Macquarie Calls ‘Buy China, Sell India’ a Short-Term Trade: Nifty Down 3.7% as Markets Weigh Capital, Debt, and Productivity

Foreign investors have recently been moving money from India to China, leading to a 3.7% decline in India’s Nifty index during October. However, global brokerage firm Macquarie views this trend as more of a short-term trading strategy rather than a solid long-term investment.

Trading vs Investment: Macquarie’s View

According to Macquarie, China’s market could rise further due to upcoming policy announcements, but the country’s deeper structural problems still persist. “This is mostly a trading, not an investment call, which still heavily favors India,” said the report.

China’s Market Rebound Loses Momentum

In the third quarter of 2024, MSCI China saw a significant 13% rebound, but that momentum quickly faded with a 3-4% loss in the first two weeks of October. In contrast, India’s earlier underperformance has been partially reversed, with positive year-to-date returns of 7-8%.

Choosing Between India and China: A Tough Decision

Investors in emerging markets are facing challenges in deciding between India and China. India’s stock market is dealing with slowing GDP growth, high earnings expectations, and expensive stock valuations. Foreign investors have withdrawn $7 billion from Indian equities recently, but India’s stock market still boasts a 70% outperformance over the past four years.

China’s Recovery Faces Challenges

Macquarie suggests that while China’s recent policies aim to stabilize the real estate market and local debt, they don’t solve deeper issues like high savings rates and dependence on exports. Under normal circumstances, China’s market recovery could continue, but the current economic environment is far from ordinary.

India’s Steady Growth Outlook

India is expected to keep expanding its labor force, capital, and productivity. Though 8% growth is unlikely without significant improvements, the economy is predicted to grow by 6-7%, leading to steady double-digit nominal GDP growth. Indian companies are also forecasted to deliver stronger returns on equity compared to China.

Global Growth

With weak global growth and ongoing trade tensions, China’s export potential is limited. India, on the other hand, benefits from moderate global growth and is less affected by trade issues. Macquarie concludes that while China’s stock market may see short-term gains, India remains the better option for long-term investment.