When it comes to equity markets this year, the Indian elephant is on a rampage while the Chinese dragon’s fire is burning out. The benchmark Indian equity indices Sensex and Nifty have risen by 21%-22% each so far since the beginning of this year 2017, with the NSE Nifty 50 breaching the 10,000-mark this week. By contrast, the Chinese benchmark Shanghai Composite Index has grown at a mere 4.64% so far in this year. That much is mostly known.
But now, Indian equities’ vast outperformance over Chinese shares has got a ringing endorsement from a very unlikely quarter — the Chinese state media itself, though unintentionally. China’s state-run Global Times published an article this week, which described in some detail the reasons why shares in China have been lagging this year while that in India rise by leaps and bound. It is worth reminding here that the Global Times is the same publication which has been lashing out threats of teaching a lesson to India over its standoff with China in Doklam.
The article attributes the divergence between the performance of stocks to the difference in both the countries’ economic focus. “To some extent, the divergent performances simply show the different levels of economic development in the two countries,” the Global Times report said. It said that while China’s mainland shares gained about 53% back in the year 2014, at present they need steady growth and not a “temporary outperformance” over the other countries’ stocks.
The article said that China’s primary requirement at the moment is to prevent financial systemic risk. “… Since A-share market turmoil spooked investors in 2015, the government has stressed tightening financial regulation for the purposes of preventing risk, deleveraging and eliminating bubbles,” it said. In addition, the National Financial Work Conference, which ended on July 15, prioritized the task of curtailing financial risk, setting the tone for the economic focus in the coming five years, it added.
On the other hand, the rapid rise in the Indian equities is due to Prime Minister Narendra Modi’s aggressive policy reforms, which include demonetisation, introduction of GST (Goods and Services Tax) and easing of foreign direct investment regulations, which has attracted a lot of overseas investors to the market, the Global Times report said.
Earlier Tuesday, Nifty 50 crossed the long-awaited five-digit figure of 10,000 for the first time, hitting a high of over 10,010 points. Most experts, both fundamental and technical, still see a lot of further upside in Indian equities over the long term. Earlier last month, Ridham Desai, MD, Morgan Stanley, said in an interview with CNBC-TV18 that he expects NSE’s Nifty index to reach 30,000 points in the next five years, on the back of renewed consumption, greatly improved exports and infrastructure spending by the government.