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The two Asian powerhouses, India and China, are expected to be at the forefront of global economic growth in 2023. According to the IMF, India is expected to grow by 6.1% this year, compared to China’s predicted 5.2% growth. Thus, as the India vs China rivalry heats up, experts believe India has grown too large for investors to ignore.
It is literally so, as India became the most populous country in the world last month. It surpassed China, a country where the population is not only shrinking but also ageing rapidly. Compared to that, India is projected to contribute around one-sixth of the increase in the global working-age population by 2050.
“With the India economy expected to drive one-fifth of global growth this decade, investors can no longer ignore the opportunities that will arise from India’s demographic dividend, rising affluence and unique sector strengths,” writes Anand Gupta, Portfolio Manager at Eastspring Investments.
Meanwhile, in China, the situation seems to be different, at least for this year. “China’s economic recovery is uneven, constrained, and at an early stage…With the initial reopening euphoria subsiding, the mixed data and muted indicators make us cautiously optimistic over the strength and sustainability of China’s recovery in the second half of this year,” said Franklin Templeton.
India vs China rivalry entering into equity markets
Apart from the Indian economy showing positive signs after the Covid-19 pandemic, the country’s equity markets have also performed well as compared to its peers in Asia.
India makes up more than 15% of the MSCI Emerging Market (EM) Index, up from 6.7% in 2009. Besides that, it is the second most heavily weighted country in the MSCI EM Index, after only China, as per Macquarie Research. Also, India’s Sensex index outpaced the China A-share and H-share markets by 18.1% and 12.5%, respectively, in 2022.
Furthermore, as per a recent survey by Eastspring Investments, more than two-thirds of global business leaders believe that India has the greatest potential for ‘expansion or transformation opportunities’ in Asia, ahead of China and Indonesia.
“India, the equity market, has captured a large share of wallet and mind among emerging-market investors in recent years thanks to outperformance versus peers and optimism over its long-term prospects and potential,” said Matthews Asia.
Meanwhile, the optimism among China investors is fading, especially since the release of the growth figures for the first quarter of this year. Within a month of the release (18 April – May 19, 2023), the Shanghai Composite Index fell by 3% and the Shenzhen Component Index by 6.5%. The Hang Seng Index in Hong Kong also dropped by 5% in the same period.
In addition, Barron’s reported that the Bank of Asia has now issued a note to clients, warning them about the lack of risk appetite of investors in China.
On being asked if Indian equities are currently a better choice than China, Chris Chan, Portfolio Manager at EFG Asset Management told us: “Well, I guess it depends on the time frame you’re looking at. I think shorter term, there’s perhaps the argument that India still is looking very expensive.…but longer term we prefer India.”
However, Eastspring’s Gupta believes that, in the question of India vs China, global investors do not need to choose sides because equities markets in both nations provide possibilities in diverse sectors and may play complementary roles in portfolios.
“China Plus One” shaping India vs China
The India vs China rivalry has also been greatly affected by the advent of the China plus one strategy. This is reflected in the fact that global giants seeking to diversify their supply chains beyond China, like Apple and BMW, have already established manufacturing facilities in India.
Along with that, the ensuing trade war between US and China has meant significant trade restrictions on Chinese electronics and computing products by the US. This has translated to a rise in exports of Indian electronics to the US by 260% between 2018 and 2022, as per Oxford Economics.
“India’s key advantage lies in its young and growing workforce, representing not only a source of labour but also of demand once a stronger manufacturing sector can broaden income growth,” added the global economic researcher.
And, even though India has benefitted from the “China plus one”-trend, this does not mean that global businesses are getting rid of China completely, Bill Maldonado, CIO of Eastspring Investments, told us in an interview.
“There’s a lot of complementarity between China and India as well. The reason that you might not be in a sector in China is exactly the reason you might be investing in a particular company in India,” he said.
