Since taking the reins, Ghosh has sold out significant positions in Russia’s Sberbank, Chinese internet giant Tencent, and Russian food retailer Magnit among others.And has built up holdings in Lukoil, Tata Motors and Infosys. These moves, he says, are in a bid to move away from the Bric legacy of energy, materials and financial stocks
Speaking to Portfolio Adviser recently Ghosh explained: “The Bric space is still a very relevant one, but the relevant players have changed. Now the BRIC story is about the consumer.”
According to Ghosh, for the formation of a sustainable, long-term boom in consumer-led growth, one needs three things: a large population, good income growth and access to leverage.
Clearly, India and China tick box number one, accounting as they do for roughly 2 billion of the world’s people, but they do fall down somewhat in the income growth stakes. Income growth, however, is where Russia steps up to the plate.
What about the headwinds?
Asked about the moderation in growth levels seen in China, and market chatter about the potential for, at best, a soft landing for that economy, Ghosh is emphatic, “My response to such calls is always: ‘is it really going to land at all?’”
He makes the point that, for every unit of GDP growth that comes from services, 30% more people are employed, which means that as the country’s services sector grows, so economic growth within the country will benefit.
While there is little doubt, that China remains a formidable growth engine, it is worth asking whether or not the Bric moniker remains a valid one.
With regards to India, while the election of Modi is positive, Ghosh adds that it is important to remember that many of the problems face are not necessarily the fault of the central government.
Overall, Ghosh believes the Bric space remains a very positive one, but he is quick to add that it is no longer enough to think only thematically about the sector.
“One needs to look at stock specific plays,” he told Portfolio Adviser.
Global Investment strategist at Investec Asset Management, Michael Power, agrees that the young, growing middle classes of China, India and many of the other emerging markets provide a demographic dividend that will flow into the consumer story, he is no longer as enamoured with the Bric moniker as he once was.
“It is more important to consider things in terms of economic blocs within emerging markets. Looking first at whether or not the country runs a current account surplus or deficit and whether or not the export raw materials or manufactured goods.
“Going forward, the core of the emerging market story is going to be centred around those countries that run large current account surpluses and export manufactured goods,” he said.
This region, led by China, is likely to be the least volatile sector of the emerging market story, according to Power. “It may not necessarily be where all the returns come from, but it is definitely the core of the story.”
