India emerges as the least sensitive to a slowdown in China, shows data

Charts a distinct course in the face of global headwinds, while others tethered to China's gusts

Among the various global headwinds confronting the Indian markets, a slowdown in China is not one of them.

An analysis conducted by Goldman Sachs reveals that the performance of domestic equities is inversely correlated with that of China.

Within the Asia-Pacific (APAC) region, India emerges as the least sensitive to a slowdown in China and the weak performance of their benchmark gauges.

Conversely, Hong Kong, Thailand, Taiwan, and Malaysia are among those whose fortunes are closely aligned with the world’s second-largest economy.

“Elevated geopolitical risks and China’s ongoing macroeconomic (macro) challenges that could exert downward pressure on the aggregate regional growth outlook are also sources of concern. We observe that the Indian economy has the least economic linkage to China’s end demand (through consumption and investment channels). Moreover, Indian equities exhibit the lowest price sensitivity to slowing China’s growth in the region. This suggests that the Indian economy and markets are likely to be relatively less exposed to the aforementioned global macro risks,” says Goldman Sachs in a note.

The brokerage highlights some key headwinds that the APAC region may face in 2024, including moderating global growth, higher global rates, persistent dollar strength in the near term, increased geopolitical uncertainties, and lower China growth.

Goldman Sachs’ economists anticipate global gross domestic product (GDP) growth of 2.6 per cent in 2024 (compared to 2.7 per cent in 2023), and for Asia ex-Japan (AxJ), growth is expected to decline from 5.1 per cent to 4.7 per cent, primarily due to China slowing from 5.3 per cent to 4.8 per cent.

For India, Goldman Sachs economists expect steady GDP growth of 6.3 per cent in 2024, compared to 6.4 per cent (year-on-year) in 2023.

The Goldman Sachs note adds, “Growth in the first half of 2024 is likely to be driven by election-related spending, which should boost consumption demand. After elections, investment growth is likely to re-accelerate, especially from the private side.”