“The Chinese stock market has underperformed severely, particularly over the past three years. This is similar to the ‘lost decade’ that their Japanese counterparts experienced in the 1990s, with stability enticing following a recent upturn. Through Q1CY24, China’s real estate and banking industries may continue to reverberate throughout the economy, counterbalancing the moderate expansion observed in numerous consumer sectors.
The lowest daily average turnover on the stock market since 2019 was 790 billion yuan in 2023*, and leading emerging markets (EM) funds are still avoiding the Chinese stock market. Insufficient new credits point to a sluggish economic rebound and reduced Chinese oil consumption, while low industrial production and Purchasing Managers’ Index (PMI) data could limit power output in 2024.
If significant EM funds continue to pull out, China’s equity risk could prolong stagnation. Top EM funds’ average holdings of Chinese stocks have fallen to a five-year low, and very few have increased their positions.
In the MSCI Emerging Markets Index, India has the second-largest country weight (18%), behind China (23%).
India’s weight was 8% five years ago, while China’s was 31%. India, on the other hand, has been performing extremely well, as evidenced by the country’s market, corporate earnings, and macro growth.
Over the past year, MSCI China has declined by 25%, while MSCI India has increased by 31%. The figures for the previous five years are -28% and +116%, respectively*.
With the outlook continuing to be strong for India, we expect India to attract more money on its own merits, but China’s failures would only add fuel to the fire.”
– Alok Agarwal, Head Quant & Portfolio Manager, Alchemy Capital Management