InvestorQ : With China correcting very sharply, is it true that FPIs are finding China cheaper than Indian markets in terms of valuations?
vidhya Laxmi made post

With China correcting very sharply, is it true that FPIs are finding China cheaper than Indian markets in terms of valuations?

sarah Leo answered.
1 month ago

You can theoretically say that, although I am not too sure if Chinese markets have become more attractive. At least, for now, the global fund managers don’t think so. In the last few quarters, including the September 2022 quarter, China has seen a massive rout in equities. However, the fund managers are still not willing to bet on China even at these valuations. Despite more expensive valuation, more fund managers are willing to put their money on Indian markets, which they find to be in a real sweet spot for investing. But, first a look at the massive divergence in performance between the Indian market and Chinese markets.

The MSCI India Index is up 10% in the September 2022 quarter, while during the same period the MSCI China Index, is down by -23%. That is a huge 33% outperformance by India and it is the biggest outperformance since the year 2000. Apart from Beijing’s Covid Zero strategy and regulatory crackdowns, tensions with Taiwan are only worsening matters. During the pandemic, China forced the world into supply chain bottlenecks and almost virtually tried to hold global manufacturing to ransom. All this has not gone down well with global investors with even the likes of Apple de-risking their China dependence.

The value rout in China is huge. It has lost nearly $5.1 trillion in market capitalization since the start of 2021. During the same period, Indian markets have added $300 billion. But fund managers stay gung-ho on India. For instance, Mark Mobius allocated a higher weight to India than China in 2022. Jupiter Asset Management confirmed most of its EM funds already were overweight on India. That is also true of M&G Investments, which is focussing on India for the next one year. After all, India managed the aftermath of COVID and the growth slowdown much better despite limited resources at its disposal.

Most diversifiers look for negative correlation and the markets of India and China have showed consistent negative correlation since November 2021. That is the longest stretch for which the correlation has been negative, giving a good diversification for China exposed investors. However, many experts do feel that if China turns a little more sober, capital may rush back to China. However, for now, fund managers are making a beeline for Indian equity markets and really nobody is complaining about that.