The stupendous success of Chinese AI startup DeepSeek has upended the flow of global funds from emerging markets including India to China or so it seems.
Experts have pointed out that China’s market capitalisation has burgeoned by $1.3 trillion this year alone.
Moreover, India has witnessed Foreign Institutional Investors (FII) outflows of roughly $12 billion this year, a sizeable chunk of which found way to China.
Interestingly, this happens at a time when the Donald Trump administration in the US has imposed an additional 10 percent tariff on Chinese goods.
In this context, the flow of global funds to China indicates growing investor confidence in the Chinese markets and equities.
The Chinese stocks continue to gain traction since Chinese equities are cheaper at 11x price to earnings, which is much lower compared to the Indian stocks.
Nonetheless, China’s lower valuations are due to an array of structural factors including the Dragon’s tight grip over the private sector that often results in unexpected regulatory crackdowns, thus shaking investor confidence.
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Further, strict capital controls restrict foreign investors from free movement of capital in China.
Consequently, even marquee Chinese firms either remain private or list abroad, thus limiting domestic market depth.
However, the fast ageing population and the aftermath of China’s past ‘one-child policy’ are clearly impacting the household savings behavior.
Meanwhile, China’s gross household savings is 35 percent of the GDP vis-a-vis India’s 18 percent.
However, it is also due to the higher income matrix in China. An average Chinese earns 2.4x more than an average Indian in purchasing power parity (PPP) terms; yet saves 5x more than an Indian.
This suggests that despite higher earnings, Chinese households are more risk-averse, prioritising savings largely due to weaker social safety net, uncertain regulatory environment, and concerns about future financial security in an aging society, according to an analyst.
In contrast, India’s demographic dividend remains strong with a median age of just 29 years, which is among the lowest globally.
Per the IMF, over the next two decades, India’s favorable demographics could add 2 percentage points annually to the country’s per capita GDP growth.
This combination of youth, growing consumption, and economic expansion presents a compelling long-term investment proposition despite near-term market volatility, feel economic watchers.