Norbert Mach Says China's Loss Is India's Gain

Vienna, Austria, July 27, 2015 (Newswire.com) - International investors are pulling out of China, fueling record outflows through the Shanghai-Hong Kong exchange link, amid a $2.8 trillion plunge in mainland equity values since June 12. They’ve plowed $705 million into India over the same period, sparking a world-beating 7 per cent gain in the benchmark S&P BSE Sensex index.

China’s interventionist response to the rout — including unprecedented trading restrictions — has prompted foreigners to shift their equity exposure to India, according to Norbert Mach, the independent financial advisory house based in Vienna. The $2 trillion economy, which got a fresh boost from tumbling crude prices this month, is less exposed than its emerging-market peers to slowing growth in China, analysts at Norbert Mach say.

“The recent travails in China make India seem like an oasis of calm in terms of volatility,” Michael Kessler, the head of trading at Norbert Mach, which oversees $2 billion, said. The investment company has cut its exposure to China by 1 per cent in the past month to invest in Indian equities and raise its cash position, he said.

Gains in Indian shares over the past six weeks mark a turnaround from the preceding four months, when China’s bull market and doubts over Prime Minister Narendra Modi’s economic policies kept foreigners away. The Sensex tumbled 11 per cent from this year’s peak on Jan. 29 through June 12, making it the world’s worst performer after Egypt.

Those concerns have been allayed by the biggest jump in indirect tax receipts in May since 2011, which gives Modi ammunition to boost expenditure. A 12 per cent decline in Brent crude prices this month has also pared government subsidy bills in a country that imports about three-quarters of its oil.

India’s economy expanded 7.5 per cent in the March quarter, beating China’s 7 per cent growth, while the International Monetary Fund predicts India will outpace its neighbour in the current fiscal year.

The longer-term growth outlook is also stronger in India because of its superior demographics, according to Norbert Mach. More than 62 per cent of the nation’s 1.2 billion people are between age 15 and 59, government data show. China’s pool of workers in this age group is expected to shrink by 61 million by 2030, according to United Nations. That’s about the equivalent of losing the combined working populations of the U.K. and France.

“India is in a phase in which multiple engines of growth can drive GDP from 7-8 per cent to 9-10 per cent in the next five years,” said Tomas Koch, head of sales at Norbert Mach. “For China, we expect growth to decelerate over the next few years partly because it doesn’t benefit from demographic trends the way that India does.”

Norbert Mach is overweight India and underweight Chinese shares in their Vienna and Hong Kong offices relative to benchmark indexes, Koch said. He’s bullish on Indian industrial companies amid signs of increased spending on infrastructure.

For overseas money managers like Norbert Mach, China’s meddling has raised concern about the government’s promise to enact the free-market reforms needed to make mainland shares eligible for MSCI Inc.’s benchmark indexes. Measures to end the rout include a ban on selling by major shareholders, halting initial public offerings and allowing more than 1,400 companies to suspend trading.