UBS concludes that, By 2030, the combined purchasing power of China’s and India’s consumers will be five times greater than that of today’s United States, according to a new report from word banking giant UBS.

Assuming increased global trade and higher economic efficiency in both countries, China and India are likely to become the world’s two largest consumer markets, says UBS, noting that both economies are in the midst of an ambitious economic transformation. “China’s reforms are at a more advanced stage than India’s, the challenges it faces are not less daunting,” it says. “Both countries still have some way to go in addressing the problems emanating from inefficient state industries, weak financial systems, and the regulatory environment. Nevertheless both countries are very well placed to succeed.”

Taking these challenges into account, the UBS analysts project that, even with modest expectations for productivity, the two countries will over the next 25 years develop into a market five times greater than the U.S. is today.

The relative youth of India’s population means a higher potential growth rate than in China, but it also implies a rising savings rate, UBS says. In China, an increasing share of older people should begin devoting a larger proportion of their income to consumption rather than savings.

The firm says that economic expansion in China and India should offer global investors considerable opportunities. However, it cautions that investment returns depend not only on
economic growth but on a host of other factors. “Many of these factors continue to evolve. Regulatory environments are changing, while market liberalisation will enhance efficiency. There is greater awareness of the importance of good corporate governance. Future investment opportunities will depend on both economic growth and the evolution of the financial markets,” it says.

“Furthermore, in an increasingly integrated global economy, investment opportunities need not be local. Local market opportunities will grow in areas as diverse as financial services and real estate. Structural changes in one sector such as agriculture, can create growth for another, such as retailing. Global market opportunities will become interesting as China and India become the source of a greater share of corporate profits,” UBS concludes.