The recent surge in China’s stock market, driven by advances in artificial intelligence, has led to a shift in global investment flows, drawing funds away from Indian equities. A key index tracking onshore and offshore Chinese shares has climbed over 26% since January, fueled by optimism surrounding AI developments. Meanwhile, Indian stocks have faced a correction, with analysts noting a reallocation of capital from India into China.
China’s stock market had recorded losses for three consecutive years before rebounding, while Indian equities had experienced nearly a decade of strong growth. However, in 2024, India’s returns have slowed, contributing to a rebalancing of investor portfolios.
Tech Rally Fuels China’s Market Gains
The surge in Chinese stocks has been largely led by advancements in AI, with new models emerging that offer competitive performance at lower costs. As a result, major technology indices in China have reached multi-year highs, reinforcing confidence in the country’s tech sector.
Broad market indices tracking Chinese equities have gained nearly 18% this year, while those following Indian stocks have declined by over 7% year to date. Investors have been reallocating funds, driven by renewed confidence in China’s market trajectory.
India Faces Economic Slowdown and Market Corrections
India’s economic momentum has weakened, with recent GDP growth figures reflecting the slowest expansion in nearly two years. Projections for full-year economic growth have been revised downward, marking the lowest forecast in four years.
Amid these developments, investor sentiment has shifted. By the end of January, the percentage of global emerging market funds increasing their exposure to Chinese stocks had risen significantly, while allocations to India had declined. Many institutional investors who previously favored Indian equities have begun taking profits and redirecting capital toward China.
Following the pandemic, there had been a significant movement of capital out of China into other emerging markets, particularly India. However, with China’s market showing renewed strength, investors are now rotating back. Historical performance comparisons show that while Chinese equities faced multi-year declines, Indian markets had posted consistent annual gains—until recent corrections began shifting the balance.
Cautious Optimism for China, Opportunities in India
Despite the renewed enthusiasm for Chinese equities, uncertainties remain. Economic challenges, concerns over financial stability, and shifting global trade policies continue to add risks to China’s outlook. Some analysts caution that while sentiment has improved, it may still be too early to declare a sustained recovery in consumer demand.
Market volatility is expected to persist, driven by ongoing trade tensions, structural risks in the financial system, and uncertainties surrounding government stimulus measures.
For Indian equities, recent corrections may present opportunities for selective profit-taking. Some investors are adjusting their portfolios by shifting away from smaller stocks and focusing on large-cap companies, particularly in finance, real estate, and banking.
As global markets navigate shifting economic conditions and policy changes, investment flows between China and India will likely continue evolving. While China’s AI-driven rally has captured investor attention, broader economic trends and geopolitical developments will play a key role in shaping long-term market direction.