This might not seem to be the best time to invest in emerging markets in Asia. But if you’re willing to hold for the long haul, as in decades, then you will likely be rewarded. It also depends on which emerging market you choose to invest. Let’s begin with three reasons to invest in emerging markets.

Increased Consumer Spending

In the United States, consumer spending represents almost 70% of the economy. If you ignore interest rates, the unemployment number, and all other economic readings and instead focus on population trends, you will have a clearer macro picture of where the economy is headed. Younger and working-age consumers spend more than non-working consumers. This is simply because they have more income to spend. This, in turn, helps drive the economy. Actually, it’s the engine that moves everything. With that mind, you should know that the working age to non-working population ratio in the United States is 2.0, but it's projected to fall to 1.8 in 2020 and 1.7 in 2025. However, unlike most countries with failing population trends, the United States should bounce back thanks to the massive Millennial generation somewhere between 2025 and 2030. (For more, see: US vs. China: Battle to Be the Largest Economy in the World.)

The long-term situations in other developed markets such as Germany and Japan aren't as rosy. In Germany, the working age to non-working population ratio is 2.0, which is expected to fall to 1.8 and 1.6 in 2020 and 2025, respectively. Unfortunately, there is no long-term future catalyst for improvement for Germany at this point in time. In Japan, the working age to non-working population ratio is 1.5, which is expected to weaken to 1.4 in 2020 and remain at 1.4 through 2025. Japan has the oldest population in the world. By the end of the century, it could have a larger non-working population than a working population. Therefore, if you’re looking where not to invest for the long haul, you might want to begin with Japan.

In China, the current working age to non-working population ratio is 2.7, which is expected to fall to 2.5 in 2020 and 2.4 in 2025. These are strong numbers, but they’re still on the decline. Despite that, China should bounce back from its current economic malaise due to urbanization and the rise of the middle-class consumer. However, what’s taking place now will take years to play out. Consider being patient. (For more, see: 5 Things to Know About the Chinese Economy.)

The most intriguing situation is India, where the working age to non-working population ratio is currently 1.9 and is expected to move to 2.0 in 2020 and 2.1 in 2025. This ratio isn’t as high as China, but the trend is moving in the right direction. Approximately half of India’s population is under the age of 25, which is excellent for long-term economic growth. (For more, see: Emerging Markets: Analyzing India's GDP)

Lack of Allocation

Emerging markets represent 24.6% of the global market cap yet less than 5% of U.S. investors have allocated capital to these markets. This trend should continue in the near future due to a global deflationary environment. On the other hand, when the world economy eventually recovers from its slump by paying off excessive debts and growing responsibly and organically, you’re going to see more capital move to emerging markets as more investors are educated about the long-term potential in those markets. This should lead to a virtuous cycle and a great deal of capital appreciation, especially in India.  (For more, see: Four Emerging Markets Economies Poised for Growth.)

Savings Rates

The average person would assume that Americans save more than consumers in emerging markets, but that is far from the truth. In fact, part of the reason the United States has been on such a tear since 1982 is increased borrowing and decreased savings. The savings rate in all developed markets is 6.4%, whereas the savings rate in emerging markets is 33.5%. This large amount of savings will allow consumers in emerging markets to spend on homes, autos, vacations, luxury goods, etc. in the future. This, of course, will help drive those economies. 

The Bottom Line

If you’re seeking long-term capital appreciation where population demographics are in your favor, then you might want to consider at long-term investment opportunities in China and India. That said, this isn’t likely to be the ideal time to initiate a position. When you choose to invest, you might want to consider a passive index opposed to individual stocks in order to avoid wide bid-ask spreads and special tax hits. (For more, see: Should India Be on Investors' Radars?)

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