Which economic giant should emerging markets investors go for: China or India? Chinese stocks have done poorly this year. Hong Kong’s Hang Seng index has plummeted around 12% in the year to date, while the Shenzhen Component is down over 9%. A real estate crisis continues to afflict the country. India’s Nifty 50, on the other hand, is up 6.8% this year so far. CNBC Pro spoke to experts to ask which is the better market to invest in — beyond recent market moves — and found that they were overwhelmingly in favor of India. Here are the reasons and stock picks they gave. Why India instead of China? India is the “best structural growth opportunity” in emerging markets, according to Malcolm Dorson, head of emerging markets strategy at Global X ETFs. “Not only does it boast the largest population in the world (offering a strong demographic dividend), but this is the largest democracy in the world,” he said. In a Nov. 5 note, Morgan Stanley wrote that “India offers the best domestic demand alpha opportunity within Asia and one of the best structural stories over the medium term globally.” China still boasts a strong structural story — especially in consumption — but the Chinese Communist Party leadership’s “unpredictable” decisions have hurt market confidence, Dorson said. Quincy Krosby, chief global strategist for LPL Financial, added, “The situation in China has been exacerbated by the deteriorating property market, which was built on debt and which constituted approximately 25% of China’s overall economy.” In addition, though Beijing has been trying to boost the economy through targeted monetary stimulus, the sluggish economy appears to require “broader and more viable” stimulus, Krosby said. “The popularity of India as a market has been highlighted as an antidote to the tightly controlled Chinese economy,” he said. LPL Financial’s chief technical strategist, Adam Turnquist, added that India has emerged as an increasingly attractive alternative to China. He added that the key reasons India has performed better than China are its significant infrastructure spending; its growing population and robust, young workforce; and the manufacturing shift away from China. “While we may not go as far as officially calling India the new China, the economic and technical trends suggest the country may be set for a prolonged period of outperformance,” he said. China’s economy is more than five times larger than India’s, but China’s long-term growth potential has been fading for some time, said Alejandra Grindal, chief global economist at Ned Davis Research. “Its demographic outlook is fading, while productivity will be held down by numerous factors, including high debt and deglobalization,” she said. India, on the other hand, has “ample room for economic catch-up.” Rahul Sen Sharma, president and co-CEO of Indxx, pointed to India’s changing demographic — its middle class is growing, and rising demand and consumption are fueling the country’s robust growth. Where and how to invest in India Investors could go for the “booming areas” in India — renewables such as hydrogen and solar energy, as well as agricultural tech, according to Sharma. “The ambitious renewable energy targets set by India … offer a favourable climate for investors,” he wrote. Solar energy investments, in particular, are “very profitable,” thanks to abundant sunlight in the country throughout the year, government incentives and falling equipment costs, he said. Dorson of Global X ETFs said he’s favoring consumer names that should benefit from stimulus ahead of the next election. He likes “high quality” staples such as Hindustan Unilever and Nestle India , which he expects will benefit from improving income levels and more education. To tap the trend of higher-end consumption, Dorson likes jewelry company Titan Jewelry. Similarly, LPL Financial’s Krosby has a preference for the consumer segment. “India enjoys a growing middle class and companies that focus on the broad set of consumer discretionary spending are interesting to investors. Similarly, smaller companies that provide health-related and a broad range of consumer staples are also a target for investors,” he said. On the whole, however, India is a difficult market to access, and most retail investors would buy such stocks through exchange-traded funds, according to the experts. But both Krosby and Dorson would advocate active management in emerging markets such as India, given political and economic complexities, among other reasons. Dorson likes the structure of active ETFs. “[It offers] the cost, liquidity, and transparency of an ETF with the thoughtful process, on-the-ground research, and risk management of an active fund,” he said. His firm offers one such ETF, the Global X India Active ETF. Here are 10 top-rated India-focused funds accessible to international investors, according to Morningstar.
