Indian public equities are firm favorites over Chinese A-Shares among sovereign investors, although there is a wide difference with the Abu Dhabi Investment Authority (ADIA) increasing its Chinese holdings - becoming the fifth ranked Qualified Foreign Institutional Investor (QFII) this year - and Singapore’s GIC’s preferring India, according to the latest research by Global SWF.

Analysis of shareholdings reveals that in China, Norges Bank (NBIM) is the leading state-owned investor in A-Shares on behalf of Norway’s Government Pension Fund Global (GPFG), which are traded in mainland stock exchanges. At end-Q221, NBIM had invested around US$2.2 billion in A-shares, ahead of ADIA with US$1.6 billion and Singaporean funds GIC and Temasek which each held US$1.2 billion.

In contrast, GIC leads public equities investment in Indian markets with US$14.7 billion of stocks, more than twice NBIM’s US$7.2 billion. KIA also has a clear penchant for Indian public equities with holdings totalling nearly US$1.2 billion, which is double its Chinese holdings. Temasek has a fairly balanced approach to both markets, with US$1.2 billion in China and US$1.1 billion in India. While not the biggest public equities in either market, Canadian public pension funds have also preferred Indian stocks over Chinese A-shares. Market data show that at end-Q221, CPP Investments had US$3.5 billion of Indian stocks compared to US$0.2 billion of Chinese shares, while CDPQ had US$0.8 billion compared to US$0.5 billion.

Trends over the past five years show significant growth in both markets, although GIC and CPP Investments made major cuts to their exposure to Chinese A-Shares over H121, possibly in response to regulatory clampdowns. In the Indian market GIC raised its Indian shareholdings by 20% compared to a 27% cut in China. CPP reduced its Indian exposure by 13%, but made far bigger cuts in its Chinese holdings of 88%.

The trends matches overall market trends which saw Chinese equities experience a bear market while Indian stocks reached new highs despite the impact of a resurgence of Covid-19 infections in Q221. Contrasting fortunes appears to have led to some rotation of capital, particularly in light of the regulatory crackdown on big tech which wiped out over US$1 trillion from mainland Chinese stocks. India and China have tended to trend in opposite directions with Indian stocks focused primarily on domestic markets or software exports. In India, retail investment growth coupled with the depth of the market have provided foreign investors with an alternative destination for public equity investments.

However, this is not a uniform trend among SOIs. ADIA has boosted its Chinese holdings by a third while at the same time cutting its Indian holdings by a similar amount. KIA and NBIM have also increased their holdings in both markets, although the size of the increase is relatively small.

While there has been some short-term divergence, Global SWF analysis indicates that whatever happens in the Chinese market, there is a secular trend towards increased exposure to Indian equities. This could all change and with China and India seeing almost inverse correlation, we could see SOIs plough more back into China. However, the prospect of big IPOs on the Indian market will see SOIs convert private market investments into public equities, which could see a range of funds ramping up their Indian public equity exposures, particularly Temasek which has been a strong supporter of Indian venture capital.

Related funds ADIA CDPQ CPP GIC KIA NBIM Temasek
Related tags India China Equities