VanEck’s Angus Shillington on India’s Demographic Tailwinds

Angus Shillington, Emerging Markets Deputy Portfolio Manager at VanEck, joins OptoSessions to discuss India’s demographic trends and growth story; why geopolitical tensions could hinder this; the impact of the de-dollarisation trend; and the other emerging markets (EMs) beyond India that he feels demonstrate potential.

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Angus Shillington is Deputy Portfolio Manager for the Emerging Market Equity Strategy at VanEck, a US-based asset manager that was among the first to offer US investors access to international markets.

Shillington previously worked at ABN AMRO, where he was responsible for equity cash and derivative distribution to North American institutions. Prior to this, he held senior roles in research, sales, trading, and portfolio management, focused on the Asian and European markets, for BNP Paribas.

India’s Demographic Tailwinds

India surpassed China as the world’s most populous nation in April this year. As Shillington points out, not only is the country’s population large, it is also young.

“The median age is 28,” he says, while 25% of the population is under 14 years old.

There are several interesting corollaries to this demographic as far as Shillington is concerned. Firstly, an expanding young voter base “strongly favours a growth agenda”. Regardless of political developments, such as the future of Narendra Modi as Prime Minister, Shillington believes that this dynamic will endure and drive adoption of new technological trends.

“It’s not dissimilar to the baby boomer demographic in the US,” he says. “India is at this crazy intersection of the demographic story.” Alongside the youthfulness of the country’s population is a trend towards rapid digitalisation and what Shillington calls the “unstoppable flywheel” of the reform agenda.

Growth Potential

Shillington is not of the view that India has yet hit peak growth — but, to a certain extent, he feels it is immaterial whether it has or hasn’t.

“The really interesting point here is that this is compounding.”

“To me, as a grizzly old veteran of markets, that is probably the most underrated value creator over time.”

Shillington mentions that the IMF and World Bank have been relatively accurate with recent predictions of 5–7% GDP growth for India through 2020.

“If you clip these compound five percents over a relatively long period of time in the stock market… it’s a very exciting, long-term story.”

In fact, Shillington’s analysis suggests that India could be one of the highest-returning markets over the medium to long term.

“We did a pretty wild study recently, a mash-up of some Warren Buffett stuff and some stuff we’ve done internally, which was to look at the average rates of stock market return and how they correlate with GDP growth over time and then lay on top of that GDP forecasts for the world through 2030.

“I came up with a realistic possibility that India ends up as a top-three market-cap stock market within seven years. It’s difficult to see where you’re going to get better returns.”

Besides India, Shillington explains that his portfolio is currently weighted towards Brazil and Mexico.

“The two of those clearly have great structural long-term tailwinds. Brazil has reform, some commodity stuff; Mexico, a lot of the nearshoring trend.”

Shillington is also positive on the Philippines and Indonesia. These nations, he believes, “always have this nice, slow-grind, long-term, middle-class demographic story. There are some excellent businesses in both of those.”

Emphasising the point that he is more interested in business than country factors, Shillington says, “Even when you come to China, I wouldn’t address that with a binary ‘yes’ or ‘no’ because, in any market, there are great businesses. Our job, our mission, is to uncover those.”

The Risks

Shillington is dismissive of the view that Indian valuations present a risk for would-be investors in the country. “Indian valuations have been pretty persistent over time. Call it 20 price-to-earnings; a pretty static mid-teens return on equity, which should drive that going forward.”

A greater risk, he feels, is geopolitical in nature. “There’s a bit of friction between India and China that obviously stands out.”

Specific businesses and industries in the country will also, he thinks, be disrupted over time. “There’s been this hard belief, mainly in the consumer retail space, that certain businesses deserve gigantic multiples for not gigantic growth.

“As time goes on, and local brands start to disrupt foreign brands… I think things get really interesting and really exciting.

“To me, index churn is probably one of the biggest risks going forward outside the more idiosyncratic stuff.”

Another potential risk factor in EMs is the phenomenon of “de-dollarisation”. According to the IMF, the US dollar made up 59% of allocated currency reserves in the first quarter of 2023, down from over 70% in 2001.

In terms of BRICS nations’ policymaking, “there’s a lot of friction between all those guys, both ideologically and economically.

“But I think the dollar was weaponised relatively recently, and that creates risk for non-US countries holding those assets.”

Shillington’s advice (or, more accurately, that of VanEck’s fixed-income team) is “pay attention.

“I think it’s definitely a risk, and we definitely are paying very, very close attention.”

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