Before There Was Italy
Will Greece Disappear?
One Great International Investment
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Before There Was Italy
On my recent vacation to Puglia, the “heel” of Italy, I was reminded of a few realities about countries and civilizations, which is this:
They change!
Consider this timeline of highlights from Puglia over the past few millennia:
1700 BC -- Mycenaeans and Minoans occupied the region
760 BC -- Greeks moved in
275 BC -- Romans defeated Greeks
216 BC -- Hannibal and his troops defeated Romans
190 BC -- Back in control, Romans completed the Via Appia
476 AD -- Fall of the Roman Empire
488 AD -- Ostrogoths took control
535 AD -- Byzantines took control
1056 AD -- Normans began ousting Byzantines
1435 AD -- Spain took control
1480 AD -- Turks invaded
1503 AD -- French invaded
1860 AD -- King of Sardinia took control
1870 AD -- Italy became unified under the Risorgimento
1940 AD -- British Navy attacked
1948 AD -- Republic of Italy was declared
Bottom line: Italy has had a great variety of occupiers over the millennia, but as a unified country, it’s existed for less than 150 years!
From a long-term perspective, that’s not particularly impressive. In fact, it’s a reminder that Italy—as the country we know—is highly unlikely to persist without further modification to its borders or rulers.
And the same is true of Turkey.
Turkey has no less rich a history than Italy—cradle of civilization, occupied by Anatolians, Aeolians, Dorians, Ionians, Thracians and Persians, as well as Greeks and Ottomans. Those Ottomans held control up until 1923, so technically, Turkey is still a kid—some of my readers are older than Turkey!
Will Greece Disappear?
As for Greece, whose economic troubles and cultural mores (particularly tax avoidance and corruption) have been the subject of much talk recently, Greece dates its independence from the Ottoman Empire to 1821. So it’s not quite 200 years old.
That’s longer than Italy’s tenure but still shorter than that of the United States!
Of course the cultures of those countries are older, and cultures are harder to change than borders (just ask Greece), but no country lasts forever, nor should it!
Countries that have disappeared in just the past 100 years include Czechoslovakia, East Germany, East Pakistan, the Ottoman Empire, Prussia, Rhodesia, South Vietnam, Southwest Africa, Tanganyika, Tibet, the Union of Soviet Socialist Republics, Yugoslavia, Zaire and Zanzibar.
And many more will disappear and have their borders moved in the century ahead as they become more or less efficient at defending their borders and serving the needs of their citizens (see Ukraine today).
Now some people will argue that there are reasons, both moral and economic, to help countries (like Greece and Ukraine) defend either their physical borders or their economic systems, and I totally agree.
But in the meantime, your job as an investor is to recognize the major trends at work in the world’s markets, and then act—first, to avoid the negative effects of those trends, and second, to benefit from the positive effects.
Thus, if I had any Greek stocks (I never have), I would sell them.
Not because I think this is the end for Greece, but simply because the trends there are unfavorable.
Go Where the Growth Is...
And I’d put the money in a country that is enjoying increasingly positive perceptions about its long-term economic prospects. Hint: it’s none of the countries mentioned above.
And that country is India!
Independent only since 1947, it’s younger than any of those countries discussed above.
With 1.27 billion people, it’s the world’s largest democracy, and nearly as populous as China.
But its economic output is only a fifth of China’s—which means there’s great growth potential!
And, thanks in part to Prime Minister Narendra Modi, who was elected in May 2014, and who’s promised to reduce much of India’s infamous inefficiency, India is on its way.
Since he took office, in fact, India’s inflation rate has fallen from 9% to 5%, while the economy’s growth rate has increased from less than 5% to 7.5%. That’s faster growth than China (where the stock market has been tanking).
Another big reason for India’s recovery is low oil prices. As a major importer of oil, India has been benefiting from low oil prices, while Russia, an exporter, has been suffering.
One Great International Investment
So India’s future is bright, and if you’re looking for a good low-risk investment in India, I’ve got one!
HDFC Bank (HDB)
Until 1994, there were no private sector banks in India; all banks were branches of the government. But when the government opened the gates to private companies, a slew of new banks appeared, some of which have disappeared and many of which have done quite well.
The biggest of these today is HDFC Bank, which was started by Housing Development Finance Corporation, and has grown into a fully diversified business, with a robust book of loans on both the retail side and the commercial side.
As for growth, the company expanded earnings at double-digit rates every year since 2009. Looking forward, analysts are expecting earnings growth of 20% in 2015, 20% in 2016 and 39% in 2017.
Bottom line, if you want to invest in India, HDFC Bank—with assets of $67 billion and a market cap of $50 billion—is a great place to start, as it is poised to benefit from the growth of the country as a whole. Plus, you get a small dividend, 0.6% per year.
As a solid alternative to Greece, it’s a no-brainer.
The long-term chart shows HDB trending steadily higher last year until it hit 63 at the end of February—and then consolidating that gain over the past four months by dipping down to 54 and returning toward its old high.
I think it’s only a matter of time before the stock breaks out to new highs, so if you’re interested, you could simply jump in somewhere around here.
But a wiser course would be to become a regular reader of Cabot Stock of the Month, the advisory where I recommended HDB months ago, and get my latest opinion on the stock.
Yours in the pursuit of wisdom and wealth,
Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory
