India’s and China’s share markets show the price of picking wrong

The stock market popularity contest between the world’s most populous nations has one clear winner, but the future is clouded.

The biggest stock market on the planet, the US, has been booming and prompting rising talk of being too expensive for investors, but what about Earth’s two biggest countries?

India, population 1.44bn, and China, population 1.43bn, have had distinctly different share markets in the past year, and analysts say it’s a reminder about the cost of backing the wrong emerging market.

India’s benchmark index is up 25 per cent over 12 months, identical to the US S&P 500, while China’s Shanghai Composite index has dropped 6.3 per cent and Hong Kong’s Hang Seng is down 6 per cent.

Does that mean China’s a bargain and India isn’t, or should other factors sway investors’ moves?

Tribeca Investment Partners portfolio manager Jun Bei Liu says China has struggled.

Tribeca Investment Partners portfolio manager Jun Bei Liu said India’s economic growth “seems to be doing incredibly well” and it had benefited from companies and nations moving manufacturing bases out of China.

“In comparison, China really has struggled,” she said.

“They went into such a hard lockdown for Covid and for so long way after everyone else around the world was coming out of lockdowns.”

China’s economy was also suffering from policy mistakes causing home prices to fall and weak consumer confidence, Ms Liu said. Its turnaround appeared to have started but was moving slowly, she said.

“I would say China certainly looks incredibly cheap at the moment and the Indian market looks very expensive relative to the Asia-Pac markets,” Ms Liu said.

As China recovered, more money would flow there from other Asia-Pacific nations as investors chased growth, she said.

“India has got a lot of tech and a lot of things going for it, but it’s expensive in terms of valuation.”

Investors can buy into both markets through managed funds and exchange traded funds, with several providers offering ETFs focusing on either China, India or broader Asia. Direct share investment is difficult.

Ms Liu said investors could gain some Chinese exposure through Australian resources companies such as BHP and Rio Tinto, which relied heavily on China demand. “The Australian market is really good – it’s a defensive way to play China, without your China risk,” she said.

Bell Direct market analyst Grady Wulff said key drivers of India’s strength included defence sector exports, strong corporate earnings, economic reforms and infrastructure development.

“India’s IT-hub nature has seen key tech stocks in the region rally in 2024 as global providers look to the region for IT services in the AI-driven digital transformation era,” Ms Wulff said.

“While China’s economic recovery picture remains murky, investors globally are looking at alternative markets for returns, of which the Indian market is definitely offering safer and more attractive investment opportunities,” she said.

Bell Direct market analyst Grady Wulff says more countries are looking to India.

“Decreasing reliance on China from global economies has seen many governments look to India and other emerging economies for increased trade partnership and service provision.”

Asian economies offered more attractiveness and less uncertainty than Europe and the US where sticky inflation and political volatility were concerns, Ms Wulff said.

A separate report released last month by global investment giant Fidelity International says choosing between China and India “comes down to a trade-off between expected growth and current valuations”.

“Forecasts suggest Indian growth is set to remain world-beating over the medium term,” it says. “That implies even stronger earnings growth among the companies best-placed to capitalise on India’s success.

“Meanwhile, China has begun to attract contrarian buyers on the basis that the bad news is in the price.

“Combining the two markets might make sense. Investing in momentum and value together can help to smooth returns.”

Both countries’ markets look set to deliver attractive opportunities to investors, Fidelity says.

Originally published as India’s and China’s share markets show the price of picking wrong