The race to replace China’s top spot in emerging market equity portfolios is heating up, with Taiwan and India running neck and neck as formidable rivals.
Thanks to record stock rallies, Taiwan and India now command more than 19 percent weightings each in the MSCI EM Index. That compares with China’s 22.8 percent, whose standing has steadily shrunk over the past few years, Bloomberg-compiled data showed.
The rise of Taiwan and India is allowing investors to better diversify by betting on artificial intelligence (AI) chipmakers and the infrastructure boom coming from Indian Prime Minister Narendra Modi’s programs to modernize the country.
Photo: CNA
As the US rate cycle peaks out, having attractive options in emerging markets is fundamental to any pivoting of capital flows.
“Investors are seeking ways to manage the risk associated with China’s outsized weight in emerging markets by diversifying into other markets,” Straits Investment Holdings Pte Ltd fund manager Manish Bhargava said in Singapore.
“Taiwan’s technological prowess, particularly in the semiconductor industry, and India’s growing tech sector and digital economy make them attractive alternatives,” Bhargava added.
At its peak in 2020, China accounted for 40 percent of the MSCI EM Index, with investors attracted by thriving e-commerce to sales of expensive liquor. That heavy weightage cost money managers dearly, with trillions of dollars wiped out as Beijing embarked on regulatory crackdowns and went on a deleveraging campaign for its indebted property sector.
If recent trends hold, Taiwan or India might catch up with China’s standing in MSCI EM this year, marking a shift into a multipolar emerging markets world.
Taiwan’s ascent is all the more notable considering its market capitalization — at US$2.6 trillion — stands at less than a third of China’s. The TAIEX has risen 33 percent this year to become one of the best-performing major benchmarks, bolstered by gains in Nvidia Corp supplier Taiwan Semiconductor Manufacturing Co (台積電).
Meanwhile, India’s NIFTY 50 Index has advanced more than 12 percent this year, hitting a fresh high as Modi promised policy continuity.
That’s in contrast to the sluggishness in Chinese stocks. Benchmarks have barely gained for the year, highlighting an urgency for policymakers to unveil a road map to resolve woes like the property crisis.
Underscoring the trend, the number of EM Ex-China fund launches so far this year is just three short of last year’s annual record, data compiled by Bloomberg showed.
Earnings are a crucial factor behind the allocation preferences. The 12-month forward earnings estimates for the MSCI China Index have barely changed year to date, while those for Taiwan and India have increased by at least 13 percent each.
“EM ex-China looks solid from an earnings angle,” Bloomberg Intelligence quantitative strategist Kumar Gautam said. “The gap between China and EM ex-China earnings revision is at a historical high and China’s earnings revision is too slow to pick up.”
To be sure, valuations can put some brakes on the bullish sentiment. The TAIEX and NIFTY 50 both trade at about 20 times of forward estimated earnings, compared with MSCI China at a little above nine.
Still, money continues to support the shift.
Emerging Asia ex-China’s equity markets recorded net inflows of about US$9 billion since the start of last month, with South Korea, India and Taiwan among the top recipients, data compiled by Bloomberg showed.
Meanwhile, mainland China has seen outflows via the trading links with Hong Kong during the period.
“Tech is eating the world,” Abrdn PLC senior investment director Pruksa Iamthongthong said. “This only compounds with AI, and we see the real winners as Asian tech hardware and semiconductor supply chain names.”
KEEPING UP: The acquisition of a cleanroom in Taiwan would enable Micron to increase production in a market where demand continues to outpace supply, a Micron official said Micron Technology Inc has signed a letter of intent to buy a fabrication site in Taiwan from Powerchip Semiconductor Manufacturing Corp (力積電) for US$1.8 billion to expand its production of memory chips. Micron would take control of the P5 site in Miaoli County’s Tongluo Township (銅鑼) and plans to ramp up DRAM production in phases after the transaction closes in the second quarter, the company said in a statement on Saturday. The acquisition includes an existing 12 inch fab cleanroom of 27,871m2 and would further position Micron to address growing global demand for memory solutions, the company said. Micron expects the transaction to
Vincent Wei led fellow Singaporean farmers around an empty Malaysian plot, laying out plans for a greenhouse and rows of leafy vegetables. What he pitched was not just space for crops, but a lifeline for growers struggling to make ends meet in a city-state with high prices and little vacant land. The future agriculture hub is part of a joint special economic zone launched last year by the two neighbors, expected to cost US$123 million and produce 10,000 tonnes of fresh produce annually. It is attracting Singaporean farmers with promises of cheaper land, labor and energy just over the border.
US actor Matthew McConaughey has filed recordings of his image and voice with US patent authorities to protect them from unauthorized usage by artificial intelligence (AI) platforms, a representative said earlier this week. Several video clips and audio recordings were registered by the commercial arm of the Just Keep Livin’ Foundation, a non-profit created by the Oscar-winning actor and his wife, Camila, according to the US Patent and Trademark Office database. Many artists are increasingly concerned about the uncontrolled use of their image via generative AI since the rollout of ChatGPT and other AI-powered tools. Several US states have adopted
A proposed billionaires’ tax in California has ignited a political uproar in Silicon Valley, with tech titans threatening to leave the state while California Governor Gavin Newsom of the Democratic Party maneuvers to defeat a levy that he fears would lead to an exodus of wealth. A technology mecca, California has more billionaires than any other US state — a few hundred, by some estimates. About half its personal income tax revenue, a financial backbone in the nearly US$350 billion budget, comes from the top 1 percent of earners. A large healthcare union is attempting to place a proposal before
RSS