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Roving Periscope: China’s USD 5-trillion loss in stocks may lure investors to India

Roving Periscope: China’s USD 5-trillion loss in stocks may lure investors to India

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Virendra Pandit

 

New Delhi: When the 20th National Congress of the Chinese Communist Party begins on October 16 to potentially extend President Xi Jinping’s paramount leadership for a third term, Beijing might face the flight of more investments to India as the relentless plunge in the Dragon’s stocks has burnished New Delhi’s chances of attracting the global investors.

The MSCI India Index rallied almost 10 percent in the second quarter (July-September 2022), compared with a 23 percent slump for the MSCI China Index. The 33-percentage point outperformance by the India gauge is the biggest since March 2000, the media reported.

China’s Covid-19 Zero pursuit, regulatory crackdowns, global untrustworthiness, and tensions with the West have led to a whopping USD 5 trillion routs in Chinese stocks since early 2021, while India has emerged as an attractive alternative with economic growth 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. In the longer term, China’s decoupling with the US may also pave the way for Indian firms to boost their presence worldwide, the reports said.

The big divergence between the two stock markets started in February 2021, as tightening liquidity conditions in China contributed to the unwinding of a two-year rally in equities. Indian stocks, however, kept hitting record highs because of an unprecedented retail investing boom.

The aggregate market value of firms included in the MSCI China Index has dropped by USD 5.1 trillion since then and the gauge closed Friday last week at its lowest level since July 2016. The MSCI India Index reached an all-time high earlier this year and added about USD 300 billion.

Investor positioning has also diverged during the period. 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, the media reported.

Several months of outperformance have made Indian stocks the most expensive in Asia on an earnings-based valuation.

Investors focused on India’s longer-term growth story hold strong convictions. Economists expect the Indian economy to grow about 7 percent in the current fiscal year, more than twice the pace of China’s in 2022.

Experts said India’s large and younger population coupled with a favorable environment toward private enterprise means it will grow faster than China in the coming years.

Major global companies are now flocking to India. Apple Inc., which has long manufactured most of its iPhones in China, started making its new iPhone 14 in India sooner than expected following a smooth production rollout. Citigroup Inc. 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 through September 2022, while that of Chinese and Hong Kong stocks combined has fallen by over 10 points.

 

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