Introduction to the Indian and Chinese Markets
The Indian and Chinese stock markets have been making headlines in recent times, with China experiencing a resurgence in its stock market, while India has been underperforming. According to Mark Matthews, Head of Research Asia at Julius Baer, these two markets are driven by different fundamentals and opportunities, and can continue to grow in a parallel manner.
China’s Manufactured Bull Market
Matthews believes that China’s recent stock market revival is largely government-engineered. The Chinese government is using extremely low interest rates and a sluggish housing market to nudge people towards equities, with the goal of creating a steady, long-lasting bull market. This is evident from the fact that China has around $23 trillion of household savings sitting in bank accounts, which the government is encouraging people to invest in the stock market.
This approach is different from the typical speculative bubble that we see in many emerging markets. Instead, the Chinese government is aiming to create a gradual and sustainable increase in the stock market, with the goal of rebuilding consumer confidence and supporting broader economic growth.
India’s Underperformance: A Result of FII Selling
On the other hand, India’s underperformance is largely due to foreign institutional investors (FIIs) selling Indian equities. However, Matthews notes that this is not because FIIs have lost faith in India, but rather because they are reallocating funds back to China after being underinvested there for years.
This movement towards China is not about a dislike for India, but rather about repositioning. Matthews believes that India’s fundamentals are still strong, and that the country has a lot of potential for growth in the coming years.
The G2 Structure: A New World Order
Matthews also observes that the world is moving towards a ‘G2’ structure, led by the United States and China. This is evident from the fact that China recently issued bonds at the same yields as US Treasuries, which is a positive signal for emerging markets.
This shift towards a G2 structure is significant, as it suggests that emerging markets are maturing, and investors no longer need to worry as much about high risk premiums or currency volatility as they once did.
Implications for Indian Investors
So, what does this mean for Indian investors? According to Matthews, India can continue to grow in parallel with China, despite the differences in their fundamentals. In fact, the growth of the Chinese market does not come at the expense of India.
Indian investors should focus on the country’s strong fundamentals, including its growing economy, favorable demographics, and improving corporate governance. They should also keep an eye on the global currency picture, as the US dollar is likely to lose ground against emerging market currencies, which should act as an important tailwind for emerging market equities.
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Conclusion
In conclusion, the Indian and Chinese markets are two different stories, driven by different fundamentals and opportunities. While China’s manufactured bull market is a result of government engineering, India’s underperformance is largely due to FII selling. However, both markets can continue to grow in parallel, and Indian investors should focus on the country’s strong fundamentals and the global currency picture.