India’s valuation premium, higher interest rates, and China’s reopening are leading to the reallocation of funds by foreign portfolio investors (FPIs), reported Business Standard citing industry observers.
So far this month, overseas funds have dumped domestic shares worth nearly $2 billion, whereas China has received billions of dollars of foreign flows, said BS, citing reports.
China, unlike India, doesn’t report FPI investments on a daily basis.
Foreign investors bought a net 41 billion yuan ($6.06 billion) of Chinese stocks via the China-Hong Kong Stock Connect trading platform so far this year, compared with 90 billion yuan of China stocks bought in 2022. They bought a net 35 billion yuan of Chinese stocks in December, the report said, quoting Reuters.
On a year-to-date basis, Hong Kong’s Hang Seng has risen 9.1 percent; the Shanghai Composite has risen 4.4 percent. The Sensex and the Nifty fell 0.3 percent.
“With China unlocking, a lot of money will move from India. Even if investors are not spending in China, they will look for alternatives, given our earnings may not be as projected. We will see continuous selling from FPIs. This year will be challenging, in terms of FPI flows. The situation may be more benign when the US goes through a recession and flows return to India,” Nischal Maheshwari, chief executive officer-institutional equities, Centrum, told BS.
As per the report, analysts believe more money flowing into Chinese equities in the months to come will weigh on other relatively expensive markets in the Asian and emerging markets (EMs) like India. India’s benchmark indices trade at more than 60 percent premium to their Chinese counterparts, it mentioned.
Meanwhile, some question the sustainability of flows into China.
“The unlocking has seen a gush of foreign investor flows into China. But one has to see how sustainable this is. China’s Covid restrictions seesaw all the time. India’s Covid situation is stable and is a growing economy. After some correction in valuation, FPIs will start investing in India,” said UR Bhat, co-founder, Alphaniti Fintech, as per the report.