Making the Case for Emerging Markets

I had a conference call last night that began at 8pm PST and lasted until 10pm. The call was with a company in India (12 and a half hours ahead), a company that is the “TicketMaster” of India, if you will. We’re evaluating the company for a venture investment, but it got me thinking: Are the best investments today outside the US in the public markets?

Much like investing in high growth companies, it makes sense to think about the fastest growth countries. I believe that the macroeconomic trends are in favor of countries like India. The US suffers from both a very large, negative trade balance and a very large and ballooning federal deficit. In the long term, this is pushing up both the cost of capital (interests rates), as well as putting negative pressure on our currency. Investing dollars abroad gives you both stronger & faster growth, as well as a favorable currency outlook.

Now, I’m not a currency trader - you really need a working crystal ball to predict where the currency markets are going to go. But in the long term, we can’t keep buying more than we sell to other countries, and oh by the way, borrowing MORE money from them as well. It’s like that bad college friend who crashes on your couch AND borrows money from you… it’s a situation that can’t go on forever, no matter how favorable everything else is. The US dollar will HAVE to devalue to balance out our trade situation.

If the dollar devalues, you want to be holding other currencies. Then when you do convert it back into US dollars to buy your house you’ve been saving for, you get more dollars. Oh, and by the way, there’s great companies abroad with stronger growth stories, booming financial markets, and are in less competitive industries than the US market.

Thanks to US policies after 9/11 that cracked down on immigration, coupled with a crappy economy that forced companies to lay off workers and stop giving work visas, we forced really smart entrepreneurs to stay at their home countries. Now, countries like India and China have great talent starting companies there that otherwise would have been US companies.

Are the best investments today outside the US in the public markets? Probably, but finding them and tracking them is another story…

Comments

[Macbth:]

Kevin. what about the high commission rate they take?
“4%”
That’s a lot to take for a fund. I would have to believe it’s well managed for that amount.

2006 Aug 28 08:48 AM

[Mridula Mu...:]

It is not only the talent for starting ventures that is helping India, it is also the confidence that the accelerated growth rate has generated. Investing in India has generated far greater profits than investing in the US does, for the present moment at least.
Mridula
moneytalk.in

2006 Sep 02 09:07 AM