Is China’s recovery a riskier bet than India’s boom? Maybe not

Hardly a day goes by without comparisons being drawn between India and China. Such contrasts are invariably inapt and misleading. Not only is India’s economy one-fifth of China’s, the structure of the two economies and the nations’ development paths and political systems are vastly different.

Yet the diverging fortunes of India and China over the past several years raise important questions about the future drivers of global growth as well as the right investment strategies in emerging markets.

Nobody is suggesting India will catch up with China any time soon. However, even a cursory glance at India’s projected growth – annual economic output of more than 6 per cent for at least the next five years and a weighting in the benchmark MSCI emerging market equity index rising from the current 18 per cent to 23 per cent by 2033 – suggests it could supplant China as the largest contributor to global growth.

Global investors remain bearish on China. In Bank of America’s latest Asia fund manager survey, published on March 19, a net 18 per cent of respondents had an underweight position in Chinese stocks, the biggest net underweight stance in the Asia-Pacific region. Last year, China accounted for just one-fifth of foreign institutional investment in Asia’s equity markets excluding Japan, data from HSBC shows.

According to a report by Barclays last September, India could overtake China as the biggest contributor to global growth by the end of the decade if it is able to raise its growth rate closer to 8 per cent. A lot hinges on whether the government “can encourage more rapid growth without compromising India’s hard-won macro stability”, said Barclays.

While China’s downturn is at the top of the list of risks in developing economies,