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China's has stayed on top for two straight months in the MSCI Emerging Market Investable Market Index (MSCI EM IMI) index, after ceding the position to India in August.
At the end of October, China’s weight in the key EM gauge stood at 24.72 per cent, up from 21.58 per cent at the end of August. India’s weightage during this period has slipped to 20.42 per cent from 22.27 per cent.
The change in the pecking order comes amid a sharp rally in China equities fuelled by aggressive stimulus measures by Beijing to support the economy.
Meanwhile, record foreign outflows coupled with earnings disappointment have taken some winds out of India’s sails. From its September lows, the Shanghai Composite Index has rallied over 25 per cent, while India’s benchmark Sensex is down 8 per cent from its peak in September.
When it comes to the MSCI All Country World IMI (ACWI IMI) index, China reclaimed its fifth spot. In August, it slipped to seventh place behind France and India. China’s weight at the end of October in the MSCI ACWI IMI index stood at 2.67 per cent, up from 2.24 per cent at the end of August. India and France are a close sixth and seventh on the ACWI IMI index.
India’s overtaking of China in August both in the MSCI EM IMI and the MSCI ACWI IMI --while not a major development from a flows perspective -- was still considered a significant achievement given the domestic markets are less than half that of the neighbour.
The IMI index, an offshoot of the standard EM gauge, also has representation of stocks in large-, mid- and small-cap indices, while the standard index is restricted only to large- and mid-caps.
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MSCI EM IMI index tracked by passive funds with significantly lower assets under management (AUM) compared to the standard MSCI EM index. While the MSCI EM index has approximately $500 billion in AUM, the MSCI EM IMI's AUM is substantially lower.
In the MSCI EM Index China’s weightage is substantially higher at 27.38 per cent compared to India’s 18.84 per cent. Interestingly, Taiwan has edged past India in the main index with a weight of 19.05 per cent at the end of October.
Currently, India’s total market cap is $5.27 trillion, while that of China is over $12 trillion.
Global index providers like MSCI, take into consideration that market cap that is held by non-promoters and is freely available for trading. Also, the investment legroom for foreign portfolio investors is a key consideration while formulating the weightage.
Over the past decade, the sharp rally in domestic equities coupled with improved access to FPIs has seen India’s weightage jump in most global indices.
“India’s share in global market capitalisation jumped to 4.3 per cent in November 4 from the low of 1.6 per cent in 2013, making it the second highest among emerging markets. Further, India’s rank in global market capitalization scaled up to 5th from 17th in 2004, and 10th in 2014. India’s market capitalisation has now reached levels comparable to those of the US market in the early 1990s, China in 2014, Japan in 2015, and Hong Kong in 2017.
Additionally, India’s weightage in the MSCI EM Index had briefly surpassed that of China in September 2024, rising to 22 per cent from 7 per cent in 2014. Although, after the recent rally, China has again assumed its leadership position, while India has slipped a bit post its recent correction,” observed a note by Motilal Oswal.
A note by Morgan Stanley on November 10 said it now expects Asia’s total mcap to rise to $40.9 trillion by 2027, down from earlier estimates of $55.5 trillion.
“That will still mean it rises in a decade by $12.4trn. Growth has been and is likely to remain fastest in India, where we now expect market cap to be around $6.2trn in 2027, or almost triple the 2017 level. In contrast, growth has been slower than we had expected in China / HK and is now expected at $18.5trn by end-2027,” Jonathan Garner, Chief Asia & Emerging Market Strategist, Morgan Stanely wrote in a note.