Gordon Kearney, Director and Financial Adviser
Posted in Investing on 15.11.10

Napoleon Bonaparte once said “Let China sleep. For when China awakes, it will shake the world”. In an age of cuts, austerity and anaemic economic growth in the West, not since the end of the Second World War have we needed China to be more awake!

Fortunately for us in the West, China is awake and rapidly developing. In 1999 China was the 7th largest economy in the world –today she is 2nd only to the United States. Not to be outdone by her Asian neighbour, India with its 1.2 billion inhabitants is also rapidly advancing by virtually every leading economic indicator. The advent of ‘Ch-India’ is by no means a new story – the question posed at the recent conference– ‘Can Ch-India save the world?’. The answer offered was a resounding ‘yes’!

Based on the sheer scale of the two countries and what we know of the history of capitalism, Ch-India will indeed ‘shake the world’. With a combined population of 2.6 billion, economic growth is being underpinned by the twin processes of urbanisation and industrialisation. The demographics of both nations is highly favourable for dynamic economic growth – in China 35% of the population are under 25, while in India it is a staggering 48.9%! This means a very high proportion of those who are both economically active and consumers with relatively high disposable incomes and low personal debts. Add to this the high domestic savings rates that should make us in the West blush, ever increasing domestic demand and huge direct domestic and international investment and we have virtually all the ingredients of an economic ‘miracle’ that should power global growth over
the next 50 years and beyond. This is being seen as a ‘once in a lifetime’ opportunity, comparable to the development of the United States in the 20th century and the Japanese ‘economic miracle’ of the 1970s and 80s. There are also reasons for caution. Political unpredictability and uncertainty in China remain a constant threat; can land reforms
keep pace with ever increasing expectation? Corruption – traditionally a word associated with developing economies – while not endemic in Ch-India (by some nation’s standards) is still prevalent.

Finally, an issue more pertinent to India than China, will economic progress be held back by the lack of good quality infrastructure and the many layers of bureaucracy, a legacy of the Raj. Anecdotal evidence about China can also be misleading. The first is that Chinese growth is largely dependent on exports and therefore the health of the economies of the West. However unlike in the 1990s, China is no longer dependent upon the West for growth. When Western demand for Chinese goods fell in 2009 by 4%, its economy still grew at an impressive 9%. The second is that China has a massive ‘real estate bubble’ developing. China now has over 150 cities with populations greater than 1million, compared with only 8 in the US. Therefore there will always be anecdotal evidence of price bubbles. Although there are a number of quite valid concerns for investors in the Asia region, the Investment Team at Fiducia believes there are exceptional opportunities within the Asian region.

Within our portfolios the Ch-India ‘theme’ manifests itself in a number of ways. For example we have dedicated weightings (within relevant risk profiles) to commodities and infrastructure. The former we have identified as direct beneficiaries and as more cities are built and industrialisation extends there will be a continuation of the demand for virtually all commodities. Furthermore as the population increases and becomes richer there will be a desire to improve diet resulting in further upward pressure on global food prices. Fiducia’s portfolios have been designed with a less UK centric view than most investment managers and have sought to gain exposure to the global economy as a whole, with specific exposure to global emerging markets in general and where appropriate individual countries.

So will Ch-India save the world? The answer we feel is ‘yes’ – but not the world as we have known it!

Gordon Kearney

Head of Investments

If you would like to know more about how we as Financial Advisers can help you  with your Investments then visit the Investment Management section of  our website: Investment Management or send us email at: email@fiduciawealth.co.uk

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Gordon Kearney, Director and Financial Adviser
Posted in Investing on 15.11.10