China wrestles back top spot from India in MSCI Emerging Market IMI index

China has stayed on top for two consecutive months in the MSCI Emerging Markets Investable Market Index (EM IMI), after ceding the position to India in August.

At the end of October, China’s weight in the key EM gauge stood at 24.72 per cent, up from 21.58 per cent at the end of August.

India’s weight during this period has slipped to 20.42 per cent from 22.27 per cent.

The change in the pecking order comes amid a sharp rally in Chinese equities fuelled by aggressive stimulus measures by Beijing to support the economy.

Meanwhile, record foreign outflows, coupled with earnings disappointment, have taken some wind out of India’s sails.

From its September lows, the Shanghai Composite Index has rallied over 25 per cent, while India’s benchmark S&P BSE Sensex is down 8 per cent from its peak in September.

When it comes to the MSCI All Country World IMI (ACWI IMI), China reclaimed its fifth spot. In August, it had slipped to seventh place behind France and India.

China’s weight at the end of October in the MSCI ACWI IMI stood at 2.67 per cent, up from 2.24 per cent at the end of August.

India and France are close sixth and seventh on the ACWI IMI.

India’s overtaking of China in August in both the MSCI EM IMI and the MSCI ACWI IMI — while not a major development from a flow perspective — was still considered a big achievement, given the domestic markets are less than half the size of its neighbour’s.

The IMI, an offshoot of the standard EM gauge, also includes stocks in large, mid, and smallcap indices, while the standard index is restricted only to large and midcaps.

The MSCI EM IMI is tracked by passive funds with lower assets under management (AUM) compared to the standard MSCI EM Index.

While the MSCI EM Index has around $500 billion in AUM, the MSCI EM IMI’s AUM is substantially lower.

In the MSCI EM Index, China’s weight is substantially higher at 27.38 per cent compared to India’s 18.84 per cent.

Interestingly, Taiwan has edged past India in the main index, with a weight of 19.05 per cent at the end of October.

Currently, India’s total market capitalisation (mcap) is $5.27 trillion, while China’s is over $12 trillion.

Global index providers like MSCI consider the mcap held by non-promoters and freely available for trading.

Also, the investment legroom for foreign portfolio investors is a key consideration when formulating the weighting.

Over the past decade, the sharp rally in domestic equities, coupled with improved access for foreign portfolio investors, has seen India’s weight increase in most global indices.

India’s share in global mcap jumped to 4.3% on November 4, from a low of 1.6 per cent in 2013, making it the second-highest among EMs.

Further, India’s rank in global mcap rose to 5th from 17th in 2004 and 10th in 2014. India’s mcap has now reached levels comparable to those of the US market in the early 1990s, China in 2014, Japan in 2015, and Hong Kong in 2017.

Additionally, “India’s weight in the MSCI EM Index briefly surpassed that of China in September 2024, rising to 22 per cent from 7 per cent in 2014.

"However, after the recent rally, China has regained its leadership position, while India has slipped a bit post its recent correction,” observed a note by Motilal Oswal.

A note by Morgan Stanley on November 10 said it now expects Asia’s total mcap to rise to $40.9 trillion by 2027, down from earlier estimates of $55.5 trillion.

“That will still mean it rises in a decade by $12.4 trillion.

"Growth has been — and is likely to remain —fastest in India, where we now expect the mcap to be around $6.2 trillion in 2027, almost treble the 2017 level.

"In contrast, growth has been slower than we had expected in China/Hong Kong and is now expected to reach $18.5 trillion by the end of 2027,” Jonathan Garner, chief Asia and EM strategist at Morgan Stanley, wrote in a note.