Mihir Kapadia is one to go against the grain when it comes to investing, extolling the promise of emerging markets in a financial climate that sees many investors running for the hills. The Indian-born founder and CEO of Sun Global Investments, a London-based boutique financial services firm providing wealth and investment advisory, securities trading, corporate finance and real estate advisory services, recounts how his early foray into developing economies gave him the edge and expertise that serve as the foundation of his firm. Founded in 2008 and headquartered in London with offices in Dubai and Mumbai, Sun Global has more than $600m of assets under advice, solely in emerging markets.
Mr Kapadia’s investment portfolio goes back to the 1990s, he tells fDi Magazine. “We saw there were extremely cheap valuations in emerging markets – companies and banks that were becoming quite large in their own territories – and discovered they had amazing valuations with higher growth percentages than their Western counterparts," he says. "That drove us to steer our investments there, when nobody else was bothering to look beyond developed economies.” Today, Mr Kapadia remains an optimist about an area of the world many see as the chasm of a lost decade of returns.
Mr Kapadia credits a calculated approach to risk taking for much of his success. “One has to quantify risk in its actuality,” he says. “There’s this perception of risk – people often get scared by perceived risk but not actual risk.” Upon investigating emerging market companies on the ground, he recalls discovering myriad opportunities. “Even the government securities we were buying were fairly priced and cheap – we thought it was well worth taking that risk.”
Of course, he adds, an investor must be mindful of the problems inherent in many emerging economies. He notes the overabundance of red tape and bureaucracy, as well as legacies of corruption and poor infrastructure. “You face added volatility because of financial and political issues,” he says. “But we had enough confidence from our experience on the ground and our deep understanding of the companies to feel comfortable investing.”
Mr Kapadia recommends exchange-traded funds (ETFs) as cost-efficient and easy access to emerging markets for investors new to the field or who are hesitant to invest directly. Sun Global recently launched the first 'curry bond' ETF on the London Stock Exchange, which invests in fixed-income debt of Indian government-owned enterprises. “In Indian rupee terms, it gives a yield of about 8.25% – compare that with the current return on European countries’ debt such as Germany’s, which is below zero,” he says. For direct investment, Mr Kapadia highlights consumer goods and IT and tech as burgeoning growth sectors. “You have these young populations and rapid wealth growth – you can’t believe the volumes these markets demand,” he says.
Calm in the storm
As a specialist in emerging markets, Mr Kapadia has been at the frontline of the global commodities drop, but he insists that things are improving. “We believe that the worst is over for commodities and that prices will stabilise. We see oil rising to $55 to $60 a barrel and staying there in the next six months to a year,” he says. The slowdown in China, he argues, is set to be “the normal rate of growth”, for the country, and that “current production capacities should more or less be sustained”.
Mr Kapadia’s key advice when it comes to investing is this: “One has to treat emerging markets like any other market, with the same respect and attitude toward risk. Try to find opportunities where there is either a mispricing or where opportunity is overlooked by those who see only the perceived risk.” Today, there is obviously a fair volume of investors targeting these regions, signifying that despite the rocky environment, worthy ventures remain. “Emerging markets are still offering a good potential return if one can have a pragmatic view, and we think they produce the best returns,” says Mr Kapadia.