The stock market value of India has recently eclipsed that of Hong Kong, solidifying its position as the seventh largest stock market in the world. With the National Stock Exchange of India’s market capitalization standing at $3.989 trillion, slightly trumping Hong Kong’s $3.984 trillion, India’s economic potential appears increasingly promising. This accomplishment comes as no surprise, as the country’s Nifty 50 index continues to break records, with a notable 16% increase so far this year. This consistent growth trend places India well on its way to achieving eight consecutive years of gains. In sharp contrast, Hong Kong’s benchmark Hang Seng index has experienced an 18% decline year to date.
India’s success within the Asia-Pacific region can be attributed to a variety of factors. One such factor is increased liquidity, which has stimulated the market and bolstered investor confidence. Furthermore, greater domestic participation has fortified the Indian stock market, while concurrently benefiting from the global macro environment’s favorable dynamics, such as the decline in U.S. Treasury yields. These combined forces have propelled India’s stock market performance, solidifying its reputation as a stand-out market in the region.
As India heads into general elections next year, analysts are predicting another victory for the ruling nationalist Bharatiya Janata Party. The favorable outcome of the general elections could potentially trigger a bullish run in the first few months of the year due to market expectations of policy continuity. HSBC strategists have noted in a client note that for the general election, opinion polls and recent state elections indicate a decisive win for the incumbent government. This projection further instills confidence in India’s stock market and solidifies its position as an attractive investment opportunity.
HSBC has identified several sectors that are expected to perform well in the coming years. The banking, healthcare, and energy sectors are deemed as the best positioned for future growth. Additionally, sectors such as autos, retailers, real estate, and telecoms are expected to be relatively well positioned in 2024. However, HSBC has classified fast-moving consumer goods, utilities, and chemicals as unfavorable sectors.
On the contrary, Hong Kong’s Hang Seng index has experienced a decline for four consecutive years and currently stands as the worst performer among major Asia-Pacific equity markets. Moody’s recent downgrade of Hong Kong’s outlook from stable to negative has further exacerbated the downward trend. The city’s financial, political, institutional, and economic ties to mainland China have contributed to this downgrade. Furthermore, China’s reduced government credit ratings have compounded Hong Kong’s challenges.
The Hong Kong government has lowered its GDP growth outlook from an initial forecast of 4-5% to a more modest 3.2% in 2023. Geopolitical tensions and restricted financial conditions continue to take a toll on investments, goods export, and consumption sentiment. In addition, consumer confidence in Hong Kong has suffered as a consequence of these circumstances.
Economists at DBS predict that Hong Kong’s economy will experience a soft landing in 2024, with an expected annual real GDP growth of approximately 2%. The revival of mainland tourism is expected to fortify the retail and catering sectors, acting as a catalyst for Hong Kong’s economic recovery.
Meanwhile, China has set a growth target of 5% for 2023, and with third-quarter GDP coming in at 4.9%, there is hope that the world’s second-largest economy may meet or even surpass these expectations. As India continues its steady ascent, Hong Kong faces significant challenges. The divergent paths of these two economies emphasize India’s emerging strength as a global player and a desirable destination for investors.
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