Chart: India's Steady Gains Amid Election Clarity (blue line) vs. China's Volatility on Stimulus Hopes (orange line)

Source: Bloomberg data. Accurate as of 13 Oct 2024.
 

Table: India vs. China: Key Economic and Equity Market Metrics

Source: Bloomberg data. Accurate as of 13 Oct 2024.
Note: Equity fundamental figures based on Nifty 50 Index for India and Shanghai Stock Exchange Composite Index for China

India’s Momentum powered by structural reforms

In Global X’s view, India continues to demonstrate resilience in its economic performance, buoyed by a positive outlook in sectors like financials, technology, and consumer discretionary. 

Recent reports highlight that India’s corporate earnings growth remains robust, with 2025 earnings forecasts expected to rise by 7.4% year-over-year [1]. 

In Global X's opinion, this growth is driven by structural reforms, including financial sector improvements and government-led infrastructure spending. The information technology sector, a cornerstone of India's economy, has benefited from the country’s push for digital transformation and rising global demand for outsourced services.

Additionally, foreign direct investments have bolstered confidence, particularly in sectors like banks and information technology, where inflows have surged [2]. India’s banking sector has witnessed strong credit growth, supported by financial reforms and an expanding middle class, Global X opines. 

On the inflation front, India’s monetary policy reflects a delicate balance between sustaining growth and managing inflation. In Global X's opinion, the Reserve Bank of India (RBI) has maintained its status quo on interest rates but is keeping an eye on inflationary pressures. With surplus liquidity in the system and easing food inflation, there is room, in Global X’s view, for the RBI to consider rate cuts by the end of 2024, benefiting sectors such as banking and consumer goods.

Risks to India’s momentum include potential global economic headwinds, upcoming elections, and volatile commodity prices affecting exports. These risks could weigh on India’s growth prospects and need to be factored into investment decisions.
 

China’s Policy Pivot: Navigating the Path to Recovery

China’s recovery is more complex, with market sentiment driven largely by government policy. China’s corporate earnings forecast for 2025 shows a slightly stronger outlook compared to India, with 10.3% year-on-year growth expected though this is more likely off a lower base [3].  

In Global X's view, the country's reliance on fiscal stimulus, particularly in real estate and consumer spending, has provided short-term relief, but longer-term challenges persist.

The People’s Bank of China (PBoC) has adopted a gradual easing strategy, cautiously managing liquidity in the system without aggressive rate cuts. 

The latest reports [4] indicate Chinese policymakers are hesitant to enact forceful fiscal easing due to high public debt levels - now at 102% of GDP [5] - and a narrowing fiscal deficit. This cautious stance limits the scope for broader stimulus, affecting longer-term recovery in sectors such as real estate.

In Global X’s view, the deflationary environment remains a key challenge for China, driven by structural weaknesses its property sector and sluggish consumer demand. This environment may pose a risk to China’s recovery and could affect investor sentiment toward China-focused ETFs.

In particular, China’s real estate sector continues to face structural challenges and despite government intervention, the recovery has been more of a rebound than a sustained upturn, in Global X’s view. 

The risks to China’s momentum include its heavy reliance on government policy to drive recovery, and broader structural issues, including a shrinking workforce and sluggish consumer demand. 

Investors in China-focused ETFs need to be aware of these risks, as any slowdown in government support could further dampen market sentiment.
 

Investment into ETFs: Capturing Divergent Trends

Investment into ETFs highlights the divergence between India and China. 

India-focused ETFs have continued to attract fund inflows, as the chart below shows. In Q3 2024, India’s financials and technology sectors led the charge in drawing foreign capital [6]. In Global X’s opinion, as India solidifies its position as a global IT hub, foreign investments in these sectors could remain strong.

By contrast, China-focused ETFs saw inflows of US$27.4 billion in September, a 75% increase from the previous month [7], fuelled by stimulus expectations. 

While sectors like real estate and consumer goods showed some recovery, allocations to Chinese equities remain at multi-year lows, according to Global X analysis. 

In Global X’s view, this reflects continued uncertainty about China’s long-term economic trajectory, especially as it faces deflationary pressures and weak industrial output.
 

India’s ETF Flows Decline as China’s Rebound Strengthens in Late 2024

Source: Bloomberg data. Accurate as of 13 Oct 2024.
 

Benefits and Risks of Using ETFs for Emerging Markets Exposure

ETFs potentially offer a cost-effective and diversified way to access emerging markets like India and China by providing exposure to a broad range of companies across these economies, without having to pick individual stocks. 

ETFs also offer liquidity and transparency, providing investors with visibility into which companies they are investing in and enabling them to access their capital more flexibly. 

Moreover, ETFs offer exposure to specific sectors, enabling investors to target high-growth areas like technology in India or real estate in China.

However, investing in emerging markets via ETFs is not without risk. Market volatility in emerging markets like India and China is often driven by factors such as political instability, currency fluctuations and sector concentration. 

Additionally, an ETF’s performance is tied to the underlying economies they track, making them vulnerable to broader macroeconomic trends.

Conclusion

Both India and China potentially offer distinct opportunities for investors. In Global X’s views, India’s growth story appears to be underpinned by solid fundamentals, including strong sectoral growth, digital transformation, and domestic consumption. 

By contrast, Global X considers that China may offer short-term tactical opportunities, particularly in real estate and consumer sectors, driven by government policy support, though investors must remain mindful of the broader risks in the Chinese economy. 

Blending exposure to both markets is one strategy to consider, as it might potentially reduce risk while capturing possible growth in two of the world’s most dynamic emerging economies.

--------------------------------------

[1] Bloomberg data. Accurate as of 13 Oct 2024. 

[2] Bloomberg data. Accurate as of 27 Sep 2024. 

[3] Bloomberg data. Accurate as of 13 Oct 2024.

[4] Investors Welcome China’s Rate Cuts but Want Fiscal Catalyst” by Asia Times, October 2024

[5] China National Bureau of Statistics.

[6] Bloomberg Data. Accurate as of 27 Sep 2024.

[7] Bloomberg data. Accurate as of 13 Oct 2024.

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