The pivot away from China and into India

The pivot away from China and into India

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The stock rout in China’s equity markets continues: Around $7 trillion worth of value has evaporated, as the CSI 300 hits 5-year lows. Yet, as they say, when one door closes, another door opens. In this case, the capital fleeing China has seemingly flowed into Asia’s other powerhouse economy—India. One indicator that this divergence is happening has been the assets in the MSCI India ETF, which surpassed the MSCI China ETF back in December 2023. Currently, the MSCI India holds around $8 billion in assets, while the MSCI China has around $5 billion.

Exhibit 1. Capital flows into India’s equity market as it flows out of China’s Total assets ($bn)
Exhibit 1. Capital flows into India’s equity market as it flows out of China’s Total assets ($bn)

As of 02/07/24. Source: Bloomberg.

At a high level, the shift makes sense. India’s economy is booming, with next year’s GDP growth estimated to be 6.5% (versus China’s 4.6%). In addition, having supply chains running through China is still viewed as too risky in the short to medium term. Taking a longer view, India’s potential labor force is expected to increase for the next 25 years, while China’s is expected to decrease. If the trend continues, then India’s current 18% position in the MSCI Emerging Markets Index may soon surpass China’s 22%.

 

Maverick Lin contributed to this article.

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