If you’ve ever invested in emerging markets, you know that people and politics matter. A lot.
After all, it’s much easier to grow a company in a business-friendly country with a growing population.
These were two of the factors driving the massive growth of Chinese tech companies like Alibaba (BABA) and Tencent Holdings (TCEHY). China has 1.4 billion people and counting. And, while the government has long remained Communist in name, it’s mostly stayed out of their way.
Now that’s all changing.
Earlier this month, Tencent announced a $7.7 billion “investment” in China’s “common prosperity.” Other major Chinese companies have also made large, ahem, “donations” to the government recently. All while the Chinese government stiffens regulations on these companies.
Not really. And the market has noticed. Shares of Tencent have dropped nearly 40% since their February 2021 high. The Invesco China Technology ETF (CQQQ) has sunk 16% this year (while the S&P 500 has climbed 21%).
Long story short, I wouldn’t touch Chinese stocks right now. But there is another large emerging market that looks much more appealing…
Here at Smart Money Monday, I share one great investment idea to start your week. Today, you’ll find out why I’m putting my money on India, along with my favorite backdoor way to invest in this rapidly growing, business-friendly country.
For starters, Prime Minister Modi has made a lot of pro-business changes since he was elected in 2014. People even call him “the Indian Ronald Reagan.” Because he’s…
Privatized several government-owned companies
Set up 400 million-plus bank accounts for the unbanked, and
Initiated a $1.8 trillion infrastructure plan.
In just three years, India’s World Bank “Ease of Doing Business” ranking has leapt from 130 to 63. It still has a way to go before surpassing China’s #31 ranking. But with Modi in office for at least another three years, I expect it will get there soon.
If demographics are destiny, then India is in great shape. With 1.3 billion people and counting, it’s on track to overtake China as the world’s biggest country by 2026.
India’s population is also younger than China’s. The median age there is just 28, compared to 38 in China. These people are moving into their prime earning years. That means they’ll have more and more cash to spend. And that should keep stimulating India’s economy for years to come.
Meanwhile, China is running towards a demographic cliff. This is largely because of the one-child policy it implemented in the 1970s. Population growth there has slowed ever since. Even though China now allows people to have three kids, its population will likely peak in 2030… and decline from there.
Some say China’s demographic problems may wind up even worse than Japan’s. It’s just one more reason I prefer to focus on India.
It’s not easy for US investors to get direct exposure to Indian stocks. Yes, there is an ETF you can buy. But we’re looking for single-stock opportunities here at Smart Money Monday.
I like to know every single company I own. And I want to give you opportunities for outsized profits, which you won’t get from an ETF.
Last week I recommended Canadian insurance conglomerate Fairfax Financial (FRFHF). Fairfax is a $12 billion global insurance giant. It’s also a fantastic way to get exposure to high-quality Indian companies.
Like Digit, a digital insurance company that Fairfax began to incubate in 2017. Fairfax’s initial $154 million investment in Digit is now worth $2.3 billion, according to a recent company press release. That’s phenomenal growth.
Fairfax also owns a stake in Quess, India’s leading business services company. Its 32% stake is worth over $500 million.
Fairfax India, in turn, has stakes in 13 or so quality Indian companies. Like the Bangalore International Airport, which is a real trophy property. Before the pandemic, it served around 30 million passengers a year. For context, that’s more than New York’s LaGuardia Airport.
Fairfax India invested $653 million into the airport in 2017. Today, that investment is worth around $1.4 billion.
I should also mention the unique deal Fairfax India struck with CSB Bank (formerly the Catholic Syrian Bank). By 2018, this 100-year-old Indian bank had fallen into distress. Fairfax India saw an opportunity and scooped up about a 50% stake in the bank for $170 million.
That stake has since doubled in value. It’s a great example of the kind of rapid growth you get with Fairfax.
Because of the country’s rapid growth and pro-business environment, I expect it to be one of, if not the best-performing emerging market in the coming decade.
Right now, Fairfax Financial Holdings (FRFHF), the Canadian parent company, is my favorite way to play this trend. However, if you’re looking to boost your exposure to India, you can also buy Fairfax India Holdings (FFXDF) directly.
—Thompson Clark
Editor, Smart Money Monday
P.S. You can write to me with any questions you have about investing in emerging markets at subscribers@mauldineconomics.com.
Thompson Clark is a small-cap expert and value-focused investor with nearly a decade of experience in financial publishing. Thompson graduated from the Goizueta Business School at Emory University in 2010 with a focus in finance and accounting. He lives in North Carolina. He is the editor of Mauldin Economics’ free research service, 
