GW&K Portfolio Managers Thomas Masi and Nuno Fernandez believe that China and India are going to dominate consumption growth for the next 25 years. These two countries will drive demand for all kinds of consumer goods in the years ahead. The combination of rising disposable income and 2.8 billion people is a powerful force—enough to shift world dynamics. In their view, China and India are at the inflection point—after which the gap between them and all other countries in the world is going to widen.
The expansion of the emerging markets consumer is a long-term, global secular trend—and may be one of the most powerful investment trends of the next several decades.
China and India at the Inflection Point
World dynamics are undergoing a material shift to Asia. The driving force is rising per capita income in the most populous countries in the world. China and India with populations in excess of 1.4 billion people each have already stepped onto the global stage in terms of consumption.Their influence will become more and more important over the next ten years. Both countries are expected to experience strong rebounds in economic growth in 2021, well above all other major economies in the world. China is expected to grow in excess of 8% and India more than 11%. This compares to less than 4% growth in the U.S. and even less in Europe and Japan. China and India combined are on track to exceed U.S. GDP by 2025. China’s middle class population is expected to expand to 900 million people over the next 10 years, with the upper income segment doubling to 680 million people. Already high-end household growth in China has expanded by 17.8% over the past 10 years. This trend has made China the fastest growing market for luxury goods, travel, education, cosmetics, and other high-end products.
India—Yes India Should Be on Your Radar Screen
India is far behind China in terms of per capita income but the trends that are well established in China will be increasingly apparent in India over the next decade. India’s consumption has grown at 9% over the past ten years, well above U.S. consumption growth of 3.6%. The middle class in India is expected to reach 1.0 billion people over the next five years. In 2012, there were fewer than 400 million people in the Indian middle class. The trends we are currently seeing in China will be much more apparent in India over the next five years.
From Tidbits of Information to the Obvious
As we emerge from COVID-19, the trends that were in place in emerging markets in terms of middle class consumption and domestic consumption will become increasingly obvious. In this regard, India and China are the two most important countries to monitor for investment opportunities. And, relative to the U.S. and countries in Europe, India and China have relied less on government stimulus to weather the pandemic which means both countries have additional tools (dry powder) to stimulate their economies in the years ahead.
Tom Masi
Nuno Fernandes
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Emerging markets equities are subject to significant risks such as erratic earnings patterns of the issuer, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.
This does not constitute investment advice or an investment recommendation.
This represents the views and opinions of GW&K Investment Management. It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes
