Population Shifts and Economic Impacts: A Closer Look at Emerging Market Dynamics

Suzanne Berkery

25.03.2024



Population Shifts and Economic Impacts: A Closer Look at Emerging Market Dynamics

Since records began in the 50s, China has held the title of the world’s most populous country. But its population is in decline and, this April, according to United Nations population projections, India will overtake it. India is expected to continue to widen the gap until its population peaks in 2064.

 

Not only is China’s population growth stalling, but it is also ageing. The median age there is now 39. In India, it is 28, and more than 40% of India’s population is under the age of 25. Wall Street giants like Goldman Sachs Group Inc. and Morgan Stanley are endorsing the South Asian nation as the prime investment destination for the next decade. The basis of this assessment is China’s weakening economy. China faces multiple challenges, from a failing property sector to a contracting manufacturing sector.

 

Last month, factory output declined for the fourth straight month. The manufacturing activity of large and state-owned companies contracted for the fourth straight month in January. Manufacturing is clearly slowing down.

 

As U.S. companies continue to shift away from Chinese manufacturing, a new frontrunner has emerged. A new study by Boston Consulting Group (BCG) has found that India may be the biggest winner, with exports to the U.S. increasing by $23 billion, a 44% increase from 2018 to 2022.

 

Going back as far as 2018, companies have been focussed on diversifying their supply chains, initially in reaction to the 25% tariffs imposed on China by the then President Donald Trump. Roll forward another 12 months and the impact of the global pandemic reinforced this need. Results of a recent survey on more than 500 US C-suite executives conducted by OnePoll for India Index highlighted the main concerns about China.

 

Leading the way, unsurprisingly was the threat of increased tariffs. Donald Trump’s recent comment that should he win the election in November he would increase tariffs on China to 60%, to ‘finish the job he started’, won’t have helped.

 

Concerns over intellectual property theft was also high on the list. The Five Eyes intelligence-sharing network, made up of officials from the United States, Britain, Canada, Australia and New Zealand, recently accused China of stealing secrets across various sectors, including innovations from quantum technology and robotics to biotechnology and artificial intelligence.

 

Fear of reputational risk featured as another concern. While companies may in the past have explained away unethical practices as the cost of doing business, today’s conscious consumer is holding companies accountable.

 

The OnePoll results noted that economic growth in India was another reason brought up to explain the pivot away from China. In the third quarter of 2023, India’s economy grew by 7.6 percent, beating most analysts’ forecasts. The country’s Nifty 50, a weighted average benchmark of the country’s 50 largest companies, broke records throughout 2023, marking eight years of continuous gains.

 

Political risk was a top concern amongst U.S. executives when it came to trading with China. The preference for India can be attributed in part to greater political alignment between the country and the United States. India’s incumbent political party, Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP), has removed much red tape that plagued industries, eased regulation around foreign direct investment, and implemented pro-business policies.

 

Companies like Tesla, Apple and Walmart have been making investments in India over the last few years. Walmart, for example, recently pledged to import $10 billion worth of product every year from India starting in 2027, and others are likely to follow suit. Last year, the Indian stock market received some 20 billion dollars from foreign investors. In the last three months of 2023, U.S.-based Indian ETFs received record inflows, resulting in India briefly overtaking Hong Kong to become the world’s fourth largest stock market.

 

The momentum is clearly on India’s side.

 

Investing in most emerging markets is easier using Exchange Traded Funds (ETFs). They provide access to specialised managers and exposure across many sectors. Most balanced portfolios will already hold an Emerging markets ETF, but you should be aware that China makes up between 20% – 35% of these funds and the effect on performance can be staggering.

 

The SPDR MSCI Emerging Markets UCITS ETF returned +2.96% in the last 12 months while the iShares MSCI EM ex-China UCITS ETF returned +14.6%. The SPDR MSCI Emerging Markets UCITS ETF seeks to track the MSCI Emerging Markets index. The MSCI Emerging Markets index tracks stocks from emerging markets worldwide. Chinese exposure makes up 23.82%. The ETF’s TER (total expense ratio) amounts to 0.18% p.a. The dividends in the ETF are accumulated and reinvested in the ETF. The SPDR MSCI Emerging Markets UCITS ETF has 383m Euro assets under management and was launched on 13 May 2011 and is domiciled in Ireland.

 

The iShares MSCI EM ex-China UCITS ETF USD (Acc) seeks to track the MSCI Emerging Markets ex China index. The MSCI Emerging Markets ex China index tracks stocks from emerging markets worldwide excluding China. The ETF’s TER (total expense ratio) amounts to 0.18% p.a. The dividends in the ETF are accumulated and reinvested in the ETF. The iShares MSCI EM ex-China UCITS ETF USD (Acc) is a large ETF with 635m Euro assets under management. The ETF was launched on 26 April 2021 and is domiciled in Ireland.

 

For those looking for more direct Indian exposure the iShares MSCI India UCITs ETF and Franklin FTSE India UCITs ETF both offer 100% exposure. The iShares MSCI India UCITS ETF USD (Acc) seeks to track the MSCI India index. The MSCI India index tracks the leading Indian stocks. The ETF’s TER (total expense ratio) amounts to 0.65% p.a. The iShares MSCI India UCITS ETF USD (Acc) is the cheapest and largest ETF that tracks the MSCI India index. The dividends in the ETF are accumulated and reinvested in the ETF.

 

The iShares MSCI India UCITS ETF USD (Acc) is a very large ETF with 3,346m Euro assets under management. The ETF was launched on 24 May 2018 and is domiciled in Ireland. The iShares MSCI India UCITS ETF is +15.52% in the last 3 months and +25.92% in the last 12 months.

 

The Franklin FTSE India UCITS ETF seeks to track the FTSE India 30/18 Capped index. The FTSE India 30/18 Capped index tracks Indian companies with large and medium market capitalisation. The largest company in the index is limited to a maximum of 30 percent of the index capitalization, all other index components to a maximum of 18 percent. The ETF’s TER (total expense ratio) amounts to 0.19% p.a. The Franklin FTSE India UCITS ETF is the only ETF that tracks the FTSE India 30/18 Capped index. The dividends in the ETF are accumulated and reinvested in the ETF. The Franklin FTSE India UCITS ETF has 456m Euro assets under management. The ETF was launched on 25 June 2019 and is domiciled in Ireland. The Franklin FTSE India UCITS ETF is + 4.02% Year to date and + 29.62% in the last 12 months.

 

 

ETF Name Index Tracked Total Expense Ratio (TER) Launch Date Domicile Assets Under Management 12-Month Performance Additional Performance
SPDR MSCI Emerging Markets UCITS ETF MSCI Emerging Markets Index 0.18% p.a. 13 May 2011 Ireland 383m Euro +2.96%
iShares MSCI EM ex-China UCITS ETF USD (Acc) MSCI Emerging Markets ex China Index 0.18% p.a. 26 April 2021 Ireland 635m Euro +14.6%
iShares MSCI India UCITS ETF USD (Acc) MSCI India Index 0.65% p.a. 24 May 2018 Ireland 3,346m Euro +25.92% +15.52% in the last 3 months
Franklin FTSE India UCITS ETF FTSE India 30/18 Capped Index 0.19% p.a. 25 June 2019 Ireland 456m Euro +29.62% +4.02% Year to date
WARNING:

The value of your investment may go down as well as up. You may get back less than you invest.

WARNING:

Past performance is not a reliable guide to future performance.