India and Greater China: Exploring the Investment Opportunities

In emerging markets, we’re finding companies with particularly attractive valuations and enormous headroom for growth—which is a powerful combination. In this white paper, we focus on India and the Greater China region (China, Hong Kong and Taiwan)—which account for a large portion of our emerging-market investments at Wasatch.

Key Takeaways

  • Over long periods of time, we believe there will be compelling opportunities to generate attractive returns in emerging markets—including India and the Greater China region (China, Hong Kong and Taiwan)—and in small-cap and mid-cap stocks.
  • There’s enormous scope for India, Greater China and other emerging markets to increase their GDP per capita relative to the U.S. and relative to other developed nations.
  • Because the opportunity set is so large and the headroom for growth is so enormous, we think Indian stocks—and small- and mid-caps in particular—could be treated as a separate asset class with a dedicated investment allocation.

Because investing conditions can change dramatically, and stock prices can move in cycles, the recent past may not be a good roadmap for the future. Today, we believe this could be especially true among emerging markets. For a better understanding of how emerging-market conditions have changed over the past two decades, refer to Figure 1 below.

Figure 1

As you can see, the 10-year period ended November 30, 2012 was generally a strong decade for emerging markets—including large- and small-caps, and Indian and Chinese stocks. But, India notwithstanding, the 10-year period ended November 30, 2022 was mostly a lackluster decade for emerging markets. Nevertheless, the emerging-market universe produced significant returns for the full 20-year period ended November 30, 2022. U.S. stock performance, measured by the Russell 1000® Index of large-caps and the Russell 2000® Index of small-caps, is presented for comparison.