China may have just lost its best chance of catching up with India in the stock market.
The CHART OF THE DAY shows India’s S&P BSE Sensex index has climbed 387 percent in the past decade, about 13 times more than the Shanghai Composite Index. Indian shares outperformed even as the nation’s economic growth lagged behind China’s in all but one quarter since 2005, as the lower panel shows.
While China bulls say its one-party political system has led to more efficient capital allocation and faster economic growth than India’s democracy, that advantage may diminish after Narendra Modi swept to power with the biggest electoral victory in 30 years. The Sensex climbed to a record yesterday on optimism the incoming leader’s mandate will allow him to fast-track investments and bolster growth, while the Shanghai measure slumped to within 3 percent of a five-year low.
“Markets are giving a thumbs up to the prospect of India being governed a little bit more like China under Modi,” Jonathan Schiessl, an Asian equities specialist at Ashburton Investments, which manages $10 billion, said from Jersey in the Channel Islands. Indian companies also tend to be “better managed with better governance” than their Chinese counterparts, he said.
India’s equity market may have “struck gold” after the victory by Modi’s Bharatiya Janata Party, Citigroup Inc. wrote in a note May 16, while Jim O’Neill, former chairman of Goldman Sachs Asset Management who writes for Bloomberg View, said the nation has the potential to grow about 10 percent annually for the next 20 years if Modi pursues the policies he’s promised.
The Sensex has climbed 15 percent this year to the highest level since 1994 versus the Shanghai measure, which has slumped 5.2 percent in 2014. China’s biggest non-bank stocks may extend this year’s drop to 20 percent as profits fall, according to UBS AG. Modi’s BJP is returning to power for the first time since 2004, while the Communist Party has ruled China since 1949.