The recent liquidation of Evergrande, one of China's largest property developers, raises questions about the economic situation in the Middle Kingdom. China is a market in transition, and other emerging markets are also at a turning point.
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Recent research has revealed that China has a 40 percent dependence on the US and its allies for more than 400 products, ranging from critical raw materials to luxury goods. But the days of China’s heavy reliance on the US, are tempered. China must increasingly tap into its domestic growth potential.
Despite unfavorable, aging demographics, the population is huge, and domestic demand is growing thanks to increasing prosperity. China is no longer acting exclusively as the world's only factory but is instead focusing on innovation and increased cooperation with regional neighbors, the Middle East, and partners in Latin America. The prospects for the coming year are promising, but it may still be too early for economic pressures to reveal easing.
«Taiwan is relied upon as the engine for new waves of technology»
Chinese authorities are providing targeted incentives to boost both the economy and its markets. However, Chinese consumers need to follow suit. Caution is advised with broad-based incentives, which could harbor the risk of bubbles.
Apart from the geopolitical risks, Taiwan remains a promising market. The semiconductor industry is strongly positioned worldwide. « Taiwan is relied upon as the engine for new waves of technology». Europe and the US are unlikely to be able to catch up any time soon in terms of chip manufacturing.
«Prime Minister Narendra Modi's policies have attracted foreign companies»
India plays an important long-term role in the emerging markets. The strong demographic development, the political reforms, and the growing gross domestic product are just some of the reasons to focus on the Indian market. The country is also increasingly developing into a center of manufacturing, with the ‹Purchasing Managers' Index for Industry› leading the global rankings for some time now.
Prime Minister Narendra Modi's policies have attracted foreign companies, including industry giants such as Microsoft, Toyota, and Samsung. The expansion of the capital market in India is seen as a promising factor for future investments. Efforts to upgrade Indian infrastructure are also being emphasized with substantial investments slated to improve its transport facilities.
«Further increases in Indian company valuations should be expected»
India currently ranks fifth by economic size at $3.7 trillion (2023-24) and that ranking is expected to rise by 2030, placing India as the world’s third-largest economy behind Japan and Germany, according to a recent S&P Global Market Intelligence report. Further increases in Indian company valuations should be expected as expansion in capital markets is seen as a supporting factor for this development.
Sectors with high growth potential in India are cyclical consumer goods, technology, and financial stocks. The combination of technology and banking is particularly interesting in India.
«This has led to rising institutional investor interest in India»
The geopolitical skepticism towards involvement in China has been increasing opportunities for India. This has led to rising institutional investor interest in India as the country is also gaining weight in equity benchmarks. While markets may experience volatility ahead of India’s upcoming 18th parliamentary elections, Prime Minister Narendra Modi’s Bharatiya Janata Party is leading in opinion polls, which should clear a path for Modi’s third term. We believe the outcome of the election should not cloud the optimistic outlook for the country.
Dina Ting is the Head of the Global Index Portfolio Management Team at US asset manager Franklin Templeton.
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