Interview with Head (global macro strategies), William Blair & Company
Brian D Singer, chartered financial analyst and head (global macro strategies), William Blair & Company, in an interview with Sheetal Agarwal, says he is positive on Indian markets. As the illiquidity situation eases, Europe could lead growth this year, he says. Based in Chicago, William Blair & Company is a global investment banking and asset management firm that manages more than $45 billion in assets (as of September 30). Edited excerpts:
How do you rate India against other emerging markets?
When we look specifically at the fundamental valuations of India, the Indian equity market is attractive. Its price is significantly below fundamental value, and we believe the equity market provides a great opportunity to garner cash flows for investors. Similarly, the currency also looks attractive. I think 2012 would actually be quite good. However, there are a number of challenges India that may create problems in the intermediate term.
What are those challenges?
Culturally, entrepreneurship is not very strong in India, and bureaucratic hurdles make it very difficult for entrepreneurs to set up businesses and grow these. From a policy perspective, right now, it is a country focused more on conglomerates than it is on the rest of the population. Unlike other developing economies that are drawing from a lower class and an upper class and creating a growing middle class, India is not. In fact, India almost seems to be becoming more and more bipolar over time. The primary way that an economy can create that middle class is migration from an agrarian to a manufacturing economy. Not a migration from an agrarian to a service economy. Finally, the policies in the education system that are now integrating quotas for the poor are having an adverse impact on overall education. The final challenge in India is grafting corruption. These together mean, in the interim, things are going to be difficult. I would say none of these challenges would surprise any well-informed global investor and are largely priced in.
Where is the fair value for Indian markets?
Up to 10 per cent upside from current levels on the MSCI (of 376).
Within emerging markets, where would you place your bets?
What we see in the world is the ability of corporates to adapt to the changing regulatory environment. In the developed world, the regulatory environment is getting more difficult and more complex. In the developing world, it is getting better and less complex. The best way to take advantage of that is investing in large-cap companies where the regulatory environment is getting more complex, as these they have the ability to move their production, revenue and expenditure from one country to another and from one year to another to avoid taxes and tax changes. On the other hand, in the developing world, we see beneficial improvements by investing in smaller-cap companies that have the ability to directly benefit from those improvements. In the short run, it means authoritarian environments have the ability to be quicker than non-authoritarian ones. So, I would say India and China offer the opportunities, though for different reasons. Countries likely to benefit from valuation opportunities and growing free trade agreements are Columbia, Peru and Chile.
By when do you expect the euro zone situation to settle?
I think the illiquidity situation has settled. The European Central Bank has taken a massive first step, and this has already begun to support the European market. Next is the insolvency situation. It might not be a clear and as present a danger as the illiquidity issue. That would settle and allow risky assets to continue to move up. When it does return, it would do so with a focus on debt to gross domestic product (GDP) levels. So, there will be a quick assessment of countries on a debt-to-GDP basis, and that would have a different influence on relative opportunities.
Is risk aversion declining among global investors?
Absolutely. The massive risk aversion that had come into play in the third quarter of 2011 has been dissipating over the course of the fourth quarter and is likely to continue. As it does, in the absence of something inanely stupid from one of the leaders of Europe or the US, there would be a repricing of risks that boosts risky asset prices again.
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