Mark Lister: Is India the new China?

Indian Prime Minister Narendra Modi (right) welcomes Chinese President Xi Jinping. India’s future might look like China’s past, making it increasingly worthy of consideration for investors, writes Mark Lister. Photo / AP

OPINION

China has been a powerhouse of global growth in recent decades, and investors seeking the excitement and opportunity of emerging markets haven’t needed to look much further.

However, the world’s second-largest economy is facing increasing challenges, bringing its credentials as an obvious investment destination into question.

Last year was difficult for China amit strict Covid-19 restrictions, and we haven’t seen the expected rebound in activity in 2023 since these were relaxed at the beginning of the year.

Domestic demand has been weak, consumer spending soft and private investment subdued. China is also grappling with fears of deflation, a weak housing market and concerns over the shadow lending sector.

The authorities are clearly worried about the prospect of increasing capital outflows, which would exacerbate these issues.

In contrast, India is shaping up as a highly attractive place to do business, as well as invest capital.

India has already overtaken China as the world’s most populous country. The United Nations has been tracking population estimates since 1950, and earlier this year it surpassed China for the first time.

This population of 1.4 billion people is the cornerstone of the Indian investment case, as is the fact they’re all getting wealthier.

Gross domestic product (GDP) per capita in India is a little under US$2500, which is where China was 15 years ago (it’s now approaching US$13,000 in China).

In the following period, China experienced very strong growth and the economy almost doubled in size within a relatively short period of time.

We need to be careful about making comparisons, but it’s easy to see India embarking on a period of steady growth from here on.

With a very large population and favourable demographic trends, it could well be in the early stages of a longer-term boom at a time when China is quite likely ending one.

Over time, the rising middle class will have more disposable income and more choices about where to spend that money, boosting consumption overall.

This will help drive financial inclusion, which will see people begin to use more financial products and services.

Only 65 million (which is about five per cent) of those 1.4b people are credit card holders, which should ensure financial services will be a major growth area.

Offshoring of manufacturing is another post-Covid trend that is likely to provide ongoing benefits to the Indian economy.

Apple is one high-profile company that’s been moving more of its iPhone production to India, in part to diversify away from its reliance on China. Others are expected to follow suit.

Emerging economies can offer more attractive investment returns than developed markets, but they also come with a higher risk profile and an expectation of more volatility.

This health warning applies to India too, although, with many emerging market risks related to geopolitics, it might be better positioned than most.

With a less open economy and market than others, there aren’t as many interactions (or tensions) with others.

As a democratic republic with a parliamentary form of government, India has more in common with the Western world than the leadership style of China.

It is also a member of the Quad, a diplomatic and military arrangement with Australia, Japan and the United States.

These things arguably put it in a better position to take advantage of the multi-polar world dynamics that are likely to prevail in the years ahead.

In short, India’s future might look like China’s past, making it increasingly worthy of consideration for investors.

Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.