CHINA’S PAIN IS INDIA’S GAIN AS FOREIGN FUNDS ESCAPE TO MUMBAI

MUMBAI — The tumult in China’s stock markets has turned into a blessing for Indian shareholders.

International investors are pulling out of China, fuelling 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 worldbeating seven 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 hedge fund Alexander Alternative Capital. The $2 trillion economy, which got a fresh boost from tumbling crude prices this month, is less exposed than its emergingmarket peers to slowing growth in China, Aquarius Investment Advisors says.

“The recent travails in China make India seem like an oasis of calm in terms of volatility,” Jonathan Schiessl, the head of equities at the UK-based Ashburton Investments, which oversees $12 billion, said in an e-mail. The fund has cut its exposure to China by one 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 January 29 through June 12, making it the world’s worst performer after Egypt.

India’s economy expanded 7.5 per cent in the March quarter, beating China’s seven 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 Franklin Templeton Templeton Investments. 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 UK 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 Sukumar Rajah, who manages about $9 billion as chief investment officer of Asian Equity at Franklin Templeton in Singapore.