By: Dane Smith, Head of North American Investment Strategy & Research
India has overtaken China as the largest weight in the MSCI Emerging Markets Index, reflecting its growing economic strength. While India’s economy surges, China faces challenges, including a volatile property market and weakening consumer confidence.
Two of the largest emerging markets have taken very different paths, echoing their economic and demographic divergence. For the first time, India recently overtook China as the largest weight in the MSCI Emerging Markets IMI Index, which is an index composed of small, mid, and large cap companies. While this achievement highlights India’s rising prominence and investor confidence, it also points to deeper economic challenges China is currently facing.
India is the world’s fastest-growing major economy and remains on track to overtake Japan and Germany to become the world’s third-largest economy by 20271. India’s nominal GDP growth rate is running in the low teens, more than thrice the economic growth in China, generating a profound divergence in earnings growth.
In contrast, China’s reduced weight in the index partly stems from a mix of economic and structural challenges. China’s property market (which accounts for nearly 30% of GDP) remains the primary source of volatility as home prices remain unstable. This, paired with frictions with major trading partners and years of abrupt domestic policy changes, has led to more muted economic growth than observed in the past. Consumers have pulled back on spending, as retail sales remain weak with consumer confidence near all-time lows. However, last week, China cut interest rates and bank reserve requirements in an attempt to support the economy. We don’t think these measures alone will be enough to turn around the situation; however, the acknowledgement and attempt may improve short term sentiment. The question remains whether they will follow through with further support — enough to boost the local consumer.
Originally posted on September 30, 2024 on SSGA blog
PHOTO CREDIT: https://www.shutterstock.com/g/xtock
VIA SHUTTERSTOCK
FOOTNOTES:
1 IMF World Economic Outlook, Jan. 2024. Forward-looking estimates may not come to pass.
DISCLOSURES:
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The views expressed in this material are the views of the State Street Global Advisors Practice Management Group through the period ended August 15, 2024 and are subject to change based on market and other conditions. The opinions expressed may differ from those with different investment philosophies. The information provided does not constitute investment advice and it should not be relied on as such. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon.
This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
