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Thursday, February 16, 2006

On Investing In India Vs China

Recently Forbes brought home the point in the annual list of the 40 richest Indians that even with a cutoff of minimum net worth of at least $590 million, up from $305 million last year, to make the cut – the indian list looks very impressive. Twenty-seven members are billionaires from India, more than double last year's count. The group's collective net worth soared to $106 billion, up from $61 billion; by contrast, China's 40 richest (min networth -$321 million) with ten billionaires are worth a collective $26 billion. Jeremy Siegel writing on the investment opportunities between India China writes, Guanxi, when combined with the corruption that permeates the Chinese economy, make a truly competitive economy difficult, if not impossible to achieve. For India, these social networks and corruption are less of a problem. To be sure, dishonesty still exists in government service, but high level corruption is being vigorously rooted out by a free press that is absent in China. Both India and China have enormous promise and it is advisable to own stocks from each of these countries in a long-run portfolio. But India's edge is no secret and future returns will not match the stellar gains of the last three years. He concludes by cautioning that all the developing markets, no matter how promising, contain considerable risk. All I can say is that the dynamism and activity levels in both the countries are very high anf what we have seen in the shanghai markets are investors losing substantial money in the last decade, while the century old indian bourses have provided very positive returns to investors, proof of the instituitional depth of expertise that exists inside India.

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