India is the surprise winner amid China's economic chaos and investor exodus
- Investors are pulling billions of dollars from China – and reinvesting the money in India instead.
- The Asian countries' economies appear to be headed in different directions.
China's loss is India's gain.
That's the latest chatter on Wall Street, where top investment managers have seized on the idea that the two Asian countries' economies appear to be headed in different directions.
Goldman Sachs and Morgan Stanley are among the top banks that've touted India in recent months, at a time when foreign investors are pulling billions of dollars out of China due to concerns about the country's fragile economy and leader Xi Jinping's hardline rule.
Indian stocks have also trounced their Chinese rivals over the past year. MSCI's India index has climbed 31%, according to data from Dow Jones, while its gauge of Chinese equities has tumbled 26% over the same period.
China's stock market struggles have been one of the defining stories of 2024. The country is battling deflation, so-so growth, and a seemingly never-ending property crisis – and that's driven away both foreign and local investors.
Both the Hong Kong Hang Seng index and the mainland-focused CSI 300 gauge have tumbled close to multi-year lows, extending a rout that had already wiped out over $6 trillion in market valuation since the start of 2021.
Beijing has tried to stop the sell-off through a variety of measures – including firing the boss of the country's top financial watchdog on Thursday – but it'll struggle to lure stockpickers back into the market until its economy is looking more healthy, experts say.
"Beijing's priority right now appears to be lifting the stock market but there won't be a lasting turnaround until investors have more confidence in the direction of the economy," Capital Economics' Mark Williams told Business Insider.
"There are two problems – one is how weak the economy is right now, and the other is a loss of confidence in the outlook further ahead," he continued. "Some of the incoming data could start to look better in the next few months, but it is hard to be optimistic about China's long-run economic trajectory."
Leader Xi Jinping's ever-tightening grip on power hasn't helped matters.
The Chinese president made an obvious power grab at the Communist Party conference in late 2022, unveiling a new leadership team stacked with political allies and publicly disrespecting his business-friendly predecessor.
Last year, his government banned US semiconductor maker Micron's chips, sent state police to the Shanghai offices of American consulting giant Bain & Co., and pressed ahead with a crackdown on local Big Tech firms – all of which signal that China has become less open to doing business with the West.
Many of the foreign traders pulling out of China have pivoted to India, the fastest-growing economy in the G20 group of countries.
In January, the country's stock market briefly overtook Hong Kong's to become the fourth-largest in the world, although it's since given up that position.
The main US ETF that buys Indian stocks pulled in record investor inflows over the final three months of 2023, according to data from Bloomberg, while assets in a similar Japanese mutual fund recently climbed to a four-year high.
Meanwhile, Prime Minister Narendra Modi has showcased his country's business-friendly credentials by pressing ahead with a trillion-dollar infrastructure spending project and hosting execs from US semiconductor makers like Micron and Cadence.
All of that makes for a pretty straightforward investment case for westerners, M&G Investments portfolio manager Vikas Pershad told Bloomberg.
"People are interested in India for several reasons — one is simply it's not China," he said. "There's a genuine long-term growth story here."
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