India and Indonesia: China’s New
Moons
In September, we conducted a study of China’s estimated per capita growth path
(Asian Bank Reflections Vol 4). We have now completed a similar study for India
and Indonesia. At US$2,800 GDP per capita, India will reach Indonesia’s per capita
income level of US$4,000 in about five years, according to our estimate. Similarly,
Indonesia should also reach China’s per capita income of US$6,000 in about five
years. Each country, therefore, requires a very different portfolio. The one unifying
factor for all is credit growth.
Looking at 27 past and present emerging markets that have traversed the three
phases of development (per capita GDP corridor of US$2.8k-US$4k, US$4k-
US$6k and US$6k-US$9k), we lay out the average path of development for 16
sectors. India’s medium-term high growth lies in credit, telephones, healthcare,
energy and retail. For Indonesia, it is credit, healthcare and retail.
Our stock picks that are designed to meld value and sectoral growth in India are
State Bank of India (SBI), Reliance Communications (RComm), Dr. Reddy, GAIL
and Titan. Our picks in Indonesia are Rakyat, Kalbe Farma, Ace Hardware and
Matahari.
It is staggering to note that while growth rates for Indonesia and India will be high,
China will account for an average of 80% of the change, according to our estimates.
Our favourite picks for our China S-curve report (continuing from Asian Bank
Reflections Vol 4, September 3) are HK&Shanghai Hotels, Citic Bank, Mindray,
Li Ning and Hang Lung. Our China S-curve portfolio from that report is up 13%,
outperforming the Hang Seng Index (HSI) by 2%.
􀁣 Myths
We dispense with several ideas we think are prevalent but lack substance:
1) Large countries can get rich; 2) there is no evident of an S-curve effect
(consumption rising faster than income) for India and Indonesia in their per capita
range. This S-curve effect is now occurring in China at US$6,000-US$9,000; 3)
PPP adjustments are necessary; and 4) China’s reduction in savings and increase
in consumption can only happen as the US does the opposite. The rapid increase
in US savings explains rapid increase in Chinese credit.
􀁤 Also Inside
We have our regional bank valuations in Appendix II, global indicators in Appendix V.

Contents
Executive Summary 3
Section I: Eleven Myths 8
Section II: Consumption by Sectors 20
Appendix I: Valuation comparisons 29
Appendix II: Consumption estimates 31
Appendix III: Time frame for data 34
Appendix IV: Sector Data by country 35
Appendix V: Global signals for equities 50
Appendix VI: Portfolios 53