Japanese retail investors are reportedly channeling funds into Indian stocks, anticipating that the South Asian country will emulate China’s economic trajectory.
In January, assets in Japan’s India equity-focused investment trusts surged by 11%, equivalent to $1.6B (£1.18B) or ¥237B, based on Bloomberg data.
After factoring in the gains of Indian stocks in yen terms last month, estimates suggest around ¥140B flowed into Indian equity funds, while Japanese stock funds experienced minimal net inflows, as reported by Bloomberg.
The attraction towards Indian equities solidifies the country’s position as Japan’s preferred emerging stock market, partially attributed to newly introduced tax-free investment accounts this year.
India’s stock holdings outpaced those of other developing economies in the previous year, considering net purchases and asset prices, according to Bloomberg analysis of government data, according to Arabian Business.
Bloomberg reported Daiju Aoki, Regional Chief Investment Officer at UBS SuMi Trust Wealth Management Co. in Tokyo, stating, “Indian stocks are attracting interest as a theme for economic growth, as the next China.” Aoki highlighted that client interest focuses more on India as a whole rather than individual companies.
Conversely, investments in Chinese shares experienced the most significant decline among the 14 emerging markets covered by Japan’s data on international investment positions, including both institutional and retail investors.
This shift in investment from Japan, the world’s largest creditor, occurs as China grapples with a property bubble collapse and deflation, reminiscent of the economic challenges Japan faced for decades.
While India’s Nifty 50 Index remained almost flat in local currency terms last month, it rose by 4.2% in yen, attributed to the depreciation of the Japanese currency. In contrast, the Shanghai Composite Index and the Hang Seng Index fell by 3.5% and 5.7%, respectively, for yen-based investors.
Economists anticipate that India’s year-on-year economic growth will average over 6% until at least the second quarter of 2025, while China’s growth is expected to remain below 5% during the same period. Demographics also favor India, with its population projected to increase by 17% by 2050, compared to a decline of 7.9% in China, according to a United Nations report.