Sell India, buy China? Don’t get stock and property markets confused

Indian stocks have had a good run. Since the end of March 2020, the Nifty 50, one of India’s main equity gauges, has risen almost 190 per cent. It has outperformed the benchmark S&P 500 index, which itself is up more than 150 per cent.

Yet in the past year, the ferocious rally has given way to volatility, concerns over lofty valuations and worries about growth and corporate earnings. The unexpected decision earlier this month by US President Donald Trump to impose swingeing tariffs of 50 per cent on imports from India, mainly because of the country’s large purchases of Russian oil, could not have come at a more inopportune time for Indian stocks.

In a sign of the extent to which Asia’s equity market landscape has changed in the past several months, the findings of Bank of America’s latest Asia Fund Manager Survey on August 12 showed that India was the region’s least attractive stock market. A net 30 per cent of respondents said they had an underweight position in Indian equities. As recently as May, India had supplanted Japan as Asia’s most favoured stock market, according to the results of the survey.

The other big shift in Asian equities is the growing appeal of China, which is now the second-most attractive market after Japan. A net 23 per cent of survey respondents said they had an overweight position in Chinese stocks. On August 18, the Shanghai Composite Index hit its highest level in a decade in response to abundant liquidity, Beijing’s clampdown on price wars and overcapacity in key industries, and the apparent easing of trade tensions with the United States.

In fact, the divergence between the stock markets of Asia’s two largest developing economies has put the MSCI India Index on track for its biggest annual underperformance against its Chinese counterpart since 2017, according to Bloomberg data.

If the diverging fortunes of Chinese and Indian equities were an indicator of how property markets were faring, investors would be favouring real estate investment trusts (Reits) that own shopping centres in Shanghai over those that own warehouses in Mumbai. However, the stock market is not the economy, much less the property sector.

  

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