China’s $5 trillion route causes historic gap with India

The relentless plunge in China’s stocks has burnished the appeal of their biggest emerging-market rival India, spurring a divergence that’s rarely been seen before. 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 India gauge is the biggest since March 2000.
Beijing’s Covid Zero pursuit, regulatory crackdowns and tensions with the West have led to a $5 trillion rout in Chinese stocks since early 2021. And India — long dubbed the “next China” — has become an attractive alternative with economic growth that’s forecast to be the fastest in Asia. Market veteran Mark Mobius has allocated a higher weight to India than China since the beginning of this year.
India’s expanding domestic market means the country can weather a looming global recession better. In the longer term, China’s decoupling with the US may also pave the way for Indian firms to boost their presence worldwide.
The aggregate market value of firms included in the MSCI China index has dropped by $5. 1 trillion since February 2021 and the gauge closed Friday at its lowest level since July 2016. The MSCI India index — which reached an all-time high earlier this year — has added about $300 billion. To be sure, months of outperformance has made Indian stocks the most expensive in Asia in terms of an earnings-based valuation.
Still, investors focused on India’s longer term growth story hold strong convictions. Economists surveyed by Bloomberg expect the economy to grow about 7% in the fiscal year that ends next March, more than twice the pace of China’s in 2022. Mobius, co-founder of Mobius Capital Partners, said India’s large and younger population coupled with a favorable environment towards private enterprise means it will be growing faster than China in the coming years.

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