that before, but that just 0:22:58.119 --> 0:22:59.000 popped in my head. 0:22:59.440 --> 0:23:02.960 Good Kevin, Rebecca, thanks for joining us on Trillions. Thank you, 0:23:03.840 --> 0:23:11.640