EM index notches longest monthly winning streak in over two decades

Driven by Chinese stocks, the index gains for 9th straight month in September, while India lags behind

The MSCI Emerging Market index recorded its ninth consecutive monthly gain in September, marking the longest winning streak for the 24-country EM index since March 2004.

 

The index climbed nearly 7 per cent — its largest monthly rise since November 2023 — while India’s gains were under 1 per cent. Its performance has been primarily driven by China, which holds the largest weight, whereas India, the index’s third-largest component, has struggled to keep pace.

 

In 2025, the MSCI EM index has risen every month, while India’s market has advanced in five.

 

Year-to-date, the benchmark Nifty index has gained 4.6 per cent, significantly trailing the MSCI EM’s robust 25 per cent rally. Chinese equities, up nearly 30 per cent this year, have contributed the bulk of the EM gains, with China accounting for almost one-third of the MSCI EM’s weight.

 

Reflecting this divergence, foreign investors are taking capital out of India and into China.

 

According to a report by Elara Capital, active global EM fund managers have reduced India’s allocation to 16.7 per cent — the lowest since November 2023. Meanwhile, China’s allocation has increased to 28.8 per cent.

 

According to a Bloomberg report, during the first half of 2025, foreign investors bulked up on Chinese onshore stocks, bonds, loans and deposits — a simultaneous increase for the first time since 2021.

 

According to People’s Bank of China, net inflows through June have already surpassed the 2024 annual tally by about 60 per cent. Unlike India, China releases data on foreign inflows with a lag. Meanwhile, India has seen outflows of $18 billion so far in 2025 from foreign portfolio investors.

 

Valuation metrics underline these trends: India’s 12-month forward price-to-earnings (P/E) ratio stands at 20x, slightly below its 10-year average of 21x. In contrast, the MSCI EM index trades at 13.8x, above its 10-year average of 12x, with both Mainland China and Hong Kong markets near 14x.

 

Will China’s market momentum continue to outshine India?

 

“After a strong run in Chinese equities, it’s only natural to question whether this momentum will continue. Valuations are elevated, but not excessive. However, with retail investors sitting on $22 trillion in cash, some of which is gradually being re-allocated to stocks, we expect Chinese equities to grind slowly higher,” said Heral van der Line, head of equity strategy, Asia Pacific, HSBC, which has an overweight stance both on China and India.