One of the most expensive mistakes that can be made in emerging markets is to confuse business and politics.
The political pages of newspapers may attempt to point business decisions in one direction when this is contrary to real business and economic fundamentals. In Russia in the 1990s, for example, even George Soros, as well as many other investors, lost large sums because they became involved in supporting people who were viewed favourably in political newspapers, instead of paying sufficient attention to these business fundamentals. In addition large amounts of time were wasted in forging links with figures who were totally peripheral to real developments – therefore failing to position companies to take advantages of key openings.
A somewhat similar mistake has been made over the last period in comparisons between India and China. There may be political reasons for preferring India to China, but this has led to the mistaken view that India may be catching up China economically, or may even be a better economic bet for the future. This is not true.
China is increasing its economic lead on India – the gap is widening, not narrowing. This is shown clearly in the macro-economic data – where China’s growth rate continues to exceed India’s , which necessarily means that the gap in GDP and overall market size is increasing. But it is also clearly seen at a company level in more detailed examination of data from the FT Global 500 whihch were considered in a previous post. It should be recalled that the FT Global 500 deals only with publicly quoted companies but it is sufficiently comprehensive, and the differences are of sufficient magnitude. to show the situation clearly. http://keytrendsinglobalisation.blogspot.com/2008/07/financial-times-global-500.html
China has almost three times as many companies in the FT Global 500, including Hong Kong, as India (35 compared to 13) and twice as many excluding Hong Kong (25 to 13). Market capitalisation of Chinese companies is over six times that of Indian companies - $2,569bn compared to $421bn. Turnover of Chinese companies in the Global 500 is six and a half times that of Indian companies.
Strikingly both Russia and Brazil continue to be stronger than India at the large company level. Market capitalisation of FT Global 500 companies is Russia $820bn, Brazil $621bn, India $421 bn. In terms of turnover the figure for Russian companies is $295bn, Brazilian $178bn, Indian $87bn.
Evidently, strategically, India is a more important market than either Russia or Brazil. India’s population is much larger than Brazil or Russia. Its growth rate is second only to China’s among the largest emerging markets. The Indian market is therefore immensely important. But China’s economic lead over India is still growing not decreasing.