China attracts capital flows – the loser is India

The latest survey by BofA Securities reveals a remarkable shift in the investment decisions of global fund managers: China has gained in attractiveness, while India is losing. The Chinese stimulus plan recently announced by the government is reviving growth expectations. In an unprecedented response, the People's Bank of China has launched the most aggressive monetary support measures since the start of the pandemic. This has strengthened investor confidence, which previously sought opportunities in other markets. This time, they seem to be betting on China again. The downside of this development, however, is that India is experiencing a significant decline in capital inflows. Foreign investors have already withdrawn nearly $8 billion from Indian stocks in October. This could mark the largest capital outflow since the peak of the pandemic in 2020. While fund managers once held a positive stance towards Indian stocks, the survey now indicates a changed attitude. Whether they have now positioned themselves as neutral or even negative remains unclear. Interest in China is further fueled by concerns over high valuations in the Indian stock market. The Nifty 50 Index has already seen a decline of about 5% since its peak in September. At the same time, China’s leading stock index has reached its highest level in over two years. According to Trideep Bhattacharya from Edelweiss Asset Management, the attractive valuations combined with the stimulus efforts make China a desirable destination for investments. The comparison of valuations is interesting: India's 12-month price/earnings ratio stands at 24, which is about 23% above the 10-year average. In contrast, China's ratio is 10.7, which is 7% below the long-term average. These differences underscore the current realignment of investors in the global stock market.