Why China over India?

Why China over India?
Key takeaways

We have seen an extraordinary level of divergence in performance between China and India in the last 3 years


Despite the positive performance of the Indian economy, there are some signs it is running out of steam


We believe there is a great contrarian opportunity in being overweight China and underweight India

Every client meeting we have these days includes a discussion on why we are overweight China and underweight India. Given our contrarian approach, the positioning in itself in unsurprising. What is extraordinary, is the degree of divergence in performance we've seen between these two countries, with China is down 50% over the last 3 years and India up 35%.

Figure 1: MSCI China Index (MXCN Index USD) vs MSCI India Index (MXIN Index USD), 3 year performance to 12.03.2024

Source: Bloomberg, as at 12 March 2024 

This divergence of performance has led to an extreme valuation disparity.

Figure 2: India Valuations

Source: LHS chart: Invesco, LSEG as at 28 February 2024. RHS pie chart: Invesco, Bloomberg as at February 2024. MSCI India = 136 companies

Obviously, there are reasons why India has been outperforming China, and there are good reasons for Indian stocks to trade at higher multiples than Chinese ones. Not least the geopolitical situation between China and the US, and the weak Chinese economy.

But while the Indian economy may be a lot better than the Chinese economy, it’s not perfect by any means, for example economic indicators for the consumer economy are less rosy than share prices of some consumer stocks might suggest. Passenger vehicle sales are -6.9% y-o-y and domestic air passenger numbers -4.7% y-o-y, with volumes of both still below 2019 levels, whereas plenty of the stocks in these sectors have been rallying strongly and are close to all-time highs.

And although earnings resilience has been a lot better in India than in China over the last few years, it is not as though we are seeing constant earnings upgrades in India. Larsen & Toubro, one of the best performers in India is now on 38x current year earnings. This lack of earnings upgrades contrasts with Tencent, the biggest index position in China. Earnings have been revised up in the last year, but the share price is down.

We are also seeing signs in India typical of stock market exuberance:

1. 2023 was a record year for IPOs in India against a backdrop of weak deals globally

Figure 3: Vintage IPO Year

Source: Bloomberg, as at 14 December 2023

Figure 4: Global IPOs in 2023 Set for Worst Year Since Financial Crisis

Source: Bloomberg, as at 14 December 2023

2. Whilst placements by insiders hit a 6-year high

In the last few weeks we have seen signs of a change. China has started to outperform India on no real news, and India looks like it is running out of steam.

Figure 5: MSCI China Index (MXCN Index USD) vs MSCI India Index (MXIN Index USD) performance, 01.02.2024 - 12.03.2024

Source: Bloomberg, as at 12 March 2024 


We are contrarian investors. We believe in buying shares when they are out of favour. That’s the way we do things and that’s the way we will always do things. It is normal to feel uncomfortable going against the grain, but it tends to be very rewarding when markets revert back from extreme levels, as we saw during the pandemic with the rotation in markets between tech/internet and cyclicals.

We believe there is a great contrarian opportunity in being overweight China and underweight India. We are now max underweight India (by our ‘rules of thumb’, we don’t like to be less than half the index weight in any large country). Market weakness in China has also tended to be broad-based and fairly indiscriminate, which has allowed us to increase the quality of the China portfolio (without necessarily increasing the overweight). We are very happy with our current positioning.

However – it is important to point out that we spend the large majority of our time focused on stock selection – country allocation is mainly a by-product of this. We do happen to have a strong view at the moment on what country weights we should have, but that is mainly driven from the bottom-up. Moreover, while we should note that although our country allocation has worked against us in the last three years, stock selection has very much worked for our Asia strategies.


  • 1 Centre for Monitoring Indian Economy, Mint and Kotak

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.

    Invesco Asian Equity Fund

    As a large portion of the fund is invested in less developed countries, you should be prepared to accept significantly large fluctuations in the value of the fund. The fund may invest in certain securities listed in China which can involve significant regulatory constraints that may affect the liquidity and/or the investment performance of the fund.

Important information

  • Data as at 13 March 2024, unless otherwise stated. By accepting this material, you consent to communicate with us in English, unless you inform us otherwise.

    This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

    Views and opinions are based on current market conditions and are subject to change.

    Past performance does not predict future returns.