India vs China Economic Growth Potential
Economics /
Emerging Markets
Feb 27, 2010 - 02:28 PM GMT
By: Charles_Maley
From the Vedas we learn a practical art of surgery, medicine, music, house building under which mechanized art is included. They are encyclopedia of every aspect of life, culture, religion, science, ethics, law, cosmology and meteorology – William James, American Author
There is always a lot of talk about China, and how they will be the great nation to help out, or perhaps solve all the world’s problems in the years to come. There are many different views on the nearer term prospects for China. Is the rapid growth sustainable or are they heading into a bubble that could burst? Is the Yuan going to continue to be tied closely to the Dollar or are they going to let it float a bit wider to dampen the over stimulated economy?
The opinions range from Jim Rogers who thinks they are the next dominant force of the world, to Jim Chanos who thinks they are on the brink of collapse. Chanos, who is most known for shorting Enron, compared the credit expansion in China to the U.S. subprime market, and the housing boom before they went bust.
In any event, I thought I would share a few thoughts about another China like contender.
The Pulitzer Prize winning author Will Durant once said, “India was the mother of our race, and Sanskrit the mother of Europe's languages. She was the mother of our philosophy, mother through the Arabs, of much of our mathematics, mother through Buddha, of the ideals embodied in Christianity, mother through village communities of self-government and democracy. Mother India is in many ways the mother of us all."
I found it interesting that in the Barron’s roundtable, no one mentioned India as a place to invest long term; After all they are the second largest country in the world (over a billion people) in terms of population, growing at around 8% per year, with a staggering 50% of the population under 25 years old.
India has also implemented a whopping $500 Billion dollar plan to build and upgrade it’s infrastructure of highways, airports, and transportation, and have a goal of completion by 2012.
I would think the infrastructure build out, and the population distribution alone, would bode very well for some industries. With a half a billion people under 25 years old, certainly they will be interested at some point in a cell phone, and driving a car. (If they are anything like Americans)
In fact, according to a paper written by Marc Faber it’s already happening. “In the year to March 2009, India added 125 million mobile phone subscribers, and whereas Indian auto sales are tiny compared to China’s vehicle sales (running currently at an annual rate of over 12 million units and up over 90% year on year), they are nevertheless up 39% year on year, with an annual rate of 1.6 million sales.”
Faber also pointed out in his research “India’s middle class is estimated at 170 million (half the population of the US), and the country has one of the lowest vehicle-penetration rates in the world. Given that India also has one of the youngest populations – half of its 1.1 billion-plus people are less than 25 years old, compared to 42% in Brazil, 36% in China, and less than 30% in the developed nations – car sales will undoubtedly continue to soar in the next few years.
In this respect, we should also take into account that India’s population will continue to grow rapidly and will exceed China’s population before 2030. McKinsey estimates that by 2025, India’s middle class (households with disposable incomes of from 200,000 to one million Rupees a year) will increase to close to 600 million people, or more than 40% of the population.”
If that growth estimate is somewhat accurate, 600 million people in the middle class equals approximately two America’s with middle class purchasing power.
Faber points out “This is not to say that India is free of problems. Its rapid population growth will be challenging. India’s land mass is only a third that of China or the United States, yet its population will exceed 1.4 billion in 20 years’ time. With close to 20% of the world’s population, India has just 4% of the world’s water resources and is likely to suffer in future from water scarcity.”
“I should stress that I am far from certain about current stock prices providing an ideal entry point; however, given the country’s size and economic potential, investors who either have no exposure to India’s economy and vibrant corporate sector or are massively underweight Indian stocks should gradually become more involved in this promising country.”
Whether Rogers’s assessment turns out to be correct or Marc Faber’s view comes to pass, there are problems in China, and I’m sure you will see some similar problems in India. On the other hand, it looks like India should not be overlooked for long term investment anymore than China, especially in sectors that will benefit from such a young and growing population.
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Charles Maley
www.viewpointsofacommoditytrader.com
Charles has been in the financial arena since 1980. Charles is a Partner of Angus Jackson Partners, Inc. where he is currently building a track record trading the concepts that has taken thirty years to learn. He uses multiple trading systems to trade over 65 markets with multiple risk management strategies. More importantly he manages the programs in the “Real World”, adjusting for the surprises of inevitable change and random events. Charles keeps a Blog on the concepts, observations, and intuitions that can help all traders become better traders.
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