China Vs India Debate

July 3, 2024 2 min read

Comparing MSCI India and MSCI China

The MSCI India and MSCI China indices are followed by many institutions for their investments. These indices create portfolios that numerous institutions then mirror in their investments. The performance of these indices over the past five years shows some interesting trends.

Source : FactSet

The Post-Covid Market Trends

After the Covid-19 pandemic hit, both India and China saw significant market movements. China experienced a brief drop of 7-8% from pre-Covid levels but then rapidly recovered, gaining around 60-70%. On the other hand, India’s market fell sharply, nearly 35-37%, before recovering. In 2021, China’s market peaked and started to decline, while India’s market continued to rise.

Diverging Market Performances

Over the past five years, India’s market has shown a gain of 120%, while China’s market has dropped by 25%. This stark contrast highlights a significant opportunity loss for those invested in the MSCI China index. Investors in the MSCI India index have seen substantial gains, whereas those in MSCI China have faced significant losses.

Insights from the Fund Flow

Despite China’s continued economic performance, the fund flow has shifted towards India. Investors view India as a promising growth frontier, even at higher valuations. Chinese stocks, though potentially offering value, are not attracting the same level of investment. Factors such as geopolitics and global economic strategies influence these investment decisions.

The market often categorizes stocks as either value or momentum stocks. However, for value stocks to yield profits, they must eventually become momentum stocks. The example of Alibaba, now at eight-year lows despite being considered a stock with great value, illustrates this point. Value in the market is not just about the current worth but also about the potential for growth and upward movement.

India’s Promising Market Outlook

India is currently in a favorable position. The country’s earnings growth projections for the next five years are very strong, driving a premium valuation in the market. While the price-to-earnings ratio might seem high based on the past twelve months, investors are focusing on the positive future outlook. This optimism is a significant driver of India’s market performance.

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    China Vs India Debate