Last month, India became the world’s most populous country, concluding a multi-century era of China holding the number-one spot. As its population surpasses 1.4 billion, some may be wondering whether India holds as much economic potential as other global superpowers – and how to invest.
While its gross domestic product has yet to overtake that of the US or China, the number of Indians of working age (those between 15 and 64) is now growing while American and Chinese workforces have begun to shrink.
Many refer to this vast Indian workforce as a demographic dividend: an economic advantage caused by a change in a country’s age structure. Developing countries tend to benefit from demographic dividends as their fertility rate decreases and more resources are diverted to education and health, increasing the country’s overall productivity. In the case of India, a growing working-age population has allowed the country’s pace of economic output to keep up with historically wealthier peers.
Of course, demographic trends may not always indicate future economic prosperity. A variety of factors may influence a country’s overall wealth, including natural resource availability, macroeconomic policy, and geopolitical strife. However, as Morningstar’s Head of Global Equity Research Daniel Rohr explains, long-term investors would benefit from considering what demographic change could mean for their portfolios. While the influence of demography may be imperceptible quarter to quarter, he suggests, it can prove decisive in the long term.
Consider China, which until last month, had been the world’s most populous country for multiple consecutive centuries. Its seemingly ever-expanding population, combined with increasing labour productivity and urbanization, sparked tremendous economic growth in the 1990s and early 2000s. However, as Rohr explains, changes in fertility and age composition have had a dramatic impact on China’s economic outlook. “In the next 10 years, we expect demographic change will drag on growth rather than drive it and radically reshape China’s economy,” Rohr says. “Population growth, already slowing, will nearly grind to a halt by 2026 amid falling births and a steady rise in mortality. The age composition of China’s population will change dramatically over the next 10 years.” This, combined with a shrinkage in China’s rural labour supply, is likely to have a negative impact on GDP.
As China and the US make room for a third global economic and demographic superpower, investors may want to partake in the transition. Here we’ve highlighted thirteen Canadian mutual funds and exchange-traded funds that focus specifically on the Indian market. For investors looking to boost their international exposure, and perhaps take advantage of a meaningful demographic shift, these securities may be worth a look:
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