The Accidental India Underweight

Is it fair to say a key influence on the state of the global economy in the next 20 or 30 years will be the pace of India’s development? I think it’s reasonable enough.

This is why I titled this blog post the “accidental underweight.”

Suppose an equity allocator puts 10% into an emerging markets tracker fund, with the rest in the U.S., Europe, Japan, etc. Because India is about one-tenth of emerging markets’ market capitalization, this investor has about 1% of the total capital allocated to India.

Or, 99% not in India.

Is that how you would play it if you had to do the proverbial Rumpelstiltskin routine and wake up in 2050?

Check-in on birth rates. For context, I highlighted in red the trio of China, Hong Kong, and Taiwan (with a hat tip to Hong Kong being among the ranks of the advanced economies, but increasingly in the fold of the mainland).

Figure 1: Birth Rate per 1,000 Population (2020)

Birth Rate per 1000 Population (2020)

If we witness a power struggle between India and China in the coming decades, it may pay to consider that India’s 1.4 billion population is set to grow. The CIA World Factbook’s estimate of its 2021 birth rate is 2.28 per woman.

In contrast, some demographers believe China witnessed its population peak in 2020, at 1.3 billion. That amount will grind lower because of the 1.6 per woman birth rate, a number that will not likely budge much in response to the infamous “one-child policy” becoming a “two-child policy” and, last month, “a three-child policy.”

While we embark on the 2020s with India’s fertility matching what we may see in South Africa or Mexico, China will witness French-style birth trends. In Hong Kong, the obvious: the apartments have been, are and will be tiny. It’s tough to squeeze everyone into a studio apartment. As for Taiwan, its fertility rates are positively Germanic. By the way, Germany’s population fell in 2020, just like China’s.

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