TLDR:
- China’s weight in MSCI’s emerging markets index rose to 27.8% in September 2024, the highest since November 2023
- A $3.2 trillion rally in Chinese stocks since September 18, 2024 drove the increase
- The rally followed US Federal Reserve rate cuts and Chinese stimulus measures
- India overtook China’s weighting in the MSCI All-Country World Index, reaching 2.33% vs China’s 2.06%
- India’s economic growth is projected at 7% for 2024, compared to 4.7% for China
China has seen a dramatic increase in its weight within MSCI Inc.’s benchmark for emerging market equities. By the end of September 2024, China’s weight in the index climbed to 27.8%, its highest level since November 2023. This surge came after a remarkable $3.2 trillion rally in Chinese stocks that began on September 18, 2024.
The catalyst for this rally was a combination of external and internal factors. The U.S. Federal Reserve’s decision to cut interest rates provided a green light for global monetary easing.
China quickly followed suit with its own stimulus measures, which included interest rate cuts, a swap program for financial institutions, and a special re-lending facility to encourage stock buybacks.
These policy moves came after a period of underperformance for Chinese stocks. For months, China had been losing share in index weights as markets in other countries, such as India, Taiwan, and South Korea, surged ahead. The recent rally has effectively ended this phase, bringing China back to the forefront of emerging markets.
However, some investors caution against overstating the magnitude of China’s gains. The rally came from a low base in terms of both valuations and relative performance.
Chinese stocks had underperformed the rest of emerging markets for four years prior to this surge. Even after the recent gains, they have only recouped about 16% of that underperformance.
India has been making its own strides in global market indices. In a significant development, India overtook China’s weighting in the MSCI All-Country World Index in September 2024. India’s share in the index increased to 2.33%, surpassing China’s 2.06%. This shift has placed India in the sixth position in the index, following France, Canada, the UK, Japan, and the US.
India’s rise in the index is largely attributed to its strong economic performance. According to forecasts, India’s economic growth for 2024 is projected at 7%, compared to 4.7% for China. This robust growth has attracted both foreign and local investors, driving up India’s flagship index, the NIFTY 50, by 20.5% as of September 30, 2024.
The contrasting performances of China and India in these indices reflect their current economic situations. While China has implemented significant stimulus measures to boost its economy and stock market, it continues to face structural challenges.
On the other hand, India has benefited from recent reforms aimed at improving the ease of doing business and attracting foreign investment, setting the stage for potentially strong, long-term growth.
China’s recent stimulus efforts are showing signs of impact. The Shanghai Composite Stock Market Index has seen a 13% rise over the past week, indicating a recovery in market sentiment.
Measures such as interest rate cuts, lower bank reserve requirements, and reduced rates for existing mortgages are expected to spur economic growth and lift investor confidence.
