By Atanuu Agarrwal
The US is, literally, the centre of the financial world. At the end of 2021, it represented nearly 40% of both the global fixed income and equity markets, with a combined size of more than $100 trillion. Not only that, but it is home to global champions in every sector and also the most innovative and disruptive companies across industries.
As a result of its deep capital markets and conducive regulatory regime, it can also serve as a gateway to investment opportunities around the world. In my opinion, at least some exposure to the US market is key for every Indian investor. While the India opportunity remains attractive, it is imperative to have some diversification away from India’s risk.
From that perspective, I wanted to highlight some attractive themes in the US.
At almost 20% of GDP, health care spending in the US is nearly a staggering $4 trillion; remember, India’s total GDP is nearly $3 trillion. The implication is that because of the sheer size of the market and funding available, almost all of the disruption in the biotech space happens in the US.
Specifically, areas like genomics and immunology are very exciting. Genomics is using an individual’s DNA to tailor medical treatment, and Immunology involves arming the body’s immune system to fight diseases.
Since 2007, the cost of mapping a human genome has seen a 99.97% drop from $1M to just $300. Generally, the market for gene therapies is expected to compound at 35-40% annually over the next 5 years.
A prominent example of the power of this field was the use of two major RNA vaccines as very effective tools to fight Covid. Of course, Pfizer, Biontech and Moderna who produced these vaccines are all listed in the US.
The consensus seems to be that electric vehicle sales will dominate sales of cars powered by internal combustion engines in 2030. Similarly, long-term focus on climate change and improving unit economics means that renewables are increasing their share of the energy pie. Mobile devices are also now omnipresent and are now practically considered a necessity in most parts of the world.
What’s common in these three dominant trends?
Lithium. Lithium battery tech is essential to their development. There are several interesting companies that are part of the lithium supply chain – mining, refinement and battery production. Exploding demand and speculation have meant lithium prices have increased 750% since the start of 2021.
However, as is with any commodity, there are also several geo-political and supply chain issues to consider.
REITs are a relatively new product in India but they have been around in the US since the 1960s. They are now a mature asset class and there are several specialized REITs that invest in traditional sub-asset classes like malls, offices, residential real estate etc., but there are also some that target interesting, growing assets like warehouses/fulfilment centres and data centres.
China is going through a tough phase at the moment due to geo-political tensions, strict Covid lockdowns, a crackdown on tech, and a real estate crisis. However, the second largest economy in the World is an indispensable component of the global supply chain and has robust domestic consumption. The US markets offer the ideal gateway to invest in China at potentially attractive prices.
Probably the most obvious and talked-about theme, and hence, needs the fewest words here. The US is home to tech champions that probably qualify as some of the best businesses in the world. Alphabet, Amazon, Apple and Microsoft lead a pack of truly world-beating companies which demand an allocation in every portfolio.
To conclude I want to leave you with a cautionary tale on investing based on just secular trends. At Berkshire Hathaway’s 2021 annual meeting, Buffett pointed out that in one of the hottest sectors of the 20th century – automobiles, there were over 2000 defunct companies.
In fact, after the 2008 meltdown, there were just three left; of which two had been rescued from bankruptcy by the US government. Hence, he went on to say – “…there was a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.” So, top-down analysis and identifying attractive themes are just one of the several steps in a robust investment process.
(Author is Co-founder, Upside AI)