fine-tuning of the asset allocation to an asset manager.
In DC land, we should keep temptation away from the scheme member to fine- tune narrow decisions based on what they have read in the financial pages on a Sun- day morning. A pension scheme is there to make sure your finances do not peg out before you do. That is long-term decision making rather than playing the markets. As a trustee, it is my job to determine my risk appetite and where I want the fund to end up and delegate some of these chal- lenging decisions to the asset manager or fiduciary manager. Treich: Instead of talking about emerging markets and developed markets, perhaps we should think more about the diversifi- cation of the drivers of performance. Latin America, Eastern Europe and smaller segments of the Asian markets get less attention, but they are valuable for global exposure to equity or bond markets. That is challenging to convey to trustees and members. We do not control strategic allocations for the plans we work with, we provide the building blocks for them to make those decisions. Smith: The energy sector is a small part of many indices now, and commodity exporting countries are a low proportion of the Emerging Market index. As inves- tors might want exposure to those sectors and countries right now, given inflation and interest rate dynamics in the US, are your clients asking where their exposure is to these things that do not count in the index anymore? Treich: Many of our clients have net-zero targets. Interestingly, we have seen the appetite of investment managers for exposure to oil majors be less aggressively negative than it was. The caveat is that they must be on the right path, there must be something visible to de-carbonise over time through setting meaningful targets. We are not seeing that in the big emerg- ing market energy companies, but we would certainly favour engagement that
could get the right commitment. I do not see why it would be an issue in terms of inclusion in our portfolios.
China’s income per capita was half of India’s 30 years ago but it is now six times greater. Can India emulate that in the years ahead? Smith: China has achieved an extraordi- nary phenomenon. Imbalances have been created because of China’s growth model, but it has also helped the country achieve the largest eradication of poverty the world has ever seen. Now India can show that sort of lead, albeit not likely to the same extent. India has always had the right ingredients for growth: a low base, low credit penetra- tion, supportive demographics and a com- petitive currency. Yet it has lacked the ability to attract foreign investment and trade flows. Five or six years ago, it launched a reform programme, which has been painful at times, but has seen India rise up the Ease of Doing Business league table. When you combine that with the ingredients for growth, it is powerful. India now has tax schemes to incentivise companies to create manufacturing and production hubs. That has been a suc- cess. Even the World Bank has commented that this could push growth higher.
Another point is the creation of infra- structure around mobile data. India has the cheapest mobile data anywhere on the planet at around 10 cents per gigabyte. As a result, India’s per capita mobile data consumption is the highest in the world, which is staggering for an emerging mar- ket with a $2,000 income per capita. This opens doors to opportunities around making it easier to do business in India, easier to connect with your customers and easier to bring people into the formal financial system.
India can use these ingredients to propel itself to the higher ends of the country league table around growth and durability. The backdrop to that is we are going to see lots of people entering the middle class, as we have seen in China, and the products and services they will buy remain deeply under-penetrated, even on a GDP basis, and are sold within frag- mented industries.
A pension scheme is there to make sure your finances do not peg out before you do. That is long-term decision mak- ing rather than playing the markets.
Alan Pickering, BESTrustees
The best companies will benefit from the rising middle class, rising penetration of those products and an ability to consoli- date these nascent industries. That is a long-winded way of saying that income per capita in India will start to catch up with China. Even though we will not see the same sort of miracle that we have seen in China, India will still be an exciting place to invest. Visavadia: The ingredients for growth in that economy are pretty good. Whether investors can access that is a different question. There are too many protection- ist policies in India, so the domestic entrepreneurs will get a higher share of those revenues. The growth story is fan- tastic, but the opportunity to access that growth is limited. Service industries and data industries, which are not captured by the old-fash- ioned industrialists, might get better and get through under the radar. There are some young, savvy entrepreneurs coming through. Smith: eCommerce is not a level playing field in India as domestic companies have
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