In today’s Money Morning…the next major economic power…a deal for the next decade of prosperity…a development every Aussie investor should be paying attention to…and more…
It’s pretty obvious at this point that China isn’t in the best economic position.
Between the Evergrande ordeal, ongoing energy demand and supply issues, and just a general concern about debt, the Middle kingdom is looking shaky. A situation that is worrying markets and particularly Aussie investors.
After all, China is still our biggest trading partner: an economy that we have relied on for the better part of two decades now to fuel our own productivity and growth. And while I wouldn’t expect this relationship to come to a complete halt anytime soon, it may undergo some changes.
Whether it be due to politics or pure economics, no one knows.
But it is clear that the Sino-Australian relationship isn’t what is once was.
A topic that has been the subject of speculation even before the pandemic gripped the world. Which is why, as we look to be putting the worst of COVID behind us, I expect the focus on this trade relationship to enter the fray once more…
However, I’m not here to talk about the doom and gloom of any kind of China decoupling. You can read about that almost anywhere.
No, today I want to talk about where I think Australia’s fortunes may come from next. Because as recent developments suggest, we may be about to secure the most important trade deal of the next decade.
The next major economic power
Here’s a bit of trick question for you. Take a look at the following chart, and try to guess which index it might be:
Source: Google Finance
As you can see, this stock market index has risen by 54% in the past year. Soaring to new all-time highs in a very short time span.
But it isn’t the NASDAQ — which has only risen 27% in the past year. Nor is it the NYSE — which has climbed 26%. Or even the Dow — which is lagging a little further behind with a 21% gain.
No, the index shown above is the ‘Nifty 50’ — a weighted average benchmark of the top 50 public companies in India.
And while the returns are impressive, the overall growth of the Indian market is far more astounding…
Just under a fortnight ago, India officially overtook France to claim the title of the world’s sixth-largest national stock market. Increasing their domestic market value by US$2.08 trillion since March 2020, an astounding 159% increase.
But with a total capitalisation of just US$3.4 trillion, it still has plenty of upside ahead. Particularly as foreign investment is booming in India.
US$81.7 billion of inflows were recorded for the 2020/21 financial year. A 10% increase over the previous corresponding period, despite being in the midst of a pandemic. Clearly showing just how popular India has become among investors.
For Australian businesses, though, getting access to this market growth isn’t necessarily easy.
But that may all be set to change in the coming months and year…
Discover our top three ASX-listed pot stocks in 2021. Click here to learn more.
A deal for the next decade of prosperity
Our government has been trying to secure some sort of trade deal with India for over a decade now. Because it doesn’t take a genius to realise that our economy could stand to benefit greatly from some sort of free trade agreement.
However, negotiations have been less than ideal.
At one point, back in 2015, talks even looked to have stalled indefinitely. Both parties it seemed couldn’t come to agree on favourable terms.
More recently, though, talks have been rekindled, and our relationship with India is improving once again. Not only because it looks like we need them more than ever, but also because India could use our goods and services too.
All of which has culminated in a huge milestone reached yesterday. As our trade minister, Dan Tehan, confirmed that a comprehensive trade deal is likely to be signed by the end of 2022. And, even more pleasingly, we should have an ‘early harvest’ deal in place by December of this year:
‘Before the final Free Trade Agreement, India and Australia will come with an Interim agreement by December 2021. It will be in compliance with WTO rules. We have started discussing issues of logistics, country of origin etc. We will exchange offer on the trade deal by end of October.’
So before the year is out, Australia may finally get its foot in the door when it comes to the Indian economy. A crucial first step that suggests to me that the fully-fledged FTA to be signed next year could be game-changing for local investors. Opening up a wave of opportunity just like the China FTA did for our market in recent years.
And while time will tell just how successful or important this deal will be, it is a development that every Aussie investor should be paying attention to.
Because despite all the recent volatility, this deal could legitimately be the defining factor of our economy for the next decade and beyond.
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.