Thursday, September 13, 2012

Ron Shah Shares Insights into India, China, and Brazil

Ron Shah is a successful international investor. He has stewarded over a dozen cross border transactions between the US and Asia. Moreover, his firm Jina Ventures specializes in India and emerging markets. I caught up with Ron to get his insights into whether China or India is the better long term investment, as well as what companies are winning in top emerging markets …

Damien Hoffman: Ron, emerging markets are one of the white hot investment spaces now that G-8 countries are in the dumps. What must investors know before throwing cash at places tens of thousands of miles away from home?

Ron: There are a few things to consider. First, investors tend to look at only the economics of these countries — which are obviously growing. GDP growth is almost 10% in China, Brazil, India, etc. However, as an investor you must look at valuations and the underlying fundamentals. To be successful you have to dig a little bit deeper and take one step further than the next guy.

For instance, we’re highly concerned about what’s going on in China. China has done a great job on public relations which have convinced the world that China’s the place to be. But if you look a little deeper in 2009, you’ll see the stimulus plan was $600 billion of their economic activity. That’s 20% of their GDP! Our stimulus plan of $700 billion was only 5% of our GDP. That’s a big difference.

We’re also concerned about loans in China. Local banks have lent out $1.2 trillion dollars in 2009. That’s 50% of GDP! Almost all these loans and stimulus are going to companies that are exporters. With the weak dollar, they’re going to have lower demand. So, we see a real problem emerging in China.

Damien: What about India?

Ron: India is a still a small market; so, the numbers are still small. Really attractive markets in India are around single digit billions, whereas in the US even most of the smallest markets are multi-billion dollar markets.

India is a lot more insulated from the storm than China because it’s a domestically driven economy. That’s an important point.

Damien: Many people want to know which country is a better bet: India or China? India has the advantage of English language and an Anglo legal system. China has the advantage of moving quickly after government decree. What is your opinion?

Ron: Over the next decade or two, the key focus for American companies will be international expansion. India is the most ideal place for American corporations to call their Asian home because of all the things you mentioned. The common law system, English, the democracy … all of those create stability. Although, they also create very slow movement. So India characteristically has lasting changes, but these changes take a lot of time. With that said, I think American companies are going to find a good home in India because of favorable demographics as well as favorable geopolitics.

Damien: Are there any companies you recommend we keep our eyes on?

Ron: Yes. I’ll go country by country. Brazil: we like two companies specifically. One is Bank of Itau in Brazil (ITUB). That’s had great growth and will be a long term play. Also, America Mobile (AMX) — a telecom company in Brazil – is a play on the domestic growth story.

In China, we like Baidu.com (BIDU) which is the Google (GOOG) of China. We like HSBC (HBC) — an international bank which everyone knows and has great operations. We also like China Mobile (CHL).

In India, I would go for ICICI Bank (IBN) which has a great domestic presence in India. They are doing a really good job of expanding the product line to suit the people there. We also like Tata Communications (TCL) — a telecom.

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