Haywood Kelly, head of global research for Morningstar Inc., is based in Chicago. In a quick chat, he answers five pertinent questions and explains why diversification is needed for the Indian investor.
How are U.S. investors viewing India at the moment?
There is a lot of talk about India in the U.S. because of the change in government. There is a lot of excitement about possible deregulation and prospects of the economy opening up more.
Given the performance of the market, valuations are extremely attractive right now. Many investors and money managers are looking at India for the next 5-10 years and seeing it as a great investment destination.
You have seen what happened with China over the past 10 years; there is room for India to follow that path in the equity market. People see the next 10 years as possibly being a repeat of what we have seen in China in the past 10 years.
Could falling oil prices be a catalyst?
Yes. It could benefit India a lot. On the contrary, with commodity prices down, a lot of people are souring on China. So, it is helping India.
Do you find emerging markets attractive?
Emerging markets have not done so well over the past few years and look pretty attractive now. There is interest from value investors looking at emerging markets in general as a good place to put money.
Over the short term, emerging markets are all over the place. If you are looking to invest for 5 or 10 years, it would be a place to look. You have to stick with the downturns, they will come and the markets will fall. Stick with it and invest more when a market is down.
Developed markets look fully priced at this point. The U.S. looked cheap in October when it dipped but has bounced right back. If you look at PE ratios and valuations, emerging markets would be a place to look at.
Is the U.S. stock market overheated?
The U.S. market has performed tremendously well. It’s been an incredible 5 years, and even in the past year, the market has been up a lot. So, when our analysts look at the U.S. market today, they think it’s fairly valued.
It’s a good time to be conservative with U.S. stocks. They are not greedily overvalued but definitely fully valued. But the difficult thing for the U.S. and investors globally is that with a 30-year bull market in bonds, interest rates have been so low that there are not many alternatives. People are really struggling—if not equities, then where else? It is a conundrum.
In the U.S., equities are still not a bad investment, but valuations are certainly not attractive right now.
Is it too late for Indian investors to get into U.S. funds at this point?
It makes sense in general to diversify internationally. India is a volatile equity market. You can alleviate some of that volatility by spreading assets around.
Diversification pays off. That holds true for all investors across the globe, whatever country they are in. We have to be mindful to not chase only returns. I would not invest in the U.S. today simply because of the great performance of the market of late, but I would look for opportunities to invest outside my home market.
