• Friday, March 29, 2024

Business

China’s loss is India’s gain: How the stocks scenario is changing

Representational Image: iStock

By: Shubham Ghosh

WHILE China continues to surprise the world as a fast-emerging economic power, things look less rosy for it in the emerging markets. This has happened as investors have become increasingly wary of Chinese companies and their Indian counterparts have gained as a result, The Times reported.

In its report, The Times said that “the switch in the performance dynamic of the two economic powerhouses has resulted in discounts opening up for shares in China-focused investment trusts, which over the longer term have delivered impressive returns. The question for investors is whether recent share price weakness constitutes a value opportunity or a well-deserved correction”.

It also added that since the beginning of 2021, the MSCI India Index has gained 26 per cent while MSCI China has lost nearly 17 per cent over the year to date and is 30 per cent lower than the record high which was achieved in February.

But why have Chinese stocks faced such a situation? According to the Times, they have encountered events that have shaken the investors’ sentiment and they include – regulatory crackdown on technology firms that includes new data-protection laws and rules limiting the screen time for the youth.

Besides, regulators’ instruction to Tencent, China’s most valuable public company, to stop rolling out new apps without government approval; persisting tensions between China and the United States and China’s aim to erase Covid completely resulting in strict local lockdowns have also hit the market sentiments in that country.

The report added that the dominance of technology companies like Alibaba and Tencent within Chinese equity indices suggests that all four China-focused investment trusts are exposed to the fall in value of two Hong Kong-listed stocks.

“The reality is that big tech is under the microscope globally because of its growing influence, and the regulatory framework is tightening everywhere,” James Budden, a director at Baillie Gifford, was quoted as saying by The Times. “For better or for worse, the difference is that China’s system of government allows it to act faster.”

But are Indian companies at risk of becoming over-valued? At October end, the MSCI India had a forward price earnings ratio of 23, ahead of that for the MSCI China (13) and the emerging market average. Also, shares in Paytm, India’s largest ever IPO, tanked more than a third during the first two days of trading recently.

Visibility around the earnings recovery for Indian companies has got better, thanks to an accelerated vaccination drive and supportive government policy, such as tax reforms and state-backed loans to help businesses through the pandemic, Carlos Hardenberg, co-manager of Mobius Investment Trust, said, according to the report.

“Those earnings will be the insurance policy for some of those high stock prices,” he added.

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