The Investment Hot Spot to Watch

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As you know, Chinese economic growth over the past two decades has driven the Australian economy along.

It’s made investors heaps of money.

If you had had superannuation or property, you gained from the undying thirst for Australian resources. And the knock-on effects that a surge in asset prices can create.

This known as the ‘wealth effect’ and is a reason why politicians frequently look to policies that inflate assets.

If you feel richer, you’re likely to spend more, boosting the economy.

Or so the theory goes…

Unfortunately, this newly created wealth can just as quickly disappear if the economy tanks. Leaving you no better off than you were before the boom.

Easy come, easy go…

General asset price inflation is therefore an illusion of wealth.

Real fortunes don’t suffer from this illusion. Sure, they can go up and down, but there’s a level where this is just scorekeeping. Not life changing.

Few make it to this level.

In Australia’s ‘China boom’, those who got in before anyone else were the few who made real fortunes.

Early investors who spotted what was happening before it was public fodder got in on companies like Fortescue [ASX:FMG] when it was trading for just 5 cents in 2003.

It hit a high of $13.15 just five years later.

And despite the later falls, is still trading at $5.50 today.

Yes, there’s no question that spotting growth in emerging countries — economies in need of our resources — at the right time is a huge opportunity for Australian investors.

And luckily, I think there’s an equally compelling story right now that could have similar benefits for brave investors.

It’s not in China though…

India- The world’s top performing economy

The opportunity is India.

India looks set to leapfrog the UK and France to become the world’s fifth largest economy in 2018.

A report by the Centre for Economics and Business Research (CEBR) stated:

Despite temporary setbacks … India’s economy has still caught up with that of France and the UK and in 2018 will have overtaken them both to become the world’s fifth largest economy in dollar terms.

In fact, India is now the world’s fastest growing economy, and likely will be for many decades to come. It’s growing at a brisk 7% per annum.

That’s over one billion people coming out of relative poverty and increasing their general incomes.

Good news for them. And good news for us.

As China slows under the weight of its debt-induced growing pains, India could be the one to take over the slack for driving global growth.

The Modi government has put crucial reforms in place and has set the country up for the next phase of expansion.

His government brought inflation down from 8% to 3% without causing a recession, or even sacrificing growth. That must count as a major achievement.

Modi also pushed through crucial GST reform to harmonise the country’s many different state tax systems.

So, could this drive a new resources boom? One to rival China’s story? 

Well, maybe. But it won’t be a carbon copy.

Being an open, democratic government, India are unlikely to embark on the kind of centrally planned infrastructure boom that China did.

It will be a more organic process. Messier, and less obvious. But that’s maybe not a bad thing.

As far as government policy is concerned, the aim is to look for opportunities to inject themselves into new, high value industries.

In that vein, India is likely to target industries such as computer programming and IT.

These are Industries still open to high growth. And crucially, they’re not dominated by others in the way industries like consumer electronics are.

India’s high levels of education help too.

It’s a smart strategy. If they can pull it off.

Over time, a 7% growth rate feeds into all areas of the economy. Demand for consumer goods, buildings, cars, food and the little luxuries we take for granted slowly grows.

And when you’ve got a billion people — and one of the youngest populations in the world — this has big effects all over.

This in turn will benefit Australia and its resources industry over the medium term.

But there’s a few more ways to play this coming boom.

How to get Indian exposure

Here are my top three ways to get exposure to this growing economy. Please note, these aren’t recommendations. Just some ideas for you to look at.

The first, and easiest, is through listed exchange traded funds (ETFs).

On the ASX, you can invest in Platinum Asia [ASX:PAI] or Ellerston Asian Investment [ASX:EAI].

These provide you with a broad range of investments, including some Indian exposure.

For a more direct exposure, there is also the Fidelity India managed fund. It has management fees of around 1.2% per annum when I last checked.

A second opportunity lies in investing in companies targeting Indian consumers.

For example, Apple [NASDAQ:AAPL] only has a tiny 2% market share in smartphones in India. It’s a huge opportunity for them.

Apple has been pursuing a range of tax and policy changes in recent months to help build out its iPhone assembly infrastructure in India.

There are more companies like this you can find by digging into India’s current ‘Made in India’ campaign.

Lastly, there’s Australian resource companies.

As India gets richer, its need for infrastructure grows.

And with the resources industry still at relative lows, today’s investments may pay off handsomely in the years ahead.

Even large-cap plays like BHP Billiton [ASX:BHP] could make outstanding returns. And a few well-placed speculative punts might turn out to be fortune makers…


Ryan Dinse,
Editor, Money Morning

About Ryan Dinse

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately…

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