Goldman Sachs traders have noted that India's stock market may be vulnerable as China experiences a substantial stock buying spree. Recent data shows a record global fund sell-off from Indian equities. The market currently awaits further policy measures to stimulate economic activity and bolster confidence.
China's stock market has experienced its most significant surge since 2008, capturing global attention. Goldman Sachs has upgraded its outlook for Chinese stocks to "overweight," projecting an additional 15-20% increase. The rising question is whether international funds will redirect their focus toward China. For India, Goldman Sachs has already affirmed this possibility.
Recent statistics indicate a record high net sell-off from Indian stocks by global funds, marking the largest net outflow since at least January 1, 1999. The Nifty index in India fell by 4.5% last week, recording its worst weekly performance since June 2022. According to Goldman Sachs India trader Nikhilesh Kasi, there is clear evidence of funds flowing from India to China.
Kasi pointed out that India holds the second-largest overweight position among emerging markets. He expressed that when China's market sees intense buying, India's market becomes fragile. Notably, foreign institutional investors sold approximately $4.5 billion last week, which was an all-time high for a single week, achieved within just four trading days.
Foreign investors are reportedly selling their most liquid assets to quickly extract maximum liquidity. This intense sell-off, primarily led by long-only strategy funds, has doubled in intensity compared to previous trends.
The market remains in anticipation of further policy developments. While China's stock market has seen an epic short-term rise, it has led to much debate. For instance, in the past month, the Hang Seng China Enterprises Index increased by over 30%, ranking first among more than 90 global indices tracked by Bloomberg.
Invesco's Chief Investment Officer for Hong Kong and Mainland China, Matthew Hui, noted that while market sentiment might be temporarily exaggerated, fundamentals will eventually reign. Due to this surge, some stocks are now overpriced. Similarly, JPMorgan Asset Management remains cautious, emphasizing the need for more policy measures to support economic activities and confidence.
Despite uncertainties in the global economy, including the upcoming U.S. elections, some institutions remain optimistic given the low valuations in China's stock market. Fidelity International's Head of Global Multi-Asset Investment, Matthew Quaife, indicated that the market rally is not yet over, with significant rebalancing yet to occur, particularly from global investors.
