If you want to make big gains in the market, you need to invest in growth.
Just consider the gains you could have made during the U.S. consumer boom in the 1950s.
From 1950 to 2015, U.S. GDP per capita rose 690 percent, adjusted for inflation. During that time, the S&P 500 soared 11,700 percent (and that’s not including reinvested dividends).
Over the course of this boom, a handful of individual stocks turned many regular investors into millionaires. For example:
- US$1,000 invested in Standard Oil (Exxon) in 1950 would have become $2.4 million by 2016.
- US$1,000 invested in tobacco giant Philip Morris (NYSE:PM) in 1957 would have become $5.5 million by 2007.
- US$1,000 sunk into Coca-Cola (NYSE:KO) stock back in 1962 would have been worth $221,445 by 2016.
- US$1,000 invested in McDonald’s (NYSE:MCD) in 1965 would have become $4.1 million by 2016.
That’s the power of investing in growth early on.
Where to find growth today
Regular readers of the Asia Wealth Investment Daily already know about the massive growth going on in China’s middle class right now.
But there are three other fast-growing markets that likely aren’t on your radar: Vietnam, Bangladesh and India.
According to a report by professional services firm PricewaterhouseCoopers ("PWC"), these three markets could be the fastest-growing economies through 2050, averaging real economic growth of around 5 percent a year.
That might not sound like much, but consider that the U.S., France and the U.K. are all expected to grow less than 2 percent a year during this period.
Thanks to this growth, India is expected to be the second-largest economy in the world by 2050, eclipsing the U.S., and behind only behind China (which will inevitably see growth decline from its current level). Vietnam is forecast to move from the 32nd largest economy to the 20th largest. And Bangladesh could move from the 31st largest economy to the 23rd largest.
Where this growth will come from
Economic growth comes from two sources: population growth and efficiency growth. (Broadly speaking, economic growth is a function of the number of workers in an economy and their productivity.)
Shifting demographics in part drives economic growth. While population growth is falling in many major economies like China and Japan (reducing the labour pool and damaging productivity over the long term), it is forecast to rise in many other parts of the world. Countries in Southeast Asia, in particular, have good reason to be optimistic, and changing demographics in this region will likely boost economic growth over the next several decades, as we’ve written before.
For economies, productivity is often measured as the percent increase in GDP per hour worked. This can come from people working more efficiently, for e.g., through technological innovation. Higher productivity means a growing economy.
GDP in these countries will also grow thanks to their youthful and fast-growing working-age populations, as shown in the chart below. Having more young workers boosts output.
How to invest
The easiest way to invest in each of these countries is through exchange-traded funds (ETFs).
For Bangladesh, there’s the DB X-trackers MSCI Bangladesh IM Index UCITS ETF (LON: XBAN). This fund tracks the performance of the MSCI Bangladesh Investable Market Total Return Net Index, which is designed to reflect the performance of a broad range of companies in Bangladesh.
For India, one such fund is the iShares MSCI India ETF (BATS:INDA). This fund tracks the MSCI India Index, which measures the performance of companies whose market capitalisations represent the top 85 percent of the Indian equities market.
In Vietnam, some ETFs badly underperform their benchmark index (known as tracking error). This is a particular problem here because the government (through state-owned enterprises) owns most of the shares in many publicly traded companies. This makes shares of those companies extremely illiquid (they don’t trade much) and volatile. That makes it rather difficult for fund managers to accurately replicate the performance of the index.
If you do want to invest in a Vietnam ETF, one option is the VanEck Vectors Vietnam ETF (NYSEARCA:VNM). This fund tracks the performance of the MVIS Vietnam Index. Companies in this fund must be incorporated in Vietnam, generate half their income in Vietnam or have half their assets in Vietnam. Another option in Vietnam is to invest in actively managed funds, like the AFC Vietnam Fund, an open-ended fund that focuses on small to medium companies in the country.
Disclosure: I am/we are long INDA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.