It’s hotter than ever in India… on headline inflation.
While China, in contrast, is a little less hot than earlier this year. Though still well over China’s target, recent data confirms price pressure is coming off of its peak.
“So I think if you look at it from that standpoint comparatively, China will probably ease somewhat earlier than India could possibly do so.”
And this policy turn in China is exactly where strategists say investors can make money on Chinese equities over their Indian peers.
Money that will flow back to China will be coming from the United States, where Wall Street stocks have outperformed Chinese and Indian equities since the start of the year.
There was little incentive either to take on risk in India and China for most of the year, as successive rates hikes have put the brakes on both their red-hot economic growth rates.
“If you bought the Dow or the S&P 500 index at the start of the year, you would’ve seen your money grow between 2.5% and 3% year-to-date. It’s quite modest, yes, but not bad at all if you compare that with China, where you would’ve lost some of your money – as the markets fell 10-to-11%.”
Now that may be about to change.
And while the RBI is unlikely to lift rates further because of the continuing uncertainty in Europe, strategists say it’s only after inflation in India peaks – just as it did in China – that investors will find incentive to take on risk in India’s equities once again.
Bottom line: As China’s inflation slows, the possibility of easier money sparks renewed talk of risk-on trades for Chinese equities over their Indian peers.