This ETF? Don’t Make Me Laugh


Today’s Profit Watch begins with a warning. A well-known financial firm here in Australia just launched an ‘India’ ETF last month.

Here’s my suggestion: close your wallet and run.

The financial industry is like every other one. It only creates products that it thinks people will want to buy.

Whether or not you should — well, we’re going to find out.

Why India now? A line from their marketing tells us the pitch.

India is ‘one of the fastest-growing economies in the world’ with ‘the IMF forecasting continued growth’.

Please. Listening to the IMF is inviting financial suicide…

India’s growth story is cactus

Let’s get a more objective picture of what’s happening in India.

I already mentioned a while back that India’s tallest tower project now sits unfinished alongside other empty structures in Mumbai.

The Financial Times reported back in July[1]:

Those bets on expensive property have now gone bad in an economic downturn, scaring off buyers and choking the flow of credit. That has left the real estate sector with a formidable mound of debt.’

Yep. That’s about as big a clue as you’ll get that the growth story there is completely cactus for the moment.

There’s more. There was also the tragic suicide of Indian coffee king V.G. Siddhartha.

In July, he was last seen walking over a bridge, and was later found on the bank of a river. His chain of coffee shops has 1,600 stores.

It became apparent after his death that he was heavily in debt and was struggling to refinance his loans[2].

The fact that he took his own life says the downturn is as serious as it can possibly be.

He’s not the only Indian businessman and farmer getting hit with a credit crunch.

Lending from shadow banks has fallen 30% in the year to March. India has more bad debts than any other major economy, according to Bloomberg[3].

Oh, and what’s this? Car sales slumped more than 40% in India in August. Financing is shrinking for new buyers.

And don’t forget that the Indian rupee is struggling against the might of the US dollar, like most other currencies.

That’s a problem when you’re as dependent on oil imports as India is.

Hmm. How about that India ETF? No thanks!

Don’t get me wrong. I’m sure India will continue to lift people out of poverty and provide new markets for Australian commodities over the next decade.

But you and I need to decide where to put our money right now. And it ain’t going in an Indian ETF.

You might as well have some fun with the cash rather than risk sending it down a rat hole.

Dilemmas, dilemmas. What DO we do with our money?

US panic coming — but when?

Even the lustre of the US market is looking a little less bright this morning. A man called Alastair Walton is Australia’s diplomatic envoy to the United States.

He appears to have thrown the traditional decorum of such a role out the window. His recent speech called out the US for its outrageous debt and deficits.

Señor Walton says it’s on track for a looming fiscal and social crisis if nothing is done about it.

I’ve read such warnings for years. Certainly the points are valid. The nutty question is the timing.

It does put the 2020 presidential election in an acute spotlight…even if none of the candidates have an answer to the problem.

How pressing is this? It all depends on interest rates and confidence.

America’s debts may be huge, but they can be rolled over and paid for, currently, at low expense.

A rising sense of panic will come on if something comes along to shift interest rates up or confidence down.

There’s nothing I can see today that’s going to do this. We just have to keep watching every day.

The clock is certainly ticking on this long business expansion. We’ve talked about India in today’s missive.

But Dubai is also experiencing falling real estate values and oversupply concerns. These trends will likely culminate next year.

The good news is it’s not quite yet the time to pull the plug on the market. We should have more upside left into the end of the year.

History can be our guide here. I would be staggered if the US markets don’t punch well into all-time highs before the great bull market since 2009 is finally finished.

Certainly, it means focusing your resources on the ASX and US to try and catch this uplift, should it eventuate.

But an Indian ETF today? Don’t make me laugh.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch