• On a PPP basis, India is the second-largest economy behind China and third-largest economy with GDP measured in U.S. dollars.
• The large difference between India’s GDP in U.S. dollar terms versus PPP terms illustrates the potential for India’s currency to appreciate over time. It doesn’t necessarily imply immediate or significant appreciation of India’s currency, but we believe differences in PPP value of a currency is a sign of the currency’s undervalued nature.
• India, Russia and Brazil are very similarly sized on a USD GDP basis. However, Brazil AUM is about five times the size of Russia AUM and about three times the size of India AUM.
Based on economic size, it makes sense that China AUM ranks first—it’s the largest economy on this list by a significant margin, whichever exchange rate measurement is used. However, what makes less sense to us (again, just looking at the GDP data) is that South Korea and Mexico AUM are larger than India AUM and that the margin between Brazil AUM and India AUM is so great.
Economic Growth
Admittedly, absolute economic size is only part of the story. The potential for growth of those economies also is important.
• India Ranks Fourth: Of the countries included within our analysis, India exhibits the fourth-highest GDP growth rate based on International Monetary Fund estimates for 2013. This places it ahead of Brazil, South Korea and Mexico. In fact, by this metric, South Korea and Mexico are ranked 9th and 10th, respectively.
Conclusion
By these metrics, it intuitively makes sense that China ranks first in total assets among emerging market countries. However, after China, the allocation discussion becomes murky, when looking at economic size and growth. The size and growth potential of these economies do not show why Brazil, South Korea, or Mexico would have significantly more assets under management than India. In our next blog, we’ll discuss the potential of risk, returns and diversification in offering further explanation for these AUM rankings.
Jeremy Schwartz is director of research at WisdomTree Investments (NasdaqGM: WETF). This post was republished with permission from the WisdomTree blog.
1Source: CIA World Factbook, July 2013 Population Estimate.
2Source: International Monetary Fund, World Economic Outlook, October 2012.