US Funds Shifting Focus from China to India Amid Economic Concerns and Geopolitical Tensions

Amidst China’s economic challenges and escalating geopolitical tensions, foreign investors in Asia are redirecting their attention from China to India, seeking more stable and promising investment opportunities. Analysts tracking recent Foreign Institutional Investment (FII) trends in Asia highlight this shift, with some investors also considering Vietnam and Indonesia as emerging alternative investment destinations in Southeast Asia.

Investor Sentiment Towards China

Despite Beijing’s efforts to attract overseas funds to bolster its economy, foreign investors are increasingly cautious about China due to several factors. These include an unpredictable property market, weak consumer and business sentiment, and geopolitical tensions. According to HSBC Global Research, US-based Asia-focused funds have been reducing their exposure to mainland Chinese equities and increasing their positioning in India.

Nomura Holdings research cited by Bloomberg revealed that a significant majority of big emerging market funds have an underweight position in Hong Kong and mainland Chinese equities, a trend expected to persist due to ongoing uncertainties.

Economic Challenges in China

China’s economy is facing a slowdown, with the International Monetary Fund (IMF) revising its growth forecast to 5 percent. Factors contributing to this include an aging population, slower productivity growth, and the need for structural reforms. The Economist Intelligence Unit (EIU) projects a more pessimistic outlook for China’s GDP growth, citing fragile consumer sentiment and ongoing challenges in the property sector.

Geopolitical Concerns

Geopolitical tensions, including disputes in the South China Sea and Taiwan, as well as strained US-China relations, are further dampening investor sentiment towards China. Heightened tensions between China and the West create an uncertain environment, making investors cautious about China exposure, according to market experts.

India Emerges as an Attractive Investment Destination

In contrast to China, India is increasingly viewed as an attractive investment destination. With a projected GDP growth rate of 6.5 percent for the 2024–25 fiscal year, India offers promising opportunities for foreign investors. The country’s focus on structural reforms, non-aligned foreign policy, and expanding market size make it an appealing choice for long-term investments.

While India’s net FII flows have been relatively modest compared to China, the country’s growth prospects and investor-friendly policies are drawing increasing attention from international investors. Vietnam and Indonesia are also gaining traction as emerging investment destinations in Southeast Asia, with growth rates forecasted at 5.8 percent and 5 percent respectively by the IMF.

In conclusion, the shifting focus of US funds from China to India reflects evolving investor sentiments amidst economic challenges and geopolitical tensions in the region. As investors seek stability and growth opportunities, India and other emerging markets in Asia are poised to attract greater investment inflows in the coming years.