The biggest driving force into next year will still be the monetary policy of the Federal Reserve—and we’re expecting a normalizing yield curve—but here I’m focusing on the secular trends that should make you rethink your portfolio’s asset allocation. My two strongest conviction “screaming buys” for 2024 are India and Bitcoin, both manifestations of the rise of the Internet.
Emerging Markets Equities: The Secular Growth Story of India
First up is India and the “new” cohort of leading emerging markets. While China remains a dominant market and has been a major global growth driver, its post-COVID rebound has stalled. Looking beyond China, the three rising emerging market countries are India, Brazil and Saudi Arabia. These three countries are leaders in their respective regions, all benefiting from economic reforms and digitization initiatives.
These Regional Leaders will Pass the EU in 10 years
| Source: VanEck Research; IMF; Bloomberg as of 6/30/2023. Any projections shown are for illustrative purpose only and are not intended as predictions of future results or events. |
While all three countries are well positioned, India’s rapid digitization, thriving equity market and demographic trends will create compelling investment opportunities that we believe investors should be exploring. Many investors wish they had bought the Magnificent 7, or the FAANG stocks, 10 years ago. In India, I think you essentially have two FAANG company equivalents in the two largest providers of cell phone service—or more importantly, internet access—in India: Jio Platforms and Bharti Airtel.
A dramatic drop in cell phone cost has resulted in the vast majority of the population now using cell phones for internet access. This digital revolution in India has driven growth across various sectors, including e-commerce, digital payments and online entertainment. This trend is also being facilitated in a major way by the government, which has created initiatives and put support programs in place that are facilitating innovation and creating private sector structural growth opportunities.
India’s demographics also make the country well-positioned for unique expansion opportunities. With a median age of 28 years, India has one of the youngest populations in the world. This young workforce is large and English-proficient, providing a competitive edge over other countries. According to the International Monetary Fund (‘IMF’), India is on track to become the third-largest country by GDP within the next five years.
Are India’s Valuations Really a Negative? Microsoft Was Once Also Considered Overvalued
In the words of the late Charlie Munger, “A great business at a fair price is superior to a fair business at a great price.” Consumers pay more for Mercedes versus a Kia, because the product and user experience are fundamentally better. The same logic should be applied to India. Higher multiples in India versus other EM countries are justified by quality companies and relatively lower risk versus other emerging markets economies.
Valuations Are Often a Question in India
Valuations Have Come Down from Recent Highs
| Source: Bloomberg as of September 2023. The BSE SENSEX (also known as the S&P Bombay Stock Exchange Sensitive Index or simply SENSEX) is a free float market weighted stock market index of 30 well established and financially sound companies listed on the Bombay Stock Exchange. The 30 constituent companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy. |
India is rapidly transforming into a powerhouse investment hub. Its booming digital sector, combined with a strong equity market, is drawing global attention. Simply put, we believe India’s strong economic foundations and massive market potential make it an irresistible destination for investments. If you don’t have adequate exposure, you may consider a multi-year tactical overlay.
Bitcoin, Finance’s “Moody Teenager” Starts to Grow Up
VanEck has been bullish on Bitcoin (BTC-USD) since 2017, when the price of Bitcoin was $3,000. Since the beginning, we’ve said that Bitcoin is an internet-enabled, limited supply asset.
In the volatile yet vibrant history of Bitcoin, we’ve witnessed a financial phenomenon morph from a nascent digital token to a burgeoning asset class. Bitcoin’s journey has been nothing short of a roller coaster ride, marked by meteoric rises, steep falls and a resilience that continues to intrigue and reward its believers. For investors, Bitcoin has offered not just a new avenue for potential returns, but a front-row seat to the evolution of an asset that has challenged traditional notions of value and investment. The maturation of an asset can provide additional returns that might be available once the opportunity has matured. With Bitcoin, there is more growing up to do.
Tremendous Returns in Bitcoin As It Matures
| Source: Morningstar. Data as of 11/20/2023. Investors cannot invest directly in an index. Please see index descriptions at the end of the presentation. Past performance is no guarantee of future results. MarketVector Bitcoin Index measures the performance of a digital assets portfolio which invests in Bitcoin. |
Bitcoin 1.0 – Early days (2011-2017)
From 2011 to 2017, Bitcoin was in its proof of technology phase. It was establishing the blockchain as a workable force, and was just beginning to have network effects. The volatility was immense; the swings in value were wild and unpredictable. Yet, those who recognized the underlying promise of this technology and invested in it, even amidst the uncertainty, found themselves on the cusp of a revolution.
Bitcoin 2.0 – Awkward growth spurt (2017-2021)
As Bitcoin entered its toddler years, from 2017 to 2021, it began to mature. What was once known to a few tech enthusiasts was now being adopted by millions worldwide and withstanding political bans and threats. Despite maintaining its volatile nature, Bitcoin showed us proof of principle in 2021 by reaching new all-time highs, demonstrating that it wasn’t just a one-time bubble. This phase, to us, was a testament to Bitcoin’s staying power, solidifying its role as more than just a digital curiosity but a genuine asset class.
Bitcoin 3.0 – Tests of adolescence (2021-____)
The current journey is when technological development continues and the asset is valued by a wider circle of investors. The beginnings of institutional adoption started to surface, although the expected smaller drawdowns turned out to be larger than anticipated. Bitcoin’s resilience through these tests has been a critical part of its growth story, a phase of toughening up and proving its mettle.
Bitcoin 4.0 – Coming of age (2024-____)
As we approach 2024, we anticipate the advent of Bitcoin 4.0. With potential regulatory clarity and broader acceptance, we believe Bitcoin stands on the brink of its coming-of-age story. The expectation is that with the approval of a Bitcoin ETF and other investment vehicles, Bitcoin will transition to a more stable and accepted member of the financial community. This era is where we may see an influx of investors, both retail and institutional, acknowledging the legitimacy and potential of Bitcoin as a cornerstone of modern portfolios.
Bitcoin 5.0 – Prime of life (-)
Looking further ahead, Bitcoin 5.0 represents the final phase of its evolution. Here, it is envisioned to achieve half the market cap of gold. In this mature stage, we think Bitcoin will exhibit less volatility and gain widespread adoption by institutions. It will have established itself as a limited supply asset, a digital store of value for the internet age. Bitcoin 5.0 will be the culmination of years of development, resilience and gradual acceptance, positioned as a mature and stable asset class in the eyes of the world—a “quality” asset.
In our view, the story of Bitcoin is far from over. It’s a narrative of growth, challenges and potential. By understanding the challenges and growth that this software network has already achieved, the industry is realizing that Bitcoin is just an asset powered by the Internet and can appreciate the long-term potential it holds. Of course, it could have been another token or asset, but the crowd seems to have selected Bitcoin.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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