CLSA sees 3 ‘witches’ in Indian markets! ‘After India’s 210% outperformance of China…’ – why global brokerage has cut exposure

India vs China stock markets: The Chinese government’s aggressive measures to revive its markets and economy have captured the attention of foreign investors. Global brokerage firm CLSA has increased its exposure to China, reducing its overweight position in Indian equities from 20% to 10% to accommodate a 5% overweight in China.
According to an ET report, CLSA believes that China presents the most significant self-help opportunity among emerging markets and expects policymakers to respond accordingly.
The resurgence of the Chinese market has been drawing liquidity away from other emerging markets, as investors rush to capitalize on the relatively cheap Chinese equities following a period of underperformance.
Last week, the Nifty index lost 4.5%, with foreign institutional investors (FIIs) withdrawing over Rs 40,500 crore from domestic stocks.
Regarding Indian equities, it highlighted three major ‘witches’: rising oil prices, the surge in new IPOs, and the appetite of retail investors.
The firm said, “After India’s 210% outperformance of China, relative valuations are stretched. Yet strategically we argue India still offers the strongest scalable EM growth story.”
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DBS Group also recently said that India will likely underperform China for the remainder of 2024, following Beijing’s extensive monetary and liquidity measures.
Joanne Siew Chin of DBS Group commented, “India has performed strongly and we are looking at other markets. China and ASEAN could actually outperform. India is actually quite a domestic liquidity market.”
However, not all global investors are convinced by the Chinese recovery story. Several prominent firms, including Invesco, JPMorgan, HSBC, and Nomura, remain skeptical of the recent rebound and are waiting for Beijing to support its stimulus pledges with concrete actions.
Raymond Ma, Invesco’s chief investment officer for Hong Kong and Mainland China, cautioned, “In the short term, sentiment could overshoot but people will go back to fundamentals. Because of this rally, some stocks have become really overvalued and they lack a clear value proposition based on their likely earnings performance.”
To improve liquidity, China has implemented several measures, including reducing the reserve ratio for banks by 50 basis points and lowering the mortgage rate for existing housing by the same amount. The People’s Bank of China has also signaled its intention to ease policy in the near term.
Rajiv Jain of Florida-based GQG Partners reminds investors of a similar “reopening trade” in late 2022, which fizzled out within a few months. He questions the long-term viability of investing in the Chinese market, stating, “They’re basically a trade. That’s a nice trade. But can you really invest in it for three years, five years?”