#116 - Kevin Carter: EM Internet Opportunities & Risks

29:14And meanwhile, the revenues in Vietnam and Indonesia or Brazil, right? So I think that's the problem, or my description of the problem.

29:23Kevin Carter:Do you have a litmus test for determining whether an EM company is compounding value for its shareholders versus the state insiders or other stakeholders? We own basically the whole sector of emerging market internet companies. Now, having said that, that's not even really a sector. I mean, this is a when you get into the mechanics of all this, you know, every company gets put into the database. OK, you have to have a database. I'm not saying it's not something you could go without, but you have to put things in boxes. And one of them is what country are you in? And you can only be in one. So it doesn't really matter where your revenue is.

30:02It's going to be where your mailbox is. But then you get put into four more boxes, starting with the 11 gigs, the 11 sectors, and then it gets more granular, three more layers. And there's no box that says internet companies, right? And so our first step is to identify who are the internet companies. And again, there's no official definition of what an internet company is. Is an AI company an internet company, for example? Current questions. We would say yes. So that gives us a lot of flexibility in what we include. It's really up to us to decide what matches. Now, for the most part, it's pretty obvious, right?

30:47We own the e-commerce leaders, the Netflixes, the local versions of Netflix, the local version of Uber, the local version of Amazon. But then there are other places where it might not be quite as clear cut. For example, in India, we own the Domino's Pizza master franchisee. They get 80 % of their orders are mobile phone-based orders for delivery, or 90%. So that's an e-commerce company, right? And so it might show up as a consumer staple in the database because there's no internet box. So that's how we define the universe. And again, there's, you know, what are, you know, is ChatGPT? Is that an internet company?

31:37Right? Again, there's no box for that. So it's, you know, if it goes public, they'll put it wherever they put it. And you may also remember, they also changed the boxes. You may recall several years ago when Facebook got moved from technology to communication services, right? With that starting point, what we want, we don't care where your mailbox is. We don't care what stock exchange you're on. If your revenue is coming from emerging or frontier markets, internet business, we're going to include you. And as long as you meet our minimums for market cap and liquidity. And right now for the broad EMQQ, that's about 58 holdings.

32:20And then after that, it's pretty simple. We're buy and hold. We use a modified market cap waiting. So we have an 8 % limit on the largest position when we do a rebalance, which we do twice a year in June and December. Now, in terms of your question about the compounding, the thesis here is that this is going to compound and grow a lot faster than the traditional economy. And in terms of revenue and earnings, that has happened. The revenue growth for the sector has been almost certainly the fastest growing revenue growth in emerging markets and maybe even the world over the last 15 years. It has had an annual revenue growth rate of more than 30 % over a 15-year period.

33:07And the earnings have largely followed, but the multiples for the sector have gone through some pretty extreme moves. You know, five years ago, we were number one on the planet in terms of emerging markets track records by a lot, actually. I remember calculating it literally at the top when people were sending me congratulations emails and I was getting nervous. But there was a bit of a bubble in a lot of the stock market sectors back in 2020 and 2021. You had the arcs of the world and the meme stocks and so forth. But there was also a realization in 2020 that this whole story of billions of people getting smartphones and doing things online, that got a boost from COVID because people had to do that.

34:00so there was a a favorable reaction and then then it got a little frothy and then all hell broke loose in the next you know 18 months and we had a 65 70 percent decline so the returns of the equities hasn't matched the revenue growth of the sector at least as of today so where can the

34:25Kevin Carter:thesis that internet and digital consumption companies are the cleanest way to express EM upside. How can that break down? I can tell you how it has broken down in different times. The correction that I mentioned that we had, again, starting as about Valentine's Day of 2021, so five years and two weeks ago, and the decline was, you know, again, it was 70 % from its peak to to bottom. It started with the risk-free rate going up a lot from zero to 5%. And of course, growth stocks are going to get hurt by higher risk-free rates. You had a combination of fears around China. So I guess I would say very clearly, one of the biggest risks is anything to do with China, because China is the biggest part of EMQQ.

35:19We have an ex-China version called FMQQ, but our largest and flagship is with China, and that's EMQQ. And what happened as well, when the rates were coming down and a lot of other sectors were going downward, you had two different fears about China that just would not go away. They were every day, definitely every week, but almost every day, you would find one of two negative storylines. The first one was Jack Ma is missing, and the Chinese government is cracking down on the tech sector. And the Ant Group IPO was the beginning of that fear wave, which was frankly ridiculous. But, you know, everyone believes it, that it's going to be reflected in stocks.

36:10But all of the things people said were part of the crack down i thought all of them were actually smart moves by the government because there was four different regular years just tried to regulate their economy and in ways i thought were completely fine but everyone else thought it was you know jack ma was missing and xi jinping was going to take over the internet and nobody would be able to make profits and so forth and then at the same time you had this fear that they were going to delist the chinese companies from the U.S. exchanges. And this one was was even more silly. But again, everyone believed it.

36:45And and, you know, I I was a little shocked to realize that a lot of people don't really understand what a stock is and that, you know, just because it's delisted, you don't lose any money necessarily. Right. I mean, it's not going to they're going to burn your share certificate. But people didn't understand that they they thought it was going to happen, which itself was a silly thing. But they thought if it did happen, they were also going to lose all their money. And so those two fears, again, neither of which really materialized, led to a major correction. So that is what has happened in the past.

37:21And it certainly, we could have more tensions with China. We're obviously going to have ongoing tensions. And there's just some large percentage of Americans and American politicians that are just anti-China or strongly anti-China. I don't think almost any of them have ever been to China, but all of the headlines and, you know, all these things that people believe about China, that's a real part of the story. And, you know, because again, it doesn't matter if it's true or not. If all the people that are buying and selling stocks think these things, it's going to be largely reflected. So that's something that could go wrong again.

38:03I think that the AI situation is creating a lot of fear. We've seen large sectors in the United States over the last month or two where they had 10, 20 % declines because of a news story. And of course, we all know there is all these extreme predictions about what AI is going to do. And they're scary. And so what's interesting about what's going on now is we have a bubble. I mean, it's unclear how early it is or how big it will be. But I think it's pretty clear that there's a bubble of some sort going on. and it's very complicated this this particular bubble if you will now i also should mention i in 1998 i was shorting amazon.com when it had a one billion dollar market cap i was a very cocky young value investor i'm pretty thoughtful about these things but you know you just don't really know and and in the case of ai it really is something new and it is very clearly very powerful and it's certainly going to change a lot of things about labor but we have pronouncements that you can find you know any day you want if you go on you know social media about 90 percent of white-collar jobs will be gone in three years or one year or five years and 20 year old i have 20-something-year-old kids, and none of them are ever going to have a job, and all of these things.

39:55And so the world is just on edge, and it's swirling. And the one thing I realized sort of this week is nobody knows what's going on. There's so much going on that you can't even keep up with it. And in fact, it was one of the main AI CEOs I saw, that interview he did, and it started with a question about what would you do if you were a 20-something year old right you know that question and he said well of course if if i was a 20 year old i would i would go just head down weeks just learn all of the different ai things that are out there the clods and the gemini's and so when we've heard people say that right yeah okay that seems like not getting an obvious thing to do.

40:44But then he made the following comment. He said, I don't even have any idea what's going on with all these other ones. I don't have time to go see what Claude can do. I'm working on Gemini or whatever it is, right? So even the people that are doing it are saying, I don't even know what all these other people are doing because I have a job. So I think that there's this heightened fear that the AI companies, they need a lot of money. They're selling. So when they say they need more money, and so of course they're going to say things and do things that are going to make investors give them$110 billion, as I think some group did this morning for Sam Altman's operation.

41:29So you have that element, you have people in fear, you have this sort of boogeyman UFO that is circling the planet. It parks over your sector and shoots down a laser and all your stocks lose$200 or$300 billion in market cap. Now, how is this going to play out in emerging markets? And that's been my primary presentation recently is called AI plus emerging markets. And the reality is that the heavyweight fight, it's obviously the United States and China. Or race, let's say race instead of fight. Now, India is very much involved, but I'm going to say they're in the middleweight category by themselves.

42:20They're sort of sparring, you know, shadowboxing. And meanwhile, the heavyweight champs are dueling it out or racing each other. And so if you then take this race between the United States and China and you break it into the AI stack or the five-layer cake, as Jensen likes to call it, But I think that one could very reasonably think that emerging markets are going to win because of AI. In the China-US race, we're starting at the bottom, energy. We don't have the energy we need. We've had almost no energy power growth in the country in the last decade. We have all these pressures on utility bill prices going up.

43:15And a lack of energy in place to power all of these data centers that are going to get built. We're even resorting to some, you know, almost desperate measures to catch out for to find power. So you may know that the president has basically said that you got to build your own power, right? If you're going to build a data center, you can't attach it to the grid. You got to self-power. And so they're buying nuclear plants that were decommissioned. I also learned this week that you probably know that there's been one of the other sectors that's done pretty well of the industrial hardware makers that make generators to generate power.

43:59Well, there's a shortage of those, too. So now they're going out to the airport. In Arizona, there's a couple of locations where they take all of the old retired airplanes. And they park them out in the desert. They're going out there and taking jet engines off of decommissioned 727s and repurposing them to make power. Now, meanwhile, China's got twice as much power as we do. In the last four years, it has added more power than we have in four years. By 2030, they'll have three times as much power. the amount of power that we have in the u.s today is equal to the amount that ai is going to need in five years right so we would have to have no other if we didn't grow our power base and we had to pick you know the only thing we could have would be ai and nobody else would have electricity basically it's that sharp of a of a issue so and And China, very thoughtful, well ahead of this.

45:08Massive solar installations, ultra high voltage lines coming from west to east. I mean, they're way ahead of this. The second layer is the chips layer. And this is where we have a very decided advantage over China. But what makes it very strange is the United States doesn't control the chips, and neither does China. It's the Dutch and the Taiwanese that control the manufacturing of the chips. And so we, because the U.S. government, I don't know if you know the company ASML? mm-hmm so asml is is the dutch company that i've referenced that is the world's only manufacturer of extreme ultraviolet light lithography systems and their premier device is a 350 million dollar box that you know has three special airplanes built to fly it when you buy one.

46:19The only people that buy it are TSMC. And they use it to make all the NVIDIA's chips, everyone else's for that matter. And that technology was developed in the United States over a 20-year period in a partnership between the national laboratories, the United States National Taxpayer-Funded Laboratories at Livermore and Berkeley and Sandia. And the private sector, the semiconductor industry, had a consortium called the EUV LLC. And the investors in that were largely Intel and AMD. Okay. And it took them 20 years to master this, and they got it finished around the year 2000. And Intel decided they didn't want to build it.

47:09They didn't want to use it or deploy it because they were having a tough time and it was going to be expensive. Okay. And so ASML came in and bought a small company called Silicon Valley Group, which randomly was actually located in Connecticut, but they were part of the consortium. And ASML acquired that company for$1 billion. So our greatest minds and lots of U.S. money spent 20 years developing this thing, and then we let the Dutch walk out with it for$1 billion. And now they have a monopoly in that machine, and we won't let them sell one to China. So our only real clear lead is in chips, but again, it's got an asterisk next to it.

47:55Now, having said that, in December, China completed their first working prototype of an EUV machine with former ASL engineers that they hire. so it will only be a matter of time until china catches up and passes everybody when it comes to chip production and then the third layer is the infrastructure where again you know china can build a train station in nine hours right i mean we the permitting and all the things that hold us make us slower then you've got the models on the fourth layer of the cake the large language models And here's where it's important. And you can see this already happening, but all of our models are closed.

48:38They're closed source. Not all of them, but most of it. ChatGPT in particular. As Elon Musk likes to joke that open AI is not open at all. It's closed. All of the Chinese models are open. And now the number one downloaded model on the planet is Alibaba's Qun. and according to Andreessen Horowitz, 80 % of the American startups are using Chinese models. They're using Quen. So the real story hasn't really started yet, which is the applications layer, right? I mean, that's the return on investment layer. All the other layers are expenses, at least for Sam Ulb and people like him. You might, you know, if you're a chip maker or a contractor, you get revenue from those other lines.

49:26But as of today, the Chinese open source models are sweeping the planet. And as mentioned, even US companies are building on it. But then you get to the application layer. And it seems like we are obsessed with artificial super, you know, general intelligence. And the Chinese and the Indians are focused on making money. Alibaba is funding its growth from profits, right? Baidu is not only funding its AI growth, which includes the second largest self-driving car fleet in the world, they're buying back stock. And meanwhile, our companies are looking for another$100 billion. So it seems like AI is a risk to everything.

50:14Certainly, it's a risk to people's sentiment and can blow up your your portfolio with one headline. But in terms of the long term story, I don't think anyone knows how it's going to play out. But I think one could argue, again, because both China and the US are just being a lot more pragmatic and practical and figuring out how are we going to use this to make profits or improve lives. And so AI is, I think, both a risk and an opportunity, especially for China and India. I hope that was a long talk about AI.

50:49Kevin Carter:No, that was good. And then if you think about the uncertainty as it relates to the ultimate impact of AI and not knowing who the ultimate winners and losers would be, it is noteworthy that EM has a starting valuation advantage over U.S. markets that are more expensive. Yes, that is very true. And there's no place that is more stark than comparing the US AI leaders with the Chinese AI leaders. I mean, you have, I'll give you one example, Baidu. Baidu, the Google of China. It has a legacy search business. Like Google, that business has been under threat by ChatGPT. I think Google's done a good job of integrating Gemini right into search because it's basically a better version of search.

51:36So Baidu has done the same thing. They have an Ernie bot, which has 430 million users. They have a self-driving car fleet that's essentially the same size as Waymo. China's got 136 cities with a million people. We have nine. All of their cities have great roads. The government in China from the top down is pushing self-driving cars and making it easy for the regulations to launch these services. Baidu also has a chip business that they've just registered to go public. with a$15 billion market cap. The market cap of Waymo, as of earlier this month, is$125 billion. The market cap of Baidu is$50 billion.

52:23Baidu also has$20 billion of cash. So you're getting all of these different businesses, the Chinese equivalent for a quarter of what you get, you pay for just Waymo. So that there is a massive value gap between US AI and China AI today.

52:47Kevin Carter:You talked about, in terms of risk, you talked about the delisting and that really not affecting the value of the companies. But what about the risk that some US investors may fear with China where it goes down the same path as Russia, where the assets go to zero. Well, that's a risk with any stock market, frankly, that something happens to the country and you lose all your money. I'm not so worried about that. I mean, I don't think China's never invaded anybody in 5 ,000 years. You know, they obviously would like to get full control of their island of taiwan which is still officially the u.s has a one child or one china policy so you know even though people don't realize it our official stance is there is only one china in taiwan's part of it but maybe maybe that'll be an issue but i'm not worried about it in the case of china i mean china the chinese people are very practical i mean they're they are not i don't they're going to do something that's going to blow up their economy they know they need capitalism the reason they're here is because they embrace capitalism and competition and free markets it doesn't mean it's as free as you know the u.s is but i think that they you know have self-interest and they're not going to do something to jeopardize their prosperity but you never know i mean one thing that i think we've learned in the last 10 years or more is that it doesn't matter what form of government you have it could be a monarchy it could be a communism it could be democracy if the person in charge goes off the rails it doesn't really matter how they got there so and you know eventually xi jinping won't be there anymore and modi won't be there and Donald Trump, I mean, you know, there's going to be new leaders as the world continues to spin.

54:51And it's obviously impossible to predict what might happen with, you know, who will be the next leader in China and what might he or she be, you know, aiming to do.

55:05Kevin Carter:And how do you think about managing risk for investors who may believe in the China thesis, but they maybe can't stomach headline driven volatility? I don't think there's an easy answer to that. You could go with the China for chickens approach, if you will. But even that, you know, that theoretically has its own set of risks. And included, by the way, in that is that, you know, sometimes China has these nationalistic waves. and in the case of Japan, there's been, I think there's actually a recent kind of tiff, but there's been several different stats between China and Japan and the consumers boycott.

55:50They say, oh, we're not going to buy Toyota cars anymore. And they've even had, I can't remember the brand. I think it was Toyota, but there was, you know, people were flipping over Toyotas and lighting them on fire because they had said something about Japan and nobody, you know, you could still lose your business even if, There's no war if the Chinese populace decides that they don't want your Western brand anymore.

56:14Kevin Carter:Let's shift gears to India. You've described it as uniquely compelling. It's the world's largest democracy, young population, fast growth, and also a tech forward mindset. What do you think is the most important element of that stack for investors? And why is it more investable than a generic GDP growth story? I mean, on paper, India is perfect. And what makes it so unique is it's never going to happen again. I mean, the scale of India and where it's at is this is a once thing, not a once in a lifetime thing, a once thing. because if you go back to why invest in emerging markets in the first place, when you take that checklist and you map it over to India, it doesn't just check the box, it sets a record.

57:04So why are we looking to emerging markets? They have a lot of people, okay? India has the largest population ever. Today it set a record and tomorrow it'll set another record and every day for decades on that day, India will be the biggest population ever. if you leave out china india is bigger than every other emerging market combined so when people tell me oh we're interested in vietnam or mexico i was like you know that we have exposure to those places as well but you know you know those are sub 100 million populations you got 1.5 billion almost in india they've got the best demographics the average age is 28 and a half this is also a risk by the way as we talk about ai and risk but they have a lot of young people, but they need to make sure that they can keep them happy and working.

57:51They also have the fastest growing GDP in the world by a lot. And that's driving massive consumption. And according to the OECD, India is going to have more consumption than China. So on paper, India, you can't get any better than that. Now, it is a democracy. And, you know, US investors in particular, you know, I think that's a much better system than the Chinese system. And the leader in the last 11 years, I mean, he's a big reason India's kind of arrived. I mean, Modi came in with a machete. You know, India has still got a lot of bureaucracy and socialist elements that they inherited from the British.

58:32And they've made reforms. But in the last 11 years, they've made a lot of progress in reform and simplified the tax code, making it easy to start a company, making it easier to bankrupt a company, which used to take 10 years. And they've also doubled the infrastructure. So when I got involved 20 years ago in emerging markets, China and India had basically the same GDP. I mean, China was a little bit ahead, but every year China was building the world's best infrastructure. And in India, they couldn't even get the power to work. But that has changed. In 11 years, Modi has doubled everything. Highways, high-speed trains, ports, tunnels, you name it.

59:14And it's a massive, it's not anywhere near done. They've got a$1.2 trillion master plan, but it's coming along in almost every, well, every time I go back, there's some new tunnel or something open that saves me an hour or more a day. So Modi gets a lot of credit. It is a democracy. But there's two other things that India has that just set it on a whole nother level. The first is human capital. India has a technology sector that is older than me. You have publicly traded companies like Infosys, TCS, Wipro. They've been publicly traded for decades. They've employed millions of technologists doing back office technology work for the US Fortune 500 companies.

1:00:04But nonetheless, less a tech sector that's very vibrant. Now, you don't have to look very far to see this. Most of the U.S. tech sector is led by idiots, including Google and Microsoft, both of whose CEOs came over on temporary work visas. So you're not going to find that in Vietnam or Mexico, right? You're not going to find it in France or Germany either. I mean, this is a top three digital sector on the planet. And what's also very, very important is that it's become entrepreneurial. When you went back nine years, the entire country, there was less than 500 startups. There was 471 startups nine years ago.

1:00:55Today, there's 200 ,000. and there is no tech startup ecosystem that is more vibrant than India's today. I mean, these people have embraced entrepreneurship in a huge way. They have their own Shark Tank now, which just finished up its fourth season. And so now you're getting entrepreneurs coming out of third and fourth tier. I'm close with a lot of the venture and first check people in India. And I'm seeing this. They're finding people in cities they've never heard of that are entrepreneurs. And so that human capital is important. I mean, there's a lot of countries that have young populations and they may have a lot of growth, but you need humans to operate.

1:01:45And not only do they have the best human capital, but they're also increasingly going back to operate in India. And then the final advantage that India has, which is very important, and we wouldn't even be talking about India, really, if it wasn't for this last piece. and most people don't even realize this is a thing but india has become so digital in the last decade that i don't think people have any idea what they have pulled off in that country and it's called the india stack do you know what the india stack is i don't okay let me tell you because it's as i said it might be the most important thing of the india story so the india stack.

1:02:31I heard about the India stack for a long time, but it sounded really boring. I never really dug into it.

1:02:37Kevin Carter:Well, you really built it up, so I don't think it's going to be boring. Oh, no. It's actually pretty cool. So the India stack is India's homemade digital public infrastructure. Now, that sounds really boring as well, digital public infrastructure. Well, we use digital public infrastructure all the time. We just don't think about it as digital public infrastructure. The best examples, the internet and GPS. Okay. They're digital. They're free. They're public. Anyone can use them. And you can't see it like an airport or a train track, but it's like the pipelines for the information. We're using it right now.

1:03:19And what makes digital public infrastructure very powerful is that anyone can use it, including Google. Google didn't make the internet, right? Uber didn't launch any satellites. I didn't launch any satellites. Nobody sends me a bill for the satellites. But if I want to get a ride to the airport, I push a button and a guy shows up in front of my house and I get in and he drives me to the airport. I don't even have to talk to him. So we use digital public infrastructure, but you don't talk about it in those terms. So India has the internet and they have GPS, but they've also made some of their own.

1:03:56And it's absolutely genius. And it goes like this. So it's called the stack because if you try to make a picture of it, there's multiple programs and you make a picture. It's a stack. The bottom of the stack, the first layer is called Adar, which is the Hindi word for foundation. So the foundation of the stack is called foundation. And it was launched in 2010. And it's a digital identification system. So here's what happened. Back 15 years ago, and before that, one of India's biggest problems in growing and modernizing was that nobody had any form of identification. Less than 20 % of the population had any ID card.

1:04:45Only 40 % had a birth certificate. So as you can imagine, it's pretty hard to modernize your economy when nobody can prove who they are. Now, they knew they had a problem with this, and finally they decided they were going to take on the problem. And they were going to give everybody in the country a physical ID card, like a driver's license, with their picture and their name. And they were also going to assign everybody their own 12-digit ID number, like a social security number. Now, this was a big project. You got 1.4 billion people, and they asked this man named Nandan Ilkhani to be in charge of this program.

1:05:28He is one of the co-founders of Infosys, and he also is currently, he's the chairman of the board of Infosys, a multi-billionaire. And he said, I'll be in charge of this program, but if I'm in charge, we're going to use a lot of technology. And when people go to the library or the post office to register for their card, we're going to scan their eyes and their fingers so that we can verify them instantly with biometric information. Now, I knew about this program, but we only had one Indian stock until 2020, so I didn't pay attention to it. and I was surprised in 2019 when I learned that they pulled this off that the entire population that nobody had any form of id they went into a library or a post office and they got not just a physical card they did get a physical card but they also had their eyes scanned and I was pretty impressed to see that they you know that now it's 97 but you know like 2019 it was about 90 of the population so it was over a billion people already now how do you use that well in 2014 they added some functionality to this and they said if you're in the database if you've gone in and got your registration you can walk into a bank and open a bank account instantly with no paperwork 840 million indians have walked into a bank in the last decade and opened their first ever bank account and it's digital.

1:07:11Opening a brokerage account, walking through an airport. So the entire economy nine years ago was 95.5 % paper. Last year, it reached 90 % digital. People are paying their taxes. a lot of the corruption and stuff has been taken out of the system because of this. So that was a real eye-opener for me when I realized that they had used this to do that. Now, the second layer of the stack was launched in 2016, and it's called the Unified Payments Interface, or UPI. Now, when they launched this, I was not thrilled about it. I thought, this is it's a payment system the unified payments interface and it but the headline was basically qr code based payments and they made a big deal about it and i was looking around like why why are you hyping this like this is not cutting edge i mean every single thing in china has a qr code on it by 2016 and in latin america mercolibre it covered the that you know the countries and qr codes as well but the government getting involved with this i'm like we don't need any state-owned this is like government-owned PayPal.

1:08:31Like, what are we doing here? This doesn't sound like a good idea. But I didn't understand the details of this. This isn't Apple Pay. This is instant payment, instant transfer of money from one account to another with zero cost or friction. I send you 10 ,000 rupees. It's instantly on your phone. You send it back to me. We send it back and forth a billion times. It's still 10 ,000 rupees. I didn't pay attention to that detail. This launched at the very end of 2016. And the payments now on the UPI is 20 billion payments a month are being processed. To put it in context, the number of payments in India today on the UPI is more than visa processes on the whole planet.

1:09:27And the Indian number is going to triple or quadruple because it's still only about a third of the country is using it. And earlier in 2016, there was another key thing that happened. 2016 was the Big Bang when this UPI was launched, but there was something else that happened that fall. at the time, almost all the phone companies had 2G coverage. And there was a dozen of them, and they were all in price war. Mukesh Ambani and Reliance Industries made a huge bet. They spent $40 billion to buy the 4G airwaves, skipping 3G. And they covered the country with brand new state-of-the-art hardware ready for 5G and 6G.

1:10:16Now, at the time, if you went into an Airtel store or a Vodafone store, those were the two leaders, it could take you three days to get a new phone, or at least three hours. All of the stack has open APIs, and so when Geo launched, you didn't bring any paperwork, you just put your fingers on the screen, and you got a phone in five minutes. They signed up a million people a day for three and a half months and there is now over 500 million people on the geo network. The cost for a gigabyte in India for a consumer is nine cents. The cost for a US smartphone user is$6. The amount of data being used now on an Indian smartphone, 32 gigabytes a month.

1:11:11That's 50 % more than your phone. So you have digitized this country, the financial system. You've got smartphones now that are as little as$12. You've got the entire population in a biometric database. And I've only scratched the services of lots of other layers. Now they're going to unleash credit because now that everyone has a digital track record of their finances, they can share that information via an app and get a credit score, essentially, and get a loan. And that should almost certainly help the GDP growth rate as that's just getting started. So India, I think, is a lot more digitized than people realize.

1:11:54And in many ways, it's the most digitized economy on the planet now. and if we look at India today versus China 10 years ago 15 years ago 20 years ago let's say 20 years ago India is in very much the same place that China was say 20 years ago but when China was at this place there was no such thing as a smartphone right they had a couple hundred million PCs of the country but there was nobody in the world had a smartphone 20 years ago So the advance of the smartphone in the last 20 years from doesn't exist to, you know, iPhone 18 or whatever we're on, has been remarkable. And so India is coming online at a time when you can get a brand new smartphone for$12 and$0.09 a gigabyte 5G coverage across all of India.

1:12:47So India is, again, just a very special and unique opportunity because it's so early. I mean, if you're going back to compounding, right? I mean, the way you win in this thing is to buy and hold. And, you know, the longer your sequence of years is and the faster the growth rate, the better, the more you'll make. But if you have bit numbers at the beginning of that string, then that works really, really well. And so to put it in the context of how early this is in India, consider that between now and 2030, the entire e-commerce market in India is going to triple in five years. right and i haven't had a chance to go back and check these numbers i think you know when did the u.s e-commerce market grow in triple digits or triple in in a five i mean i know is that oh oh oh five i don't i don't mean i haven't i've been meaning to go back and check that but i mean it's early in india and so not only are you going to have years of growth but you're going to have really fast growth right now and for the next several years.

1:14:06Kevin Carter:So you made a very compelling case for India, but what are the biggest risks to the India bull case? Again, right now, I think Modi risk, key man risk, but mainly Modi. I mean, Modi's pretty important. He is the embodiment of what's happened. He's going to be gone eventually, but right now, I think he's important to stick around. And they've had prime ministers that left prematurely in the past. And that was, at least in one case, tied specifically to the second risk, which is the religious tensions between the Muslims and the Hindu. That's a risk. And we saw it flare up with the Pakistan, you know, conflict last year.

1:14:48I don't think either side really has much, you know, reason to be wanting to fight, but it's certainly, even domestically, there can be, and there have been violent uprisings. India has very unique climate risk. A lot of South Asia and the East is swampy already. Bangladesh and the Bengal region are 30 % flooded anyhow during the year at some point. And so rising sea levels can be an issue. And then along the heartland, the agricultural heartland in the north where the rivers run west to east, the heat's gotten unbearable, like 130 degree sustained temperatures, and it combined with pollution.

1:15:46so the climate's a risk the youth unemployment you know yeah they got a little it's good to have a young population but you know you don't want them you know hope you know without an out of job and angry at the world ai also is a risk and i just point out because i mentioned this but the it services sector the emphasis those companies they're 20 of the indian index right the indian stock indexes and again they've as the fear boogeyman has been you know flying around blowing up sectors that they've been shot twice now with the the boogeyman ai laser and uh and and it does you know without looking too deep it seems like if you're outsourcing jobs to India.

1:16:39And we know we're, if we're going to be laying off people here because of AI, it seems like those jobs might also be at risk and they are a large, a large part of their economy and they employ a lot of people and they're relatively good paying jobs. And so if, if ai does come in and ruin that business model that's that's that's probably the one clearest potential risk when you could also take the opposite side didn't know these you know we already got rid of the guys that know the technology we we fired them 30 years ago to hire the guys in india and now we have to put in ai maybe we need to use those guys as well and And it's also, you know, in addition to emphasis in these companies that are outsourcing, almost every major U.S.

1:17:34company has their own global capability center, as they call it, right? A GCC. And they might employ thousands of Indians. So it might be Morgan Stanley or Morningstar. Ameriprise has a massive operation in India. So, and they're technology savvy. And so, you know, one could definitely see them benefiting from AI. One of the problems, though, that is a little bit of an issue for India is you have all this incredible talent, but the market cap sits in Palo Alto. Right. And so there's a lot of people currently that, you know, there was a big AI conference in India two weeks ago, a global summit.

1:18:23and there was a lot of people say well wait a minute you know we're we're not you know the u.s is winning we're doing all the work right and so there's uh a little bit of a backlash going on about that and you know how does india get its own get its own market cap you know like the u.s companies but so anyway that's that's a risk but also an opportunity i think and and again And the one thing that India has vowed to do, and you can hear Satya Nadella talk about this, India doesn't care about the LLM race. They care about using it, right? They, as Satya says, they're going to be the use case capital of the world.

1:19:04And because they have this India stack, it's very easy for them to deploy this. And they've already shown their ability to scale, you know, the tech platform. So they're already using AI. They use it in the digital ID system. They are focused a lot on agriculture. There's a pretty fragmented mom and pop kind of agricultural sector in India. And so making the farmers more efficient with, you know, smartphone based tools that can tell them what crops are best to plant, what fertilizers and when and so on and so forth. and the other area that right now they've already started to make good progress is in education and because you know india does have some of the best colleges in the world but in terms of you know junior high school and high school you know level um in some places it's terrible and it's more like a bit you know like a daycare and then the people don't learn anything and they finish up or they don't know how to read or write and and or do math and so with a pretty straightforward, simple program, like one hour a day in front of your computer or that AI tutor.

1:20:15And then we're going to make sure when you get out of here, you can, you know, mess around the rest of the day, but you're going to spend an hour a day. So when you get out of here, you're going to know how to do math and read and write. So AI is already being deployed, but again, they're not competing on the chips. They're not competing. They did their first large language model at the conference, but they're pretty far behind in the so-called frontier markets or frontier technologies.

1:20:44Kevin Carter:Well, Kevin, this has been a fascinating conversation. I appreciate you sharing all your insights about emerging markets and how investors should think about it. So I learned a lot and I'm sure our listeners did as well. Thank you for joining us. Thank you very much for having me. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes.

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