Where in the world will we find returns in the years ahead?

Franklin Narendra_Modi

By Daleen van Wyk

Communications Strategist

Next time you discuss investment returns and especially the outlook for future returns, amaze your friends and colleagues with a few surprising estimates and figures. It is not what they are likely to expect.

Despite projections at the start of the year that the South African market will be rather lacklustre in 2015, the JSE all share has touched on new record highs a few times – the all share index closed at a new high of 54 687 on 23 April – since the start of 2015. Commentators have noted the ‘Naspers-effect’ as one contributor to this and also temporary events like spikes in the price of iron ore pushing up the prices of certain shares.

These new highs and the JSE’s overall strong performance of the last three years may be exciting for some but are nowhere near as strong as the growth achieved in a rather unexpected region of the world.

India is the one country that has delivered great returns for investors in recent years. This country, for a long time considered an economy of extreme poverty and struggle with many challenges facing its vast population, has made significant strides in the relatively short time period of only ten years and has delighted investors who got wind of the changes at the start.

Christine Lagarde, Managing Director of the International Monetary Fund (IMF) in March this year lauded the Indian Prime Minister Narendra Modi’s government for its initiatives and called India ‘a bright spot on a cloudy global horizon’. She added that India’s GDP will exceed that of Japan and Germany combined. “Indian output will also exceed the combined output of the three next largest emerging market economies – Russia, Brazil and Indonesia,” Lagarde said.

This was also confirmed in a report by the US Department of Agriculture’s latest macroeconomic projections, as published by Bloomberg Business in April this year. This report stated that the US will remain the world’s most dominant economy but that its share of the global economy, as measured by GDP, will decline to 20% by 2030, from 23% in 2015 and 25% in 2006. “China’s GDP will grow to more than twice its size today, helping the Asian powerhouse to almost entirely close its gap with the US.”

India, according to this report, currently ranked eighth for 2015, will climb past Brazil, the United Kingdom, France, Germany and Japan to take third place in the world ranking.

Although the changes in India started thanks to the work and policies of his predecessors, India’s popular Prime Minister Modi (he has 12 million followers on Twitter and 28 million likes on Facebook) was the cover story of the influential Time Magazine’s edition last week. Further confirmation of this country’s growing prominence on the world stage. Economic reforms introduced in the early 1990s set the country on a path of strong growth, which averaged about 7.5% from 2001 to the end of that decade.

GDP growth has now slowed but at 5% is still well above that of many countries, South Africa included.

Global Asset Manager Blackrock published a comprehensive report about India in September last year under the headline ‘Under new Management’, outlining the impressive strides India made thanks to the leadership of Modi and Head of the Indian Reserve Bank, economist Raghuram Rajan.

Key questions are, of course, whether all this progress has delivered returns for investors and will it continue to do so going forward. Franklin Templeton’s India US dollar fund delivered a cumulative return (in rand) of 126.7% from July 2012 to mid-May 2015. For the same period the JSE All Share delivered a return on 70% (in rand) and Franklin’s Brazil Opportunity US dollar fund 48.7% (in rand).

Brenthurst Investment Strategist Magnus Heystek believes there are still great returns to be earned from this region and the Brenthurst Wealth team has started including exposure to India in portfolios. The company has investigated a number of options as part of its on-going research into offshore investment opportunities and expects that, like the bio-tech industry, particular regions and countries will deliver far better returns than the local market for the next two to five years.

For more about Brenthurst visit www.brenthurstwealth.co.za

Sources:

Economictimes.Indiatimes.com, Time Magazine, Bloomberg.com, Blackrock Investment Institute, Moneyweb.co.za, Financialexpress.com

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