India companies he favors have fast-growing earnings above 20% annually. They include Dabur Inc., a health and beauty products firm; Bajaj Auto, the nation's No. 2 motorcycle manufacturer; and Ambuja Cements Limited, a low-cost cement producer that has port facilities.
In China, he favors companies with strong domestic growth, such as New Oriental Education & Technology Group, which provides English training to affluent families' children; Tencent Inc., China's largest social networking site; and Shandong Weigao Group, a low-cost producer of medical supplies.
Other money managers favor China over India. Taizo Ishida, manager of the Matthews Asia Growth Fund, has just 3% of his assets in India and 25% in China. The rest is invested in other countries in the region. He says he trimmed his India holdings because he didn't like the nation's corporate bribery scandals. And he is less sanguine about China than other Pacific markets.
China's stock market "isn't doing well because there are concerns about price controls, inflation and government issues," he says. "You can get better diversification by investing throughout the entire region than investing in just India or China."
The companies he owns in China are high quality with transparent accounting information, he says. He favors consumer stocks like Tingyi Holding Corp., a noodle manufacturer, and Ctrip.com International Ltd., a high-end business travel company. Both firms are growing earnings at more than 20% annually.
The International Monetary Fund's "World Economic Report," released in April, paints an encouraging portrait of both China and India, as well as the rest of Asia. "Broad-based recovery is continuing in most Asian economies, supported by strong export performance, buoyant private domestic demand, and in some cases rapid credit growth," the report says.
On the plus side, infrastructure will be a major contributor to economic growth in both India and China. Anoop Singh, director of the IMF's Asia and Pacific Department in Washington, D.C., says India's capital inflows are strong and the country is focusing on improving its infrastructure.
"China has built up its infrastructure, while India has developed its service technology and information technology in a substantial way," he says. "Now the growth in China, in part, will come from improving its service technology."
He cites the greatest near-term danger to both economies as core inflation. For longer growth to continue, he says, China and India must increase agricultural productivity and increase the level of human capital and foreign direct investment.
Individual U.S. companies are juicing up their bottom lines by aggressively investing overseas. They are moving jobs, products and profits to places like China and India to lower costs and gain market share in domestic markets.