China, India or Japan: which offers the best hope for investors in 2024?
- As the spotlight drifts away from China, global investors have turned to alternative Asian growth stories, particularly Japan and India
- Japan has been bolstered by efficiency and productivity gains, while India has drawn investors with its demographics and potential for longer-term growth
As the investing spotlight has drifted away from China, global investors have turned to alternative Asian growth stories. The investing theses for Japan and India, two popular alternatives, could not be more different.
In Asia, the Japanese equity market has seen the highest foreign portfolio investment flows so far this year (US$29.2 billion as of October 13), followed by India (US$14 billion as of October 17), according to Bloomberg data. Latest figures for China show it had US$6.8 billion in net foreign flows as of June 30.
Inflation and wages have picked up this year, and there is excitement that long-standing productivity and capital-efficiency concerns will be addressed through new listing rules at the Tokyo Stock Exchange.
Investors are also looking for improved corporate earnings among Japanese corporations this quarter, especially from those with large global operations that will benefit from the weak yen.
The rapid ascent of many East Asian economies coincided with a rapid rise in their working-age populations. Japan, Singapore and Hong Kong entered this phase in the 1960s and grew rapidly to become developed economies. China’s economic reforms, along with favourable demographics in the 1980s, set the stage for decades of unprecedented growth.
India’s major risk is that the demographic dividend morphs instead into a disaster. Although it has high economic growth, it has thus far failed to create enough jobs. The unemployment rate is around 8 per cent and youth employment is substantially higher, partly because the main pillars of growth are service sector industries.
There is also a skills mismatch, with less than 5 per cent of the country’s young workforce having received formal training. This will make it difficult to expand manufacturing’s share of Indian GDP, a stated policy goal of the government, from around 17 per cent today to 25 per cent. India requires huge, consistent, and targeted investments into underdeveloped and overstretched infrastructure and human capital for decades to come.
A defining theme of 2024 will be whether these markets can sustain this high level of investor interest even as sentiment turns positive again in China. If so, we could be looking at a new stage of regional development.
David Chao is a global market strategist, Asia Pacific (ex-Japan), at Invesco