China has led for decades – but now investment advisors are putting India ahead. The latest is from Frontier Advisors as reported by Investment Strategy.
In summary, India is a long-term investment – a 10-year-plus horizon – with favourable demographics, population growth and an emerging middle class.
Here is how they saw both markets and why they favour India:
The report says about China:
- economic growth is likely to continue to slow as credit growth and investments, such as in infrastructure and property, fades
- reforms in excess capacity sectors and deleveraging is occurring as authorities switch focus to “quality” of economic growth rather than the pace of growth
- monetary policy is tightening despite an unchanged benchmark interest rate
- environmental issues are being addressed, and
- economic transition is taking place as the Government focuses on higher value sectors.
It says there is a risk that China deleverages too quickly and destabilizes the economy, “but a hard landing still seems unlikely”.
Meanwhile the new US restrictive trade policies heighten uncertainty.
On India, the report says:
- India is a long-term investment – a 10-year-plus horizon – with favourable demographics, population growth and an emerging middle class
- Its economic growth path will likely be different from China’s: while social inequality is a problem, education is seen as crucial to alleviating this; demographics suggest it has multi-decades to “harvest” a return from this, while China’s was shorter because of the one-child policy
- valuations in listed equities are not cheap, “but they seldom are”
- Government bond yields look attractive, although higher inflation is a risk, and
- there are opportunities in real assets, such as the “National Corridor Project”. But its history has been poor and there is a reduced capacity for liquidity
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