I was walking around downtown Washington, D.C., last week and noticed something quite interesting.
Giant Indian flags were everywhere. Here’s one on the Eisenhower Executive Office Building, which sits next to the White House.
Of course, it was because Indian Prime Minister Narendra Modi was in town to meet with President Joe Biden. The White House even threw Modi a glamorous, black-tie state dinner.
Few leaders who visit Washington receive such regal treatment. Most get a brief meeting in the Oval Office with the president, maybe a private lunch. State dinners are much less common. And giant flags on executive branch buildings? Very rare indeed.
So why all the fuss over Modi?
Politics and Economics
It’s for two reasons, really – one of which should prompt investors, particularly younger ones, to rethink their portfolios a bit.
The first reason Modi was treated like a rock star is geopolitical. India is now the world’s most populous country, and it has a commanding position in an important part of the world – South Asia. It also dominates the Indian Ocean, which contains critical shipping lanes from East Asia to Africa, the Middle East and other parts of the globe.
In short, the Biden administration is cozying up to India to counteract the rise of China, as well as to offset China’s budding friendship with Russia.
The second reason for Modi’s special treatment is economic.
Last week Goldman Sachs put out a report forecasting that emerging markets’ share of the global equity market will rise quickly from 35% in 2030… to almost 50% by 2050.
Here’s what global market capitalizations will look like a few years from now, with the U.S. in the lead at $37 trillion. You can see that China, India and the rest of the emerging market nations come in at $11 trillion, $3 trillion and $13 trillion, respectively.
And here is that same chart projected to 2050, which is 27 years from now (about the time someone between 35 and 40 years old today might be planning to retire).
Notice that by 2050, the total market cap of emerging markets (without counting China or India) will far exceed that of all advanced economies other than the U.S.
If you add China and India in – each is an emerging market, after all – emerging markets will be larger than the U.S. market. In fact, that will happen as soon as 2030.
India is expected to have the largest increase in market share between now and 2050, from about 3% today to 8% in 2050.
And in 2050, the world’s five largest economies will be China, the U.S., India, Indonesia and Germany, in that order, Goldman Sachs predicts.
Clearly, India and other emerging market countries are where most future economic growth will come from. And the White House wants U.S. companies to be a major part of that.
To see what I mean, just check out the guest list at that extravagant feast with Modi…
Guests included the CEOs of several major U.S. companies, including Apple (Nasdaq: AAPL), Google parent company Alphabet (Nasdaq: GOOG) and other Silicon Valley firms.
Bottom line: If you’re a young investor – I call anyone under 40 young – you should be thinking about the long term. And you should alter your portfolio to take advantage of these growing economies.
Moreover, right now is the time to do it, because emerging market stocks are cheap compared with those in advanced economies.
According to Yardeni Research, the forward price-to-earnings ratio for U.S. stocks is 19.4, while EAFE (Europe, Australasia and the Far East) stocks are trading at 13.2 times forward earnings. Meanwhile, emerging market stocks are trading at just 12.3 times forward earnings.
That makes emerging market stocks a bargain… and a great investment for those with a long-term focus.