Yesterday, I talked about how deflation in China is causing concern.
Investors are worried that the Middle Kingdom’s ‘supergrowth’ era has come to an end. Or worse, that the country may be on the brink of stagnation.
Either way, the short-term blip for China is a major challenge for many investors. Commodities and mining stocks, in particular, will have to face the challenge of easing demand from the biggest buyer.
But, as I want to outline today, that doesn’t mean it is time to sell.
In fact, as I suggested, the overly pessimistic outlook on China may have gone too far. This could lead to some great buying opportunities if their economy recovers quicker than expected.
More than that, though, I want to talk again about India…
Because, you see, even if China’s slowdown does prove to last longer than expected, the rest of the world keeps turning. And when it comes to global drivers of economic growth, India is looking a lot like China did before its own meteoric rise.
New growth requires new infrastructure
I’ve already spoken at length about Australia’s potential role in an Indian boom.
You can check out my thoughts on the free trade agreement that is being hashed out, here and here.
For now, though, let’s discuss why commodities are likely the best way to leverage this Indian boom…
First and foremost, you need to understand that India has an atypical boom. It isn’t following the same trajectory that worked for the West or China.
Instead of starting with physical infrastructure first, India opted to focus on digital systems. Here is how The Economist summarises it:
‘Starting without the legacy systems of the 20th century, such as credit cards and desktop computers, developing countries can leapfrog the West. The digital prize, as India has demonstrated, is a means to accelerate connectedness, social-service provision, growth prospects and, ultimately, the building of a state and civic identity.’
India has done this through its unique ‘digital public infrastructure’ as it is known. As a result, almost everyone across India has access to essential digital systems and information.
Keep in mind that most Indians rely on smartphones rather than laptops or computers too. All this digital infrastructure is centred around a mobile experience, not a personal computer.
For example, their unified payments interface has ensured that digital payments are simple and accessible. It means that their 1.4 billion citizens can easily transact with their phones and know that they will be properly paid.
Then there is similar digital infrastructure in place for documentation, identification, and e-commerce. The government has made sure that it is leading the way in practical digital platforms.
But this isn’t the reason you should be excited about India.
As grand as all these digital solutions are, the benefit for investors will come from the physical infrastructure that is now required. Because while smartphones are a vital social tool of today’s day and age, so are railroads, ports, and roads.
That’s why India’s logistics industry is set to grow from US$250 billion to US$3.5 trillion by 2047. And the only way that is going to happen is with a lot of raw materials…
Follow the money
My point is that, like China, India will need our resources to grow.
The real question is what specific resources will be most in demand and how much. Because while iron ore is undoubtedly the big winner of the China boom, India may be different.
Just look at how Gina Rinehart is positioning her empire to benefit from Indian trade…
As of yesterday, she has invested in her first lithium mine with the intention of exporting the output to India. A small $36 million start to a new era for Hancock Prospecting.
I think every investor should see this move as a pivotal moment.
After all, no matter what you think of Rinehart, you can’t fault her track record. She knows the mining industry, and she knows how to squeeze returns out of big trends.
In her own words:
‘I’m so pleased that our company group is expanding its ties with Australia’s important friend and ally, India.
‘Prime Minister Modi has plans to significantly grow the Indian economy, and to do so they will need increased and reliable exports of minerals and energy.’
I certainly won’t be surprised if we have India to thank for our next mining boom. And I wholeheartedly believe that investors should start preparing their portfolios for such potential right now.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
