New York: A momentous shift is under way in global markets as investors pull billions of dollars from China’s sputtering economy, two decades after betting on the country as the world’s biggest growth story.
Much of that cash is now heading for India, with Wall Street giants like Goldman Sachs Group Inc. and Morgan Stanley endorsing the South Asian nation as the prime investment destination for the next decade.
That momentum is triggering a gold rush. The $62 billion hedge fund Marshall Wace has positioned India as its biggest net long bet after the US in its flagship hedge fund. An arm of Zurich-based Vontobel Holding AG has made the country its top emerging-market holding and Janus Henderson Group Plc is exploring fund-house acquisitions. Even Japan’s traditionally conservative retail investors are embracing India and paring exposure to China.
Investors are paying close attention to the contrasting trajectories of two of Asia’s greatest powers. India, the world’s fastest-growing major economy, has vastly expanded infrastructure under Prime Minister Narendra Modi in his bid to lure global capital and supply lines away from Beijing. China, on the other hand, is grappling with chronic economic woes and a widening rift with the Western-led order.
“People are interested in India for several reasons – one is simply it’s not China,” said Vikas Pershad, Asian equities portfolio manager at M&G Investments in Singapore. “There’s a genuine long-term growth story here.”
While the bullish sentiment about India isn’t new, investors are more likely now to see a market that resembles the China of times past: a vast, dynamic economy that’s opening up to global money in novel ways. Nobody expects a smooth ride. The country’s population is still largely poor, stock markets are expensive and bond markets insular. But most are making the crossover anyway, calculating that the risks of betting against India are greater.
History shows that India’s economic growth and the value of its stock market are closely linked. If the nation continues to expand at 7%, the market size can be expected to grow on average by at least that rate. Over the past two decades, gross domestic product and market capitalization rose in tandem from $500 billion to $3.5 trillion.
Aniket Shah, global head of environment, social and governance practice at Jefferies Group LLC., said a recent investor call about India was one of the firm’s best-attended.
“People are really trying to figure out what’s going on in India,” he said.
