Special Feature
Don’t get me wrong – I’m not suggesting that you go and open brokerage accounts in Beijing or Mumbai. On the contrary, there are some great Chinese and Indian companies listed on the London stockmarket. Although the IMF predicts that China will overtake America in GDP terms by 2016, thus becoming the world’s biggest economy, I’m rather wary of China as an investment destination for several reasons. For a start, I’m always suspicious of the financial results of its companies – there’s an awful lot of fraud and corruption in China. Second, China looks to us like one huge property bubble that’s set to implode; something we wrote about at length in a recent issue of TrendWatch. Third, recall that star UK investment manager Anthony Bolton moved to Hong Kong to try to emulate his success there. So far, his Fidelity China Special Situations fund is around 25% down since its launch in 2010. If he can’t hack it, with all of Fidelity’s backup resources, imagine how hard it must be for everyone else. So our current preference is for India, if only because it’s thousands of miles closer to home than China; it was part of the British Empire until 1947; and English is one of the nation’s two official languages (the other is Hindi). And here’s a little-known forecast: India is expected to overtake China between 2025 and 2030 to take over the crown as the world’s biggest economy. India is already the owner of many brands once considered quintessentially British, including steel-maker Corus (formerly British Steel), Jaguar, Land Rover, Tetley, Typhoo, Yardley cosmetics, the Grosvenor House Hotel and even Blackburn Rovers football club. Debenhams and Next could be the next to go.
If you’ve been paying attention to the news recently, there’s one investment theme that has leapt out and slapped you around the face like a wet kipper: electricity generation. On 31 July this year, the grand-daddy of all power failures occurred in northern and eastern India, bringing half the country to a halt. It affected 670 million people, or an incredible 10% of the world’s population. That’s more than six times the impact of the previous biggest power failure (110 million people in Indonesia in August 2005). The direct cause was the cascade failure of three vast power grids, probably due various Indian states drawing more power from the grid than their entitlement. But the basic problem is that India’s electricity-generating infrastructure has been left trailing by the nation’s rapid economic growth. At peak times, demand falls short of supply by around 9%, which is why there are so many smaller power outages in India lasting up to 10 hours. Around 27% of India’s total electric power disappears through leakage or theft; and some 300 million people (1 in 4 of the population) are not even connected to a grid. There you have it: an investment theme if ever I saw one. No Indian electricity generator will have any problems in selling its output, given that demand will outstrip supply for years to come. If you find it difficult to visualise how Indian electricity can be stolen on such a large scale… this should help!
But India is still a vast country with a somewhat alien culture. How on earth would you know what company in which to invest? The trick here is not to grope around in the barrel like some sort of lucky dip, hoping to come up with that nice rosy apple of a share. Rather, you should be looking for some particular investment theme.
94 | www.financial-spread-betting.com | September 2012