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By Jafar Rizvi, CFA, Analyst and Portfolio Manager, Sean Contant, CFA, Analyst, Christopher Nealand, CFA, Analyst, and Apurva Schwartz, Portfolio Specialist | June 30, 2023
With high GDP growth and a rapidly expanding industrial base, there is a lot of optimism about the Indian economy. And having passed China earlier this year as the world’s most populous nation, there is the potential for a “demographic dividend” to bolster that growth in the coming decades. Recently, three Harding Loevner colleagues traveled to India to talk to companies and see conditions on the ground for themselves. In the video series below, portfolio manager and analyst Jafar Rizvi and analysts Sean Contant and Chris Nealand discuss what they saw on their trip and their perspectives on India with portfolio specialist Apurva Schwartz.
Economic Advances and Hurdles
People haven’t been this bullish about India for 20 years, although there are reasons to question that enthusiasm.
Government’s Role
Governmental efforts to support industry and the country’s geopolitical positioning are boosting India’s attractiveness to companies.
Unique Spending Habits
Some of what makes India attractive are the unexpected or underappreciated investment opportunities.
Prices Warrant Patience
Investor patience will be required to purchase shares of high-quality companies at appropriate valuations.
By Wenting Shen, CFA, Analyst and Portfolio Manager and Apurva Schwartz, Portfolio Specialist | June 13, 2023
Portfolio Manager Wenting Shen, CFA, and Portfolio Specialist Apurva Schwartz discuss why Chinese companies are relocating production facilities to Southeast Asia. Watch the rest of their conversation.
By Timothy Kubarych, CFA, Co-Deputy Director of Research | June 07, 2023
When US stocks have outperformed for as long as they have—creating the world’s first trillion-dollar companies in the process—it’s easy to forget that plenty of highly profitable businesses exist a long way from Silicon Valley or Seattle.
While US companies account for just over 60% of the market capitalization of the MSCI All Country World Index, their weight is a tad misleading given that a few technology giants—Alphabet, Amazon, Apple, and Microsoft—weigh heavily on the scale. Together, those four are valued at nearly US$8 trillion, more than the next 15 largest US stocks combined.
Even if the US features most of the world’s biggest companies, it’s hardly the exclusive repository of the best ones. Using cash flow return on investment, rather than market value, as our measurement reveals that the majority of the most profitable and capital efficient businesses in just about every sector are located outside the US. The only exceptions are two areas where US companies are clearly dominant—Information Technology and Health Care.
Of course, profitability alone doesn’t define the best companies. As quality-growth investors, we examine a broader set of characteristics to determine business and management quality as well as long-term growth prospects. And still, the data show that regional diversity wins out: About three-quarters of large-cap stocks in the top two quintiles of our quality and growth rankings are non-US firms, increasingly anchored by emerging markets such as China.
Investors are naturally biased toward their home territory, which is easy to do when it is giving an electric performance. For the US, that’s been the case for more than a decade as the economy recovered from the Great Recession and smartphones, digital advertising, mobile shopping, and workplace productivity tools—areas dominated by a handful of American giants—became ingrained in daily life.
This has left international markets with more attractive share prices relative to the profitability and cash flow of their underlying businesses. We can’t predict when international markets will rise again, but we do think fundamentals and valuations ultimately drive stock performance. The valuation spread between US and international stocks today happens to mirror the gap that existed in 2001, which ushered in a period of international outperformance.
Eschewing stocks in the rest of the world not only misses out on the diversification benefits but also ignores an attractive set of companies whose valuations may be poised to rebound.
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Disclosures
“Out of Our Minds” presents the individual viewpoints of members of Harding Loevner on a range of investment topics. For more detailed information regarding particular investment strategies, please visit our website, www.hardingloevner.com. Any views expressed by employees of Harding Loevner are solely their own.
The information provided is as of the publication date and may be subject to change. Harding Loevner may currently hold or has previously held positions in the securities referenced, but there is no guarantee that Harding Loevner currently owns, or has ever owned, the securities mentioned herein. If Harding Loevner owns any of these securities, it may sell them at any time.
Any discussion of specific securities is not a recommendation to purchase or sell a particular security. Non-performance based criteria have been used to select the securities discussed. It should not be assumed that investment in the securities discussed has been or will be profitable. To request a complete list of holdings for the past year, please contact Harding Loevner.
There is no guarantee that any investment strategy will meet its objective. Past performance does not guarantee future results.
