The relentless plunge in China’s stocks has burnished the appeal of their biggest emerging-market rival India.The MSCI India Index rallied almost 10% in the just-ended quarter, compared with a 23% slump for the MSCI China Index. The 33-percentage point outperformance by the Indian index is the largest since March 2000. Beijing’s zero-Covid policy, regulatory crackdowns and tensions with the West have led to a USD5 trillion rout in Chinese stocks since early 2021. And India – long dubbed the “next China” – has become an attractive alternative with economic growth that is forecast to be the fastest in Asia. Jupiter Asset Management says some of its emerging-market funds have India as their largest holding and M&G Investments (Singapore) has made a “greater allocation” to India in 2022. In the longer term, China’s decoupling from the U.S. may also pave the way for Indian firms to boost their presence worldwide. China’s “draconian lockdowns continue to impact these supply chains, so the clamor for an alternative has been rapidly gaining favor,” said Nick Payne, London-based Investment Manager for global emerging-market equities at Jupiter. “India is the key candidate to fill that role, in an approach that has been dubbed China+1.”
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 USD5.1 trillion since then and it closed on September 30 at its lowest level since July 2016. The MSCI India Index – which reached an all-time high earlier this year – has added about USD300 billion. Global EM Fund allocations to India are at a record high while those to China are recovering modestly from a sharp drop in the past few quarters, according to Cameron Brandt, Director of Research at EPFR Global, a Cambridge, Massachusetts-based research firm. “The increasing allocation of investor capital both to India-only and to Asia ex-China funds suggests that this shift is still in its early stages,” said Vikas Pershad, Fund Manager at M&G Investments. “Some of the barriers to investing in China appear to be structural and longer lasting than expected.”
Economists surveyed by Bloomberg expect the Indian economy to grow about 7% in the financial year that ends next March, more than twice the pace of China’s in 2022. “We think this is really India’s moment. Many people are investing,” said Julia Raiskin, head of Asia-Pacific markets at Citi, as reported by the South China Morning Post.
