Musings on Investing

Emerging Markets: Ready to Implode?

MakeMyTrip, Anfield Gold, Amarillo Gold

Africa, the Middle East, South Asia, Central Asia, and most of South America have economically grown nicely over the last 26 years. In my view this has happened for only one reason: Free-gift of western technology that these poor countries got using the new technology of internet. It is completely wrong to compare economic growth of these countries with the industrial revolution that took place in Europe in the 18th century.

While people from these poor countries have become richer, they have failed to become rational, critical thinkers. In fact, they have been dis-incentivized to think, for they became richer without having worked towards it.

Lifestyle diseases and tribal conflicts are increasing rapidly in these emerging markets. While many of us worry about the degradation of the West, which is true, in my view the biggest risk today is in these so-called emerging markets. In these countries, western institutions have been hollowed out, now that Europeans have not been managing them for 50 years or more.

Most of these emerging markets (except for China) are showing signs of stagnation and will implode as nation-states going forward. The implosion will be catastrophic, for these people are incapable of sitting across the table to discuss. I discuss my fear of the emerging market with Maurice Jackson in this interview:

 

 

Given political correctness, many western people are incapable of gleaning out the above even when they have traveled to these emerging markets. Western fund managers—particularly those who fly Business Class, drive around in chauffeur-driven Mercedes, and stay in top hotels in Jakarta or Lahore, are particularly naive and gullible. And I have traveled a lot with them.

The same fund managers continue to pour money into India, which as I have explained in a lot of my articles and talks, is well-positioned to be the next humanitarian crisis.

The bullishness that western institutions and money managers have for India is completely contrary to the reality.

The Indian economy is stagnating and the stock market is priced for much more than perfection.

Let’s look at the situation using an Indian company, MakeMyTrip (NASDAQ:MMYT):

MMYT is an e-commerce company that books hotels, and flights. It made a loss of $88 million in 2016, a loss of $18 million in 2015, and a loss of $21 million in 2014. Their losses keep increasing. They have as much debt as their equity is.

Book Value is $157 million.

Despite everything being wrong, their Market Capitalization is $4 billion.

I see nothing about MMYT that can improve its fortunes. But there is more…

I paid online for a Delhi-to-London ticket from MMYT on 18th April 2016. The money left, but I never got the ticket. It is virtually impossible to get in touch with MMYT on the phone. They always send cut-and-paste responses by email. For all intents and purposes my money has gone to a black-hole. There are many similar cases of fraud against MMYT.

(I am of course biased for they have stolen my money. In the past, my experience with Indian companies has been that I must embarrass them publicly to get a response–so, beware of my conflict of interest. I do regret that I did not use Expedia or a similar website).

At US$38, I would easily short-sell MMYT.

Most e-commerce companies in India are partly frauds. To be honest, most companies in India are fraudulent. In the linked article I explain this in more details.

When Indians buy online, they tend to use “Cash on delivery” option, a unique option for buyers in these societies where people have no work-ethics, or trust in each other.

In all these countries any attempt to go digital will fail. Digital cash will fail. E-commerce companies will fail. In India, the national ID-card system, Aadhar, will fail. Also, India is rolling out a VAT system, which in my view will fail as well.

In short, do not be too optimistic about what are called emerging markets. The international media fails to understand the cultural problems of these countries and how their institutions have been hollowed out and ready to implode.

Linked is my latest in a series of articles on the major problems brewing in India.

On investments:

  • Anfield Gold (ANF; C$0.465): Their resources haven’t turned out to be what was expected but in my view the share price has fallen more than it should have. I am a buyer.
  • Amarillo Gold (AGC; C$0.34): This is another company I am starting to look at. At least the numbers that came out in their latest assessment shows me an upside.

I now have a Twitter account. Please follow me here.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

 

 

Disclaimer: All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, or stock picks, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. The sole purpose of these musings is to show my thinking process when analyzing a stock, not to provide any recommendation. I will not and cannot be held liable for any actions you take as a result of anything you read here. Conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions. Any investments, trades, speculations, or decisions made on the basis of any information found on this site, expressed or implied herein, are committed at your own risk, financial or otherwise.

1 Comment on "Musings on Investing"

  1. Hi Jayant,

    Can you expand on why e commerce will fail in India as well as aadhar ? I understand the argument of fraud etc but as cash is disappearing , citizens have no choice but to turn to these new vehicles. Banks are reaping in new source of profits and will do their best to implement as smoothly these new technologies.

    Plus the cash on delivery approach helps alleviate some of the concerns we both raise.

    My skepticism comes from the possibility of hacking ….and the chaos that this would cause in a society which has abolished cash and accts are blocked for transactions….

    I also feel you are being a little harsh on most of the EM countries. Hard work, low debt levels and good education systems have propelled them in the right direction. In addition the investment in infrastructure has helped structural growth prospects. Middle class in these countries are now driving both consumption and growth in services.

    As mentioned before , Pakistan is a hollowed out country. Only consumption – local and imported goods….food and clothes. They hardly make anything anymore….middle class is being slowly decimated and corruption is rampant.

    India – I am less pessimistic than you but feel that arrogance and general hubris may lead to mistakes and possible return to the kind of outcomes you have highlighted in your previous pieces.

    Finally I believe that equity markets are driven by many factors….fundamentals are not always the driving force. Liquidity and sentiment are powerful drivers of equity returns…..look at Tesla, Amazon, Facebook as examples of this. India can and will likely do well because of how it is perceived by western PM’s….I still remember when the sensex was in the 3000 range….and look at it today ! Most of this is driven by perception and some fundamentals. But unlike the West…this part of the world is not laden with debt so growth and demographics will be constructive attributes going forward.

    Kind regards,

    Aamer

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