India could be next growth hub as China is 'getting weaker': Strategist

Services demand in China weakened in June with the weakest month since January. Eddie Ghabour, Key Advisors Wealth Management CEO & Co-Founder joins Yahoo Finance Live to detail while India could potentially be the next global growth hub a China's economy begins to weaken.

Video transcript

- The recovery in the world's second largest economy continues to falter. China's services growth softened in June, the Caixin Services Purchasing Managers' Index fell to 53.9 from 57.1 in May. That's the weakest print since January. While it's still an expansionary territory, the drop shows that consumers are pulling back on spending.

Well, as China tumbles, investors and businesses could be looking to other economies for growth. Our next guest says India could be the site of the next boom. Joining us now is Eddie Ghabour, Key Advisors Wealth Management CEO and co-founder. Good to see you, Eddie. So talk about this dynamic here between what investors are perhaps either getting wrong about China or what they should be focusing on when it comes to India.

EDDIE GHABOUR: So right now, we think because we believe that we are not out of the woods here domestically, and we've been managing our client portfolios is looking outside the US. And the reason why we think India is going to have a multi-year boom is because of some of the-- not just geopolitical issues in China, but when you look at companies like Apple and Amazon, they're trying to broaden and diversify where their manufacturing is. And you're starting to see more investing in India.

And I think that trend is just going to continue. So economically, China is getting weaker. As well as Europe is pretty much in a recession now. And you look at somewhere like India, where you're starting to see a tremendous amount of large companies, multinational companies, invest there.

They're probably going to be accelerating on their economy and growth, which is great for investors being able to get in there early. But when you look at the other major economies, a lot of them are decelerating. So it's really just a pivot to not only diversify, but diversify in a place that we think is the early innings of some expansion and lots of investing.

- And Eddie, as we dig into the differences between how companies are investing in China versus India, we know when it was with China, it was first about the mass manufacturing. But also when it comes to AI and other things, some of this really fine knowledge that's needed, especially with manufacturing data, is that the same sort of investments that you're seeing companies making in India?

EDDIE GHABOUR: Yes. And look, it's also kind of a play on technology, right. You know, AI, obviously, has been the hot buzzword. And this is a way to kind of, again, get some indirect exposure to that international and AI play in a country that is going to get a tremendous amount of investing in that space.

So I think the trend of companies pulling out or investing less in China and looking to other areas is going to continue. I don't see a catalyst in the near term where you're going to see companies double down on investing into China's economy. Because, again, there's some concerns with their government controls that they have on everything there as well too that provides a huge business risk for companies that don't diversify where they're going to be.

- And so for people who aren't familiar with India's economy, obviously you have China's stock market, very different sort of made up of mostly retail investors, but when you look at the Indian market, how should people approach it? What should be on their checklist when they're trying to determine the best way in?

EDDIE GHABOUR: So, for us, what we do for our clients is we just invest in ETFs that give us broad exposure to that economy. And I think from an investor's perspective, that's probably the most prudent way to get exposure there. And again, you don't put all your eggs in one basket, as you know. We're still very defensively positioned with a very large money market position for clients.

But we are increasing exposure to India and we'll continue to buy dips if and when we get them in that space. But to us, the best calculated approach is to go into the ETFs that get you exposure to those economies.

- And for people who want that balance of looking at emerging economies but also looking at the second half of the year for the US markets and the sectors that you like, what are the standouts for you?

EDDIE GHABOUR: So we really are very bullish on health care. We think there's going to be a tremendous amount-- there is pent up demand there. Look, a lot of families delayed getting certain types of testing during the COVID years, and now you're starting to see those folks getting caught up on these medical procedures that they've been waiting on.

So we see a lot of demand there in the back half of this year. So we think health care, even if we go into a recession here domestically, has a good opportunity from an earnings growth perspective to deliver positive surprises to the upside.

We also like aerospace and defense, in regards to that area, and we're looking to be buying dips there. And then lastly, we are looking at energy. Energy has not had a great year. And with the decline in prices there, we're starting to see some attractive dividend yields.

But we're just waiting because, again, the China slowdown and Europe slowdown does concern us, and it could put more pressure on oil. So from a domestically, health care is our number one place that we want to be buying dips for our clients right now.

- Well, certainly good, as you say, to look beyond US shores, see what's out there. Especially as you're bullish on India there. A big thank you to Eddie Ghabour, Key Advisors Wealth Management CEO and co-founder. Thanks so much.