India’s stock market just overtook Hong Kong’s. What does it mean for Aus?

Just over a year after its economy overtook the UK’s and its population outsized China’s, the aggregate value of India’s stock market has officially overtaken Hong Kong’s.

India now boasts the world’s fourth-largest stock market.

While the Hang Seng is having a slightly better Tuesday, the megatrend macro writing on the wall is clear.

First, a caveat just so we’re all on the same page. This reporting comes from the strange mix of media giant and asset management software provider, Bloomberg.

It’s worth noting they’re talking about the Bloomberg-compiled India Exchange Market Capitalisation index, which has overtaken the index it compiles for Hong Kong.

And I don’t mean to imply that Australia is caught in some kind of doomsday battle of superpowers (though, can you blame us for wondering?)

Jevons Global’s Kingsley Jones, writing for The Market Herald earlier this year, noted the two countries are actually boosting trade ties.

Indian equities landscape

Confusing matters further, India has no less than seven different exchanges according to the market regulator (probably no surprise for the world’s most populated country on earth).

That list includes the Bombay Stock Exchange (now simply called the BSE,) the National Stock Exchange of India (NSE), the Calcutta Stock Exchange (CSE), and the Metropolitan Stock Exchange – plus a few commodities exchanges.

So, you can see how things could get muddy.

But per Bloomberg – India’s stock market has just beaten out China’s HK-based Hang Seng index, widely accepted as China’s major stock market.

(Even though the Shanghai Stock Exchange (SSE) is technically bigger).

China’s woes only compounding

So what does this actually mean? In short: investors view India as a better place to put cash.

This comes in the context of China’s ongoing economic woes which followed two years of the world’s strictest COVID lockdown campaign, and then, historic riots in the 2023 New Year period which forced the Xi Jinping government to relent.

There’s a good chance you’re getting tired of hearing about China’s doldrums era – I’ve been covering China a lot lately for The Market Herald.

But it’s worth noting the Australian dollar is widely perceived in forex markets as a bellwether of the Chinese economy, and, well, that thesis currently checks out.

The AUD hasn’t been worth more than 70 cents USD since February 2023 – right around the same time the world started to realise the widely-anticipated Chinese 2023 recovery narrative wasn’t going to happen.

It didn’t, it still hasn’t, and the AUD is now where it was during the GFC.

Food for thought. Maybe we’d better bring Modi back to Sydney.

Aren’t we overlooking something?

For the sake of exercising memory, hark your mind back to when China lifted its COVID-zero policy following nationwide riots.

The fact that China witnessed a Tiananmen-style string of nationwide protests at the start of last year appears to have been largely forgotten by Western media.

More curious is that the Chinese people effectively got the notoriously self-confident Chinese government to actually alter policy, whether or not the CCP approves of that version of history.

I can’t help but feel this geopolitical flashpoint we all quickly forgot about is probably related to their current economic situation, but that’s just me speculating.

“Rubbish,” my critic says. “How could citizen psychology affect an econo? – oh, right.”

At any rate, some bleak statistics to make my point:

• China’s Hang Seng index is down 12 per cent in 2024 YTD per WSJ
• Chinese residential property foreclosures jumped 43 per cent through 2023
• The country’s economy is in deflation – a blessing and a curse for the globe
• China stopped reporting youth unemployment last year
• A weak China has largely tanked world metal prices, causing strife for the ASX
• Global tourism is US$130bn worse off with Chinese tourism still depressed

And if the Chinese economic story isn’t clear for what it is based on these indicators alone, listen to this.

China “uninvestable”: BNY Mellon’s Alicia Levine

Overnight, Bank of NY Mellon (BNY Mellon) Investment Strategy chief Alicia Levine said that she believes China is “uninvestable”.

According to Ms Levine, BNY Mellon has “taken all of [its] clients out of China”, because the jurisdiction is too risky.

She reiterated that there are probably some opportunities they’re missing, but that right now, there are better emerging markets to go to. She probably meant India.

BNY Mellon wants more certainty from the Chinese government that it will, and can, protect foreign direct investment (FDI), let alone foreigners’ Chinese share portfolios.

Ms Levine isn’t alone in her sentiments.

Bank of America Securities head of Asia Pacific materials and energy research Matty Zhao said on Monday that China’s construction sector has at least two years of trouble ahead, particularly with a view towards ensuring construction materials keep flowing.

She also sees new property falling by as much as 15 per cent in 2024 and Chinese oil demand growth to reach an upper limit of only three per cent.

That doesn’t really bode well for a Chinese 2024 economic recovery, and Zhao went on to note that China’s government only wants to build 1000km of new rail this year, after building out 3000km in 2023.

This resonates with comments from Grow Investment Group’s (GIG) Asia analyst Hao Hong in early 2024.

If you’ve made it this far, I’ve got one big takeaway for you: ASX upside through 2024 is going to be a Federal Reserve story, not a China story.

I’ll be keeping my eye on it.