2024 Book of Answers After two decades of betting on China to become the world's largest economic growth point, global markets are undergoing a major shift as investors pull billions of dollars out of China's flagging economy.
This momentum is sparking a gold rush. The $62 billion hedge**Marshall Weiss in his flagship hedge positioned India as the largest net long bet after the US. A subsidiary of Zurich-based Vontobel Holding AG has listed India as its largest shareholder in emerging markets, while Janus Henderson Group PLC is exploring acquisitions. Even Japan's traditionally conservative ** investors are embracing India and reducing their investment in China.
Investors are keeping a close eye on the very different trajectories of two of Asia's most powerful countries. India, the world's fastest-growing major economy, has been heavily expanding infrastructure by Prime Minister Narendra Modi leaving Beijing to attract global capital and lines. China, on the other hand, is grappling with long-standing economic woes and a widening rift with the Western-led order.
Vikas Pershard, Asia** portfolio manager at Singapore-based M&G Investment Firm, said:"There are several reasons why people are interested in India, one of which is that it is not China. "There's a real long-term growth story here.
While the bullish sentiment for India is not new, investors are now more likely to see a market similar to that of China in the past: a large, dynamic economy that is opening up to global capital in novel ways. No one would expect smooth sailing. Most of China's population is still poor, expensive, and the bond market is closed. But in any case, most people are making cross-border investments because they believe that it is more risky to bet against India.
History has shown that India's economic growth is closely linked to its value. If India's economy continues to grow at a rate of 7 per cent, the average growth rate of the market size will also be at least 7 per cent. Over the past two decades, GDP and market capitalization have grown in tandem, from $500 billion to $3$5 trillion.
Aniket Shah, global head of Environmental, Social and Governance at Jefferies Group, said the company's most attended investor** conference on India.
He said:"People really want to figure out what's really going on in India.
Capital flows reflect people's enthusiasm. In the U.S. exchange-traded market, the main purchasers of India received record inflows in the last quarter of 2023, while the four largest China**s saw outflows of nearly $800 million combined. For every $1 of active bonds** withdrawn from China since 2022, 50 cents have been poured into India, according to EPFR data.
In mid-January, India briefly overtook Hong Kong to become the world's fourth-largest market. In the eyes of some investors, the South Asian country will only go further. Morgan Stanley**, by 2030, India** will be the third largest in the world**.
Mark Matthews, head of Asia research at Julius Baer in Singapore, said:"In terms of index weighting, China will be less weighted and India's weight will be higher. "That's the direction.
Japanese** investors, who have traditionally favored the United States, are also starting to be enthusiastic about India. Currently, Japan has five India-focused co-founders** in the top 20 in terms of inflows. The assets of Nomura India***, the largest of these, hit a four-year high.
Hedges**, including Marshall Weiss, cited India's strong economic growth and relatively stable political situation as reasons for optimism about India's continued economic growth, even though valuations remain expensive.
Kalmar Capital, which manages Indian money for institutions such as Norges Bank, said U.S. investors were particularly keen to enter the Indian market and learn more about it. Rajnesh Gildar, the CEO of the **, recalled that one client replied to several inquiries from the Indian side with unusual speed.
He said:"We'll send some messages on Friday, and before we get back on Monday morning, she already responds, which means she's working on the weekend."
China has been India's old adversary for decades, and India has taken advantage of China's changing power dynamics.
If China is seen as a threat to the Western global order, India is seen as a potential counterbalance. After all, the country is increasingly able to assert itself as a viable manufacturing alternative to China. Countries such as the United States have seen the need for strong commercial relations with India, despite their criticism of India's tax policies. Currently, India accounts for more than 7% of global iPhone production and is investing trillions of rupees in infrastructure upgrades.
Modi's plans to make India a new engine of world economic growth are part of these efforts. India's Finance Minister Nirmala-Sitharaman said in his medium-term budget presentation last week that it would raise infrastructure spending by 11 per cent to 11 in the next fiscal year1 trillion rupees (about $134 billion).
Gitania Khandhari, deputy chief investment officer for solutions and multi-asset at Morgan Stanley Investment Management, said:"The investment cycle is accelerating with the implementation of public capital expenditure and infrastructure initiatives."
India is also building a vast technology ecosystem that aims to pull more people into the digital market. Alphabet's Google Pay program has partnered with India's mobile payment system, which generates billions of transactions per month, to expand the service beyond India.
loomis sayles&co.The company's money manager, Ashish Chugh, said:"For the first time, hundreds of millions of Indians have bank accounts and access to credit. "This is bound to attract global companies to India and will also attract global investors.
Some obstacles do exist. The mood of euphoria has made India one of the most expensive in the world. The popular S&P BSE SenseX Index has nearly tripled from its March 2020 lows**, while earnings have only roughly doubled. The index has a future return of more than 20 times, which is 27% higher than the average from 2010 to 2020.
Stretched valuations, coupled with China**'s recent attempts to support its own market, have prompted some investors to consider a change of strategy. According to data compiled by Bloomberg, the world cashed out more than $3.1 billion from India in January, the largest monthly total in a year.
Mark Williams, manager at Somerset Capital Management, said:"Pricing in the Indian market has been hugely successful, but the question is, how much success is unpriced." Of course, there is a chance that the Indian market will trade sideways for several years.
After eight consecutive years of annual performance, investors are gearing up for a correction. Modi is expected to win a third term in this year's national**, especially after his party swept the recent state polls, which bodes well for the current policy to continue. But the weakening of the ruling party could spur markets in the short term.
Judging by the results of the state elections, there should be continuity in our **". Peyush Mittal, portfolio manager at Matthews International Capital Management, said:
Critics argue that Mr. Modi's social agenda is skewed toward a Hindu-majority country, which also threatens the stability of a country with more than 200 million religious minorities. Translating India's potential into an economic reality that benefits all its citizens is a daunting requirement, especially in a multilingual democracy where there are huge cultural differences between states.
Charles Robertson, Head of Macro Strategy at FIM Partners, said:"India still has a long way to go. "The potential peak growth is still below the level achieved by China."
Even with these risks, India's advocates say they are making long-term investments. India's per capita income is still low and is creating the conditions for years of expansion and new market opportunities, they said.
Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, said:"Scandals, social polarization, and political noise are always there. "Still, if you believe that the Indian economy is expected to grow to more than $8 trillion by this time in the next decade, the volatility is worth it.
India's once-closed financial markets will remain open. Since foreign ownership is just over 2%, India 1The $2 trillion sovereign bond market will be included in JPMorgan Chase's Global Debt Index starting in June. According to HSBC Asset Management, the move could attract as much as $100 billion in inflows in the coming years.
India is also stepping up the globalization of the rupee, albeit on a smaller scale than China's renminbi expansion. Still, when combined with the development of Gift City, a free-market pilot project in western India that aims to become a global financial hub that is not subject to rules and taxes, the potential exists. This prospect is the same as that of 1980, when Shenzhen opened up as a special economic zone.
Gaurav Naran, a manager who advises on India's capital growth, said confidence in India comes from the long-term impact of these moves, not necessarily from the near-term outlook for the country and bonds.
He said:"We don't need it anymore'Pitch Indian stories'publicity. "He said:"What is needed now are people who understand the positive changes in India'India'”。
*: Srinivasan Sivabalan, Chiranjivi Chakraborty and Subhadip Sircar, February 6, 2024 (Bloomberg).