Even the iShares China Large Cap Index has rallied 20% off its January lows.
You get the point. China is red hot.
With price action like this, you might start to wonder, “where is all the money coming from!?”
And the answer is probably a lot of places. Who knows.
But one area that has definitely become a source of funds for new China bulls… is India.
This is a ratio chart of Chinese stocks vs Indian stocks, and it is flashing a textbook trend reversal in favor of China.
The relationship had been skewed toward India in a big way up until last year. In fact, Indian stocks have been outperforming China aggressively for almost a decade now. This all began back in 2016, so investors and asset managers have fled China for India for a long time now.
Just back in 2020, China made up 40% of Emerging Markets exposure. Today that number is less than 25%. Meanwhile, India has grown from a miniscule allocation to almost 20% today.
I love this chart from Todd Sohn. It really shows the drastic shift in allocation over the years.
When we pair this information with the relative trend reversal and massive valuation gap between these countries (India is among most expensive while China is among cheapest in terms of CAPE ratio), I think the takeaway is simple.
Investors are favoring China over India again. And it’s been such a long time since this happened, there is an ample runway and lots of capital that is likely to fuel further gains in Chinese stocks for years to come.
When China outperforms, they really outperform.
I’m looking for big leadership over the long-term, and I’m looking for some of it to be funded by India.
We’ve been selling quick doubles and getting long as many Chinese stocks as we can via our Breakout Multiplier system. As long as it keeps working, we’re going to keep doing it.
