Prospects for India and China couldn’t be more different

Ross Cameron, Ross Cameron

Ross Cameron is a portfolio manager/analyst at Northcape Capital. With over 14 years investment experience, he is portfolio manager and analyst for the company’s Emerging Markets equity strategy. Cameron joined Northcape in 2009, and since then has worked in Melbourne, Tokyo and Sydney. Before joining Northcape, he spent three years working with Capital Partners (now CP2). During his time as an analyst for Capital Partners’ concentrated international equities fund, he covered a broad range of sectors including financials, industrials and infrastructure. Prior to joining the investment industry, he taught decision analysis in the School of Operations Management and Econometrics at the University of Sydney. Cameron holds a Bachelor of Commerce (Finance, Japanese Studies) degree from the University of Sydney.

Funds

Fonds

(Runtime: 5:00. Read the audio transcript.)

The disparate economic prospects for the world’s most populous countries boils down to differences in political leadership, says Ross Cameron, portfolio manager with Northcape Capital.

Where India has flourished in recent years under Prime Minister Narendra Modi, China has floundered under the autocratic rule of Xi Jinping.

“These two countries couldn’t be more different,” he said. “India is a vibrant democracy with a strong rule of law, excellent demographics and low credit penetration. And China is an authoritarian system with poor demographics and very high levels of indebtedness.”

Cameron said investment dollars are flowing into India while China weathers one of its most serious economic storms.

“Since Mr. Modi became prime minister in 2014, [we’ve seen] stable politics and market-friendly policies,” he said. “Modi’s philosophy … has been that a rising tide raises all boats.”

With that in mind, Modi has sought to eliminate bottlenecks in the Indian economy, such as outdated road, port and rail systems, as well as inefficient tax policies.

“The big thing that Modi has done — and we haven’t yet seen the results of it, but we will — is infrastructure,” Cameron said. “A lot of Modi’s policies have been about building a foundation for economic growth going forward.”

The results are starting to show. While the global economy is expecting an economic slowdown this year, India’s economy is expected to grow 6% in real terms.

“That’s double-digit nominal GDP growth,” Cameron pointed out. “That’s a very impressive outcome in a global economy that’s going to be flattish.”

The OECD predicts China will grow 4.7% in 2024, but the country faces a daunting list of economic challenges, starting with its demographics.

“China’s fertility rate is below that of Japan’s. And Japan is the poster child for bad demographics,” he said, referring to the latter’s famously aging population.

China is also highly indebted, with significant government and household debt, and one of the most indebted corporate sectors in the world. The ratio of debt to disposable income among Chinese households is at about the same level as the U.S., but the U.S. has much higher GDP per capita.

“The ability for U.S. consumers to sustain that debt is much higher,” Cameron said.

On top of that, China faces high youth unemployment, severe real estate challenges, and a poor outlook for global trade in the current economic climate.

Cameron said it is difficult to imagine the Chinese economy growing again like it did in the 1990s and 2000s — the country’s boom years.

“Those type of growth rates those are those are gone and they’re not coming back,” he said. “It was once thought that China was going to overtake the U.S. But I think the most attractive parts of emerging markets for investors and now outside of China.

“Meanwhile, India is a very good place to invest in, and continues to be.”

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.