Weekly Market Update

India Surpasses China in MSCI Index

India has overtaken China as the largest weight in the MSCI Emerging Markets Index, reflecting its growing economic strength. While India’s economy surges, China faces challenges, including a volatile property market and weakening consumer confidence.

30 September 2024 5 min read

Dane Smith

Head of North American Investment Strategy & Research

Two of the largest emerging markets have taken very different paths, echoing their economic and demographic divergence. For the first time, India recently overtook China as the largest weight in the MSCI Emerging Markets IMI Index, which is an index composed of small, mid, and large cap companies. While this achievement highlights India’s rising prominence and investor confidence, it also points to deeper economic challenges China is currently facing.

India is the world's fastest-growing major economy and remains on track to overtake Japan and Germany to become the world's third-largest economy by 2027¹. India’s nominal GDP growth rate is running in the low teens, more than thrice the economic growth in China, generating a profound divergence in earnings growth.

In contrast, China’s reduced weight in the index partly stems from a mix of economic and structural challenges. China’s property market (which accounts for nearly 30% of GDP) remains the primary source of volatility as home prices remain unstable. This, paired with frictions with major trading partners and years of abrupt domestic policy changes, has led to more muted economic growth than observed in the past. Consumers have pulled back on spending, as retail sales remain weak with consumer confidence near all-time lows. However, last week, China cut interest rates and bank reserve requirements in an attempt to support the economy. We don’t think these measures alone will be enough to turn around the situation; however, the acknowledgement and attempt may improve short term sentiment. The question remains whether they will follow through with further support — enough to boost the local consumer.

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