China & India: It Only Gets Better

chinese stocksNot sure if you noticed, but Chinese stocks are rallying. In China, the benchmark Shanghai Composite Index (SCI) has been rallying since being down over 28% earlier in the year, and currently is holding above the key 3,000-point level, down around four percent this year.

Taking a look at the chart of the SCI; the barometer of Chinese performance gapped higher above its 200-day moving average (MA) of 2,921, as well as its 20-day and 50-day MA. The SCI broke higher out of its previous sideways channel between 2,575 and 2,700.

And, while growth in the United States is puttering around two percent, China reported GDP growth of 11.9% and 10.3%, respectively, in the first and second quarters of 2010 before slowing to 9.6% in the third quarter, according to data from China’s National Bureau of Statistics. Slowing? The growth in China continues to be impressive in spite of a rise in the consumer inflation rate to 4.4% in October and the country’s focus on loan tightening. China’s GDP expanded at an average of 9.30% annually from 1989 to 2010.

For 2010 and 2011, GDP is estimated to grow by over 10%, according to the Organization for Economic Co-operation and Development (OECD). In fact, economic growth in the Asia Pacific region is promising, including seven percent for the developing Asian economies and a stellar 8.3% for China’s neighbor, India.


I firmly believe that China will continue to be the one of the major top growth regions in Asia, better than Japan, which has been mired in a two-decade economic slump that the country cannot seem to shake off.

In Asia, I also like neighbor India, with a population of over 1.18 billion people, which is estimated to surpass China by 2025 and hit a staggering 1.6 billion by 2050, according to the BBC. What makes India attractive are its young and educated workforce and high literacy rate at 71.7% for those seven years old and older, according to the country’s Ministry of Statistics and Programme Implementation.

Just imagine the combined markets with over one-third of the world’s population and where the disposable incomes in both countries are on the rise. India’s per-capita income was a mere US$1,032 in 2009 and ranked 142nd in the world, according to the International Monetary Fund. China was ranked 99th with a per-capita income of US$3,735 in 2009. It will take some time, but, as income levels rise, I expect to see a corresponding rise in spending and GDP.

With higher incomes will come more spending. Consider this: at the present time, only a small fraction of both China’s and India’s GDP is driven by consumer spending, compared to about 70% in the U.S. Both countries want to drive consumer spending long-term, which will drive organic GDP growth in both countries, and you know this will drive stocks in these countries.