Chinese stocks to outperform Indian peers next year: UBS

UBS analyst said Chinese market is ready to perform when the tide turns

China's stock market is expected to outperform the Indian market next year due to lower valuations posing the potential for upmove once positive sentiments arrive, a Bloomberg report said citing Sunil Tirumalai, UBS global emerging market strategist.

The UBS report’s stance is contrarian to the negative stance on China among major brokerages. Goldman Sachs had downgraded China shares trading in Hong Kong even though they said China had one of the “best structural growth prospects in the region.”

According to Tirumalai, the Chinese markets have already priced in all the negatives and will have a sharp rebound when the catalysts arrive.

He also pointed out that increasing stimulus measures from the Chinese government and improving geopolitical tension can provide a positive push to the Chinese markets.

Meanwhile, he said valuations for Indian shares are already expensive and will struggle to maintain the growth. He added that India’s earning growth will be ordinary compared to other emerging markets in the next couple of years. India’s “macro is looking good but the micro isn’t really so strong”, he said.

Indian equities are trading at 20 times their forward earnings estimate while China is trading at 9.5 times, showing the rich valuations of Indian stocks.

Tirumalai further drew attention to the possibility that there will be a slowdown in retail participation in Indian markets next year. According to National Stock Exchange’s data, individual investors bought Rs 11,000 crore worth of stock on a net basis in 2023 till September, which is lower than last year’s figure where they invested Rs 1 lakh crore.