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China, India stock markets — brothers in development but not twins

July 6, 2009

A lot of comparisons are made between China and India but there are myriad differences between the two developing nations — some wide, some not so wide. It would be a huge mistake to believe the two markets and economies are developing along similar lines, or indeed, behaving in the same way, particularly the financial markets.

Chart 1


Take the respective stock markets. The first chart shows the last decade of both India’s benchmark SENSEX stock index and China’s Shanghai Composite. One thing that is immediately evident is that the Composite outperformed India by a long way in the run-up to the very overblown highs. In fact, using 2005 as a starting point it put on a staggering 380 percent while the SENSEX managed 225 percent over the same period.

When the crunch came, the fall was as dramatic as the rally and both markets collapsed with the Composite dropping to a low 73 percent off the peak and the SENSEX 64 percent.

In terms of investment $100 invested in both markets in 2005 before the respective rallies got underway would today be worth $242 (China) and $228 (India) respectively, not a huge amount of difference between the two in terms of overall performance over the period.

If you look at that return on an annualized basis, it comes in at around 35 percent a year which is an excellent return on capital and long-term investors in either market should have no complaints.

It also compares with Wall Street where the Standard & Poor’s 500 index is actually around 20 percent lower over the same period and the Dow Jones around 15 percent down.

Chart 2


The second chart shows the recovery since the lows with the rally in the Composite looking smooth and constant while the SENSEX rally is noisy and intermittent, not least because of that huge price gap which happened after the Indian election when the ruling Congress Party won a much bigger majority than anyone had expected.

This huge jump reflects one of the fundamental differences between the two markets and that is uncertainty over policy.

China simply has a much more stable policy outlook than India and that is reflected in the price behavior of the two markets.

Despite a degree of uncertainty over Indian policy, both markets are doing very well relative to the world’s developed stock markets as measured by the MSCI World Index of 23 developed stock markets.

SSEC relative


BSESN relative


The third and fourth charts show the stock market’s relative performance since the turn of the year. The Composite is currently outperforming the MSCI World by a very respectable 58 percent, the SENSEX is outperforming by 45 percent but has only really started performing since the election as you can see. Another indication that policy uncertainty has been holding the India market back.

Much of this stock performance of course has a lot to do with how the underlying economies are doing and, in fact, both are not doing so bad considering the dire growth numbers we are seeing elsewhere in the world.

GDP forecasts


If you look at respective Gross Domestic Product(GDP) data, China and India are looking very good indeed. The graphic shows forecasts for this year’s growth and next and it’s clear to see that compared with other developing markets and the world in general China and India are set up pretty well, China much better in fact.

So it’s reasonable to assume that both stock markets will continue to do well, although the China stock markets are on a more solid footing and gains should outpace those of India if past performance is anything to go by and if there are no global upsets to alter the ongoing GDP growth picture.

For regular updates on Technical Analysis for both the India and China stock markets see my website


Well as we all know, China is in a league of its own and shouldn’t be compared to India. The only similarities are that they are two populous countries growing at fairly high rates. But in terms of size and heft India is no comparison and would be compared with Brazil and Mexico.

Posted by Bob Condon | Report as abusive

P/E multiple of Chinese index is high (30%+) compared to < 20% for India’s Sensex. So positives are already priced in. That may mean that Chinese stock market may not really do better than Indian stock market.

Posted by Prakash Hegde | Report as abusive

Wondering how Beijing takes all these Tiger-Dragon/ChIndia/BRIC comparisons?. Does the People’s Daily ever use/comment on these abbreviations, if not, why not?.

But surely this is bound to keep the pressure on New Delhi and ensure that the bar is set high. Good for India.

Cheers to the Dragon & Come on Tiger!!!


In 1968 my father who was a G.o.P. leader in politics was bidding on a defense amd trade deal I was born into a political family that believed in the Bill of Rights and the common good for all of mankind. I fear that the deal went south due too the greed factor.Now regular people have lost their homes and the check and balance of our nation is way out of kilter. There are famlies who are homeless there are children without shoes. we live in a nation that is so rich why? My father was a fireman He saved lives we grew up poor. why can’t people see the suffering of the average citizen? We need our homes we need health care. can anyone see this? our eco system is in a world of hurt caused by the waste and the greed.
It would be nice in the words of Paul Mc Cartney too IMAGINE a world that everyone lived and loved as we should. Lets bring in the New age and keep the promises made to all of mankind.. we all share this world, care about your fellow man, care about the children who will inheirt our earth make peace not war? Get a clue guys U-knighted we stand devided we fall.. calling all angels
Your Hope for the future stands in your hands Make the lives of the united citizens of our fair states and above all Do the right thing give peace a Chance. Deborah HOPE


For those encouraged (by Mr. Smith’s blog) to put money in India, must say the blog is very generous and somewhat inaccurate. Rest assured – There is absolutely no policy uncertainity in India. The government policy is crystal clear – create uncertainty; fudge (and re-fudge) numbers; transfer state assets to select people, etc, etc. So enjoy the show but leave a little early.. once the show is over, there will be a stampede.

Posted by Rajeev Agarwal | Report as abusive

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