We all know the rule of location, location, location when it comes to investing in property. But what about a new one for investing in developing markets, consumption, consumption, consumption. Perhaps this is the key to deciding where to invest in the two biggest developing nations, India or China.
China we all know is a massive exporter of goods to the west and this is and has been great news for their economy. India's economy on the other hand has been built on the foundations of offering services such as IT. India also has a potential double trump card in that English is spoken and the country generally has a good education infrastructure.
India Trumps China On Consumption
What is really needed for an economy to grow is not exports per se but internal consumption by the population. Remember the old economic joke about paying people to dig holes and then getting others to fill them? Well, it's actually not a bad idea because both the diggers and filler receive wages which they then spend in the economy, so called consumption.
Private consumption in India already accounts for over 60% of the country's GDP which is something China just hasn't got. Indian banks are now focussing on developing a whole new market of personal finance products such as mortgages, loans and credit cards alongside massive rural reform programs. These will no doubt give a further boost to internal consumption.
Summary
If you think the consumption angle is critical then India looks the better long term investment than China. However, there are others notably the famed global investor Jim Rogers (ex-partner of George Soros) who favour China for the long term. Whatever the case don't discount the consumption factor and keep it on your radar.
Also don't forget that a characteristic of all emerging markets is they're very volatile. Moves of 25-50% up/down in the stockmarkets over short periods of time are not uncommon. It's therefore a good idea to drip feed money into the market over several years as well as view the investment with a multi-year outlook, preferably 10 years+
Good luck in investing in either or both of these exciting economies!
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