Take Doklam, but give us Nifty! China goes green in envy over red-hot Indian stocks

The Nifty50 is the source of a bigger grudge for the Chinese than Doklam, or so it seems!

More than a month into the eyeball-to-eyeball standoff between the two armies, Chinese media is suddenly talking a lot about the impressive 20 per cent year-to-date surge in India’s Nifty index, which has just zipped past the 10,000 mark.

Chinese people on social media are talking more grudgingly about the Nifty’s stellar show this year than the tense war of words between the two nuclear powers over Doklam, a narrow plateau lying in the tri-junction region of Bhutan, India and China. It is a disputed territory claimed by both Bhutan and China and India and China are engaged in a tense standoff in this dispute.

The People’s Daily newspaper on July 26 cited intensive discussions on Chinese social media as to why China’s A-share market has not been able to perform as well as its neighbour’s equity market.

A-share stocks of mainland China-based companies are traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. These shares are quoted in the renminbi and can only be traded by either Chinese or investors under the Qualified Foreign Institutional Investor (QFII) and the Renminbi Qualified Foreign Institutional Investor (RQFII) rules.

The Shanghai Stock Exchange’s A-share index is up just 5 per cent so far this year, which pales in comparison with the 22 per cent surge in India’s 50-stock benchmark. This happened despite the MSCI decision to add mainland China-A largecap stocks in the MSCI Emerging Market index.

An article in China’s Global Times noted that stock market is a mirror of an economy, and thus, the divergent stock market performances in China and India actually reflect the different focuses of the two economies in the years to come. It said gains by the Indian benchmarks left the Chinese mainland stock markets in the dust.

In May this year, Moody’s Investors Service downgraded China’s credit ratings for the first time in nearly 30 years. It cut China’s long-term local and foreign currency issuer ratings by one-notch to A1 from Aa3.

Acknowledging dramatic changes since 2014, the daily noted that turmoil in China’s A-share market spooked investors in 2015, even as the government stressed on tightening financial regulations to prevent risks and deleveraging and eliminate bubbles.

In 2015, in order to halt a plunge in Chinese stocks, Beijing’s securities markets regulator had ordered shareholders with more than 5 per cent holdings from selling shares for six months.

The Chinese authorities have also taken steps to bring stability in the domestic stock market. In January this year, the China Insurance Regulatory Commission (CIRC) restricted insurers from investing no more than 5 per cent of total assets at the end of the previous quarter in a single stock.

Taking a positive view of Prime Minister Narendra Modi’s ‘aggressive’ approach on policy reforms, the daily noted that encouraged by the implementation of demonetisation and the goods and services tax, besides easing of foreign direct investment regulations, foreign portfolio investors have begun to warm up to Indian stocks.

“Expectations of an interest rate cut (by the Reserve Bank of India) and robust economic growth have also enhanced investor confidence in Indian equities,” it noted.

The IMF recently said that India would stay ahead of China in terms of growth in 2017 and 2018 with GDP growth of 7.2 per cent in 2017-18 and 7.7 per cent in 2018-19 compared with China’s 6.7 per cent in 2017 and 6.4 per cent in 2018.

The Global Times article talked about need for restoration of confidence in China’s stock markets and prevention and reduction of systemic risk in the system.

By: ET

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