India to Take Reins From China as Asia Growth Leader

Among Asia’s major economies, China has long been the benchmark against which other countries’ growth is measured. India, currently the continent’s third-largest economy behind China and Japan, appears poised to take the baton of economic growth leadership.

India’s economic rise carries with it implications for exchange traded funds such as the WisdomTree India Earnings Fund (EPI). The first U.S.-listed ETF to invest directly in locally traded India equities, EPI is a force in the country’s ETF category. Over the past three years, the WisdomTree ETF beat the MSCI India Index by 2,240 basis points while displaying comparable annualized volatility to the India benchmark.

Performance like that may be hard to repeat. But the long-term case for EPI is supported by robust expectations for the economy to which the ETF provides exposure.

“We expect Asia-Pacific’s growth engine to shift from China to South and Southeast Asia. And we project China’s GDP growth to slow to 4.6% in 2024 (2023: 5.4%), edge up to 4.8% in 2025, and return to 4.6% in 2026. We see India reaching 7.0% in 2026 (6.4%); Vietnam, 6.8% (4.9%); Philippines, 6.4% (5.4%); and Indonesia remaining steady at 5%,” according to S&P Global.

India Advantages

The $1.62 billion EPI, which turns 16 years old in February, has some advantages in that it’s not heavily reliant on India’s export story to drive returns. That could be a perk at a time when Asia exports are volatile and vulnerable to economic contraction in Western nations.

One of the other primary benefits offered by EPI is that it focuses on profitable Indian companies. That’s a clear advantage at a time when more investors are scrutinizing balance sheets and eschewing companies with large debt obligations and vulnerability to high interest rates.

“For borrowers with impending or sizable refinancing needs, high borrowing costs and tighter credit availability from lenders are prominent risks. While onshore funding remains accessible, often cheaper than offshore, these too could turn selective,” added S&P Global.

Additionally, the tech-heavy footprint of India’s economy, which is borne out by EPI’s 12.36% weight to that sector and, more indirectly, exposure to financial services firms that lend to tech companies, is important as Asia’s tech scene evolves and grows.

“While technology advancements could enhance productivity and competitive positioning, businesses may need to incur additional ongoing and rising costs to keep up with new technologies. Critical infrastructure and issuer operations may be prone to cyber-attacks amid increasingly interconnectedness of economic activities,” concluded S&P.

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