>ASIA STRATEGY: Buy chaos, sell order (CLSA)

As an investment destination, India often suffers in comparison to China, but India’s problems come from tackling its most difficult problems first. We now perceive a tipping point where structural impediments have been sufficiently dismantled to permit a new form of economic growth. Many investors ignore the order evolving out of India’s apparent chaos, while also failing to accept that China’s state-imposed order will one day decompose. This dynamic means that returns from Indian equities are likely to far surpass Chinese equities over the medium and long term.

Structural mispricing of money is ending in India, but not China
■ India often compares unfavourably to China, but India’s problems come from tackling the most difficult problems first; China has postponed these problems.

■ China is not working to privatise its financial system or create a more porous capital account.

■ China is not focused on domestic consumption-driven growth, nor is it moving to a more representative, less corrupt political system.

■ China’s economic foundations are based on government-determined prices, whereas India has moved materially towards market rates.

The post-mercantilist world will begin in India
■ India is far advanced on China in developing a private-sector financial system.

■ India is nearer to a market rate for exchange rates and interest rates than China.

■ India is less reliant on exports and can move more easily to a consumption-driven economy than China can.

■ India’s private-sector banking system can more easily provide consumer credit, whereas Chinese credit is still needed to support state businesses, not consumers.

■ If China does not abandon mercantilism, it will depress inflation and help India to grow.

India’s democracy is starting to look like the USA’s circa 1900
■ Foreign investors regularly fled from the chaotic democracy of the late-19th Century United States.

■ The order of the British Empire was an investment illusion.

■ When India’s democracy works, Indians can be as successful at home as abroad.

To read the full report: ASIA STRATEGY