DeepSeek’s Growth Boosts China’s Markets as India’s Appeal Wanes
Surge in Chinese Stocks Amid Shift in Investment Dynamics
Current Market Landscape
The recent advancements in artificial intelligence, particularly with the introduction of DeepSeek’s R1 model, have led to a significant increase in investor interest in Chinese stocks. This sentiment has resulted in a more than 26% rise in a composite index of both onshore and offshore shares since hitting a low point in January of this year. This uptick in the Chinese market coincides with a downturn in Indian equities, which are currently experiencing a correction phase.
Investment Trends Between China and India
Market analysts are observing a shift in investment preferences, moving funds from India to China. Thio Siew Hua, managing director at Lion Global Investors, noted this trend, mentioning, "Every time the China market goes up, the India market goes down." Over the past year, the Chinese CSI300 index rebounded significantly after three years of negative returns, while Indian stocks have performed consistently well for the past nine years but showed slower growth recently.
Factors Influencing Investment Shifts
Several factors are influencing this reallocation of investment:
- China’s Tech Rally: A significant portion of the rise in Chinese stocks can be attributed to a boom in the technology sector, particularly spurred by DeepSeek’s recent AI advancements.
- Comparative Performance: While Chinese equities have enjoyed substantial growth, the MSCI China Index has bounced back nearly 18% this year, contrasting sharply with the MSCI India index, which has declined over 7% year-to-date.
India’s Economic Slowdown
Conversely, the Indian economy is facing challenges, with the stock market undergoing a sharp correction. Data shows that India’s GDP grew by only 5.4% in the September quarter, marking the slowest growth rate in seven quarters. The government has also revised its economic growth estimate for the fiscal year down to 6.4%, the lowest projection in four years.
Notable Changes in Fund Allocations
Recent reports indicate a shift in how global emerging market (EM) funds are being allocated:
- Increased Focus on China: By late January, 33% of major global EM funds had increased their stakes in China and Hong Kong equities, compared to 26% in December.
- Reduced Interest in India: Around 50% of the funds surveyed had decreased their allocations to Indian stocks, suggesting a notable shift in the investment landscape.
The Future Outlook for Chinese and Indian Markets
While there is growing optimism regarding the Chinese market, experts urge caution. Issues such as a trade war, ongoing concerns about the Chinese financial system, and a significant real estate bubble are factors that introduce volatility into the market.
Insights from Market Experts
Investment manager Nicole Wong highlighted a tactical shift, noting that she had taken profits in her India holdings and increased her exposure to Chinese markets, particularly in tech stocks. Similarly, analysts like Ken Wong from Eastspring Investments recognize that while there are still profitable opportunities in India, particularly among large-cap companies in financial and real estate sectors, the market may not recover consistently.
Conclusion
The current shift in investor sentiment reflects broader economic trends and the evolving landscape of global markets, underlining the intricate relationship between Chinese and Indian equities. As the financial dynamics continue to change, it will be important for investors to monitor developments in both markets closely.
