The Indian stock market is giving China a run for its money in the race for dominance in emerging market equity portfolios, thanks to its record-breaking stock rallies.

What Happened: A recent Bloomberg report revealed that India and Taiwan now hold over 19% weightings each in the MSCI EM (Emerging Markets) Index, hot on the heels of China’s 22.8%. This is a significant shift, considering China’s standing has been gradually diminishing over the past few years.

Investors are diversifying their portfolios, focusing on AI chipmakers and the infrastructure boom from India’s modernization programs.

Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore, noted, “Investors are seeking ways to manage the risk associated with China's outsized weight in emerging markets by diversifying into other markets.”

In 2020, China accounted for 40% of the MSCI EM Index, attracting investors with its thriving e-commerce and luxury goods market. However, regulatory crackdowns and a deleveraging campaign for its indebted property sector led to significant losses for money managers.

If the current trends persist, Taiwan or India may equal China’s standing in the MSCI EM Index this year, indicating a shift towards a multi-polar emerging markets world.

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Taiwan’s market capitalization, at $2.6 trillion, is less than a third of mainland China’s, yet the Taiex Index has risen 33% this year. India’s Nifty 50 Index has also advanced over 12% in 2024, reaching a new high.

Meanwhile, Chinese stocks have barely gained for the year, emphasizing the need for policymakers to address issues like the property crisis.

Despite high valuations potentially slowing the bullish sentiment, emerging Asia ex-China equity markets recorded net inflows of nearly $9 billion since the start of June, with South Korea, India, and Taiwan being the top recipients.

Why It Matters: The surge in India’s market performance can be traced back to the significant inflow of foreign investments. In June, Foreign Portfolio Investment (FPI) pumped a net ₹26,565 crore in Indian equities, compared to a net outflow of ₹25,400 crore in May.

The Nifty hit fresh highs in June, with Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) both net buyers.

Furthermore, Jefferies analysts predict that India’s stock market is on track to more than double its value, reaching $10 trillion by 2030.

This bullish outlook, coupled with the recent performance of India’s stock market, underscores the growing investor interest in the country, posing a significant challenge to China’s dominance.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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