The Hidden Story Behind Emerging Market Statistics
Often overshadowed in the media by China, the Indian economy has always been much ignored and largely misunderstood by Western investors.
Even the less-biased media outfits – like NPR – will say “In overseas markets…” and go on to talk about the Japanese Nikkei and the Shanghai Composite…but you almost never hear about the Bombay Sensex.
But I’ve never been bothered by this. Because it leaves more for us, I always say…
Self-Reliance
The first and most important of common misperceptions about India is something I call “death by stereotype.”
Emerging market investors – the kind who like to sound like an authority on CNBC – often paint India red…that is to say; they lump India in with China. Dependence on foreign consumption, the export model. But in their desire to make India’s future fit into their “big picture” of emerging market leadership, they glaze over the most important facts…
Namely; the Indian economy is growing rapidly…even though exports are falling. And they’re doing it with no substantial amount of government bailout…
No bailouts? An economy actually functioning on its own? Perish the thought! How could that be?
What India’s Economy Lacks in Size…it Makes up for in Self-Reliance
The chart above demonstrates what I’m talking about. As you can see, domestic consumption – internal demand – as a percentage of GDP is at 71% in the United States. Look to China and you’ll find something quite the opposite, where domestic consumption equals just over a third of their total GDP. (India – curiously – sits in between at 57%, 20% higher than China, and just 14% lower than the U.S.)
So even if 1.3 billion Chinese all opted for grocery-store nationalism – buying everything from only domestic sources – then China would still require foreign demand to cover two-thirds of their total GDP.
What Recession?
Meanwhile, in India, I can’t even get anyone to take my calls. Brokers, analysts, banks…they’re all simply too busy. I only wish they’d half-heartedly promise to call me back. Truth is, I’m having trouble even getting that kind of response.
And my contacts on the ground are telling me the same thing. “What Recession?” they all say. Markets, shops, restaurants…all are constantly packed to the gills. Indians are not afraid of the slowdown, and they’re continuing to expand their desires and expectations for greater material wealth and a higher standard of living. In short; India’s consumers are building their own version of the American dream on the subcontinent.
So let’s take a look back at China…the darling of so many emerging market investors’ eyes…to see what they’re putting together. Substantial domestic consumption? You be the judge…
Stay Long India!
Ashish Advani, Editor of Global Currency Options