Emerging markets have presented a tremendous opportunity for investors, both small at the retail level and large at the institutional level. Both have huge populations and with a growing middle class, which will translate into demand at some point in the future. But until then, both offer great manufacturing costs, allowing developed nations to find great value in what these two countries have to offer. The result? Tremendous wealth is being pumped into these markets
But not all emerging markets are equal. In fact, India and China are extremely different from economic points of view and also offer different benefits to investors. Here are some of the key differences investors should consider before making a decision over which emerging market they want to invest in.
– Earning population base. When it comes to developing a nation for the long-term, the size of its income-earning population base is important, as an older population base will be more draining on that nation’s economy. In the case of India vs. China, the Indian economy will be better able to withstand an aging population. Over the next decade, China is expected to add 36 million workers to its economy whereas India is expected to add 136 million to its work force.
– Growth rates. One of the fundamental ways that an investor can determine how well a given economy has done is to look back at its GDP growth rates. Over the past 20 years, India’s Gross Domestic Product (GDP) growth rates have only exceed China’s a total 3 times, and even then they were by relatively narrow margins. In terms of historic GDP growth rates, China seems to have the upper hand. In addition to historic rates of growth, China’s economy is closely monitored by its Government, allowing applicable force and control to be applied to keep the economy in check. To some, this involvement could be seen as a pitfall, however China’s economic history speaks for itself and it considered a good thing.
– References. Like anything, it helps to see what others think about the economy in question. And what better reference to have in your corner than a billionaire investor like Warren Buffett. In this case, Warren Buffett has publicly made reference to opportunities in China. This certainly provides a bit of an advantage in China’s court.
These are just two of the things that investors should be looking at if they are wondering whether to invest in India or China. While both economies have a tremendous amount of value to offer investors over the long term, many investors may find that they should invest in one over the other. And if this is the case, the above provides a good starting point.
–> Learn more about what a leading Emerging Markets Fund feels about the above. Visit MutualFundSite.org for more information.
Chris has more than 17 years of financial services experience. As a regular contributor to the Mutual Fund Site, Chris often writes about Emerging Market Funds.
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