Progress in India
In India, Greenberg says everything is equally available, resulting in a higher concentration of consumer products companies and consumer staples for which people are willing to pay high multiples, resulting in slight overpricing.
For Greenberg, a key issue in India at the moment is its long-term migration from an agriculture driven economy into manufacturing – something Hermes has been tracking on the legislative front and Greenberg has written about at length in his regular investment publication, The Gemologist.
For some time, India has been prevented access to its bountiful supply of coal by a slew of legislation that has rendered its use too costly. However, the removal of restrictions on foreign investments into India’s insurance industry, a pending goods and services tax, and several other combative reforms, are set to help the country fully utilise its supply of natural resources.
Greenberg feels progress is being made, albeit slowly: “These reforms are critical to India’s economy. There is a demand for energy, and while the coal usage will be bad for the global atmosphere, it is critical.
“Things are making progress and if they continue at this pace, there will be increased levels of foreign investment, the cost of manufacturing should drop substantially, and employment should pick up a bit.”
Should the country progress as expected, Greenberg predicts a decade or two of sustainable annual growth at around 6%. His latest stock purchase, Container Corporation of India, looks to take advantage of such improvements.
“Container Corp has a similar theme to a company we already own called Shenzhen International,” he says. “But instead of building a logistics network around China, Container Corp is building one around India.
“India has something called the dedicated freight quarter, which consists of train links between Delhi and Mumbai, Delhi and Changi, and eventually throughout the country.
“Container Corp has depots for connections to the road and smaller rail lines along this logistics network, even though it is not completely built yet. Across five years, we believe the company will see dramatic growth.
Not necessarily over the first two years but the three after that. It will have a dominant position in the logistics of the country.”
Latin American weighting
In terms of market allocation, the fund has remained more or less stable during the past year or two, and Greenberg says any future changes will depend entirely on incoming market valuations.
What is more, the company has hired a new team member to focus on creating further investment opportunities in Latin America.
For the time being, though, the fund remains underweight in Korea (7.54%), Brazil (5.67%) and South Africa (4.6%).
Greenberg says the low weighting on these countries can largely be attributed to their uninteresting fundamentals, although he does not rule out the possibility of future improvements.
In particular, he sees potential in Brazil.
“While Brazil is in the doldrums at the moment, with the Petrobas scandal, presidential unpopularity and the recession creating a largely unattractive economy, the market is starting to become more attractive,” he says.
“Currency has got a lot cheaper, so it is possible that this will continue over the next year or so. We are keeping an eye on it.”
Eyeing the future, Greenberg says opportunities in emerging markets will primarily be found in the ever growing technology sector, driven in part by a trend towards growing middle classes.
“It is transforming lives in emerging markets. Unquestionably, the internet, especially in terms of shopping and social networks, is a phenomenon that is happening everywhere,” he says.
“The middle classes are growing across emerging markets, so we want to be exposed to the consumer discretionary sector as this reacts quickest to growth. Materials are more or less over.”
