Investors favour China post-stimulus, drop positive view on India

The optimism over Chinese stimulus measures has seen investors revising their stance on China. Notably, the upswing in sentiment on China is happening at the expense of India. Further, the surging growth expectations for China has also sent APAC ex-JP outlook to 20-month high, according to a BofA Securities’ Asia fund manager survey.

While fund managers prefer Japan as their favourite market in Asia–Pacific region, they have turned reluctantly bullish on China after the recent wave of stimulus. On the flip side, they expect sustained underperformance for Korea with limited investor interest towards the corporate value-up program.

After announcing the most aggressive monetary support measures since the pandemic, China further pledged to significantly increase debt to revive its sputtering economy.  “Growth expectations for China sprung back to life following the policy pivot,” BofA Securities wrote in an investor note on Tuesday.

Meanwhile, foreign portfolio investors (FPIs) have been offloading Indian shares every trading session this month through October 15. The overseas investors have cumulatively sold Indian shares worth $7.3 billion so far in October and is headed for the biggest monthly outflow since the height of the pandemic in March 2020.

According to the survey, a larger number of fund managers were overweight on India in August against the current number of investors. That has resulted in wider gap in their allocations. Among sectors, technology continues to grab major portion of the fund, with financial services and consumer discretionary joining in post policy actions in China. On the flipside, real estate is at the other end of the spectrum.

India, the most expensive equity market in the region has seen some sell-off in the recent past. The benchmark Nifty50 has come off close to 5% from its record high whereas the Chinese Shanghai Composite has soared nearly 19% from mid-September.

At 24,971.30 points, the Nifty50 trades at 20.7 times its one-year forward earning, which is higher than its long-term average. In comparison, Chinese Shanghai Composite commands a valuation of 11.8x, which is about 3% lower-than its 10-year average, show Bloomberg data.

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