SINGAPORE – The relentless plunge in China’s stocks has burnished the appeal of their biggest emerging-market rival India, spurring a divergence that has rarely been seen before.
The MSCI India Index rallied almost 10 per cent in the just-ended quarter, compared with a 23 per cent slump for the MSCI China Index. The 33-percentage point outperformance by the India gauge is the biggest since March 2000.
Beijing’s Covid-19-zero pursuit, regulatory crackdowns and tensions with the West have led to a US$5 trillion (S$7.2 trillion) rout in Chinese stocks since early 2021. India – long dubbed the “next China” – has become an attractive alternative with economic growth that is forecast to be the fastest in Asia.
India’s expanding domestic market means the country can weather a looming global recession better than most other emerging markets, money managers say. In the longer term, China’s decoupling with the United States may also pave the way for Indian firms to boost their presence worldwide.
The big divergence between the two stock markets started to take place in February 2021 as tightening liquidity conditions in China contributed to the unwinding of a two-year rally in equities. Indian stocks, meanwhile, kept hitting record highs thanks to an unprecedented retail investing boom.
The aggregate market value of firms included in the MSCI China Index has dropped by US$5.1 trillion since then and the gauge closed on Friday at its lowest level since July 2016. The MSCI India Index – which reached an all-time high earlier this year – has added about US$300 billion.
“The increasing allocation of investor capital both to India-only and to Asia ex-China funds hints that this shift is still in its early stages,” said Mr Vikas Pershad, a fund manager at M&G Investments. “Some of the barriers to investing in China appear to be structural and longer lasting than expected.”
To be sure, months of outperformance have made Indian stocks the most expensive in Asia on an earnings-based valuation. This has yielded caution from some investors, with the Reserve Bank of India’s interest rate hikes also a factor that could weigh on market outlook.
China, on the other hand, has the potential for a big upswing once the economy reopens from Covid-19 restrictions. Its stocks listed in Hong Kong are trading at the cheapest ever by one metric.
Still, investors focused on India’s longer-term growth story hold strong convictions. Economists surveyed by Bloomberg expect the economy to grow about 7 per cent in the fiscal year that ends next March, more than twice the pace of China’s in 2022.
Major global companies have been taking advantage of the South Asian country’s industrial prowess. Apple, which has long manufactured most of its iPhones in China, began making its new iPhone 14 in India sooner than anticipated following a smooth production roll-out. Citigroup is targeting India as one of its top markets to expand globally.
With its rising market clout, India’s weight in the MSCI Emerging Markets Index has increased by almost 7 percentage points in the two years to September.
Meanwhile, that of Chinese and Hong Kong stocks combined has fallen by more than 10 points.
Regardless of how the Chinese market performs, abrdn senior investment director Kristy Fong said India’s attractiveness to global investors remains a long-term trend.
“As a stock market, India is home to some of the highest quality companies in the region, with some of the most capable management teams anywhere in Asia,” she said. “Segments where India excels include financial services, consumer goods and services, and healthcare.” BLOOMBERG
source https://netdace.com/latest-news/chinas-market-rout-creates-historic-gap-with-indian-stocks/