MUMBAI: India pipped Hong Kong to become the fourth-largest equity market in the world based on Monday’s market capitalisation driven by consistent selling pressure on Chinese stocks as earnings prospects eroded. India’s total market capitalisation rose to $4.33 trillion after a gain of more than $130 billion so far in 2024 while market value of Hong Kong compressed by over $1 trillion in the past 12 months to $4.29 trillion, based on the closing market-cap on January 22, data from Bloomberg showed.
Several overseas institutional investors have pruned exposure from Hong Kong H shares and reallocated to other Asian countries given a rising relative risk of China owing to trade spat with the US, Taiwan conflict, and moderating local economy.
India is expected to benefit from this reallocation. It offers the fourth-largest number of companies at 173 with market capitalization more than $5 billion and fourth-highest liquidity, with 259 stocks having daily average trading value of over $10 million, according to Goldman Sachs.
India’s market capitalisation is $2 trillion lower than that of Japan – the third-largest equity market with the market value of $6.35 trillion. The US and China are the top two markets at $50.86 trillion and $8.43 trillion in the same order.
The gap between the market caps of India and Hong Kong was $1.5 trillion a year ago. During the period, Indian equities gained 26% while their Hong Kong counterparts lost 32%. Over the past year, the Indian benchmark Nifty 50 index has gained 19% whereas the Hong Kong benchmark Hang Seng index lost 31% and dropped to the lowest in 14 months. The market value of Hong Kong has plummeted by 40% from the peak of $7.7 trillion in February 2021 when the market cap gap between the two countries was nearly $5 trillion.
The Hong Kong market is home to influential and innovative Chinese companies with oversight of Chinese regulations that has resulted in higher participation by the global investors over the years. This is the key reason Chinese stocks trading in Hong Kong are perceived to be a better indicator of the world’s second largest economy and a reflection of investor sentiment.
The prospects of Hong Kong shares have been diluted by China’s creaking economy driven by sizable downward revision pressure on corporate earnings.
No Wonder, the Hang Seng China Enterprise Index—a gauge to mainland securities listed on Hong Kong—dropped to the lowest in two decades.
The Hong Kong market rebounded by 3% on Tuesday after reports of the government’s plan to mobilize $278 billion from offshore accounts of Chinese state-owned companies to buy shares onshore through the Hong Kong exchange link. Indian benchmark indices on the other hand lost around 1.5% on Tuesday.
With inputs from Bloomberg
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