While Ukraine and Middle East conflicts rightly garner the most investor attention, there is another long-brewing conflict that is seemingly improving today. China and India have long disputed their Himalayan border, and in 2020, soldiers on both sides died in a violent clash, resulting in frozen diplomatic ties. Despite this, bilateral trade reached $138 billion in 2024, with the balance favoring China heavily: India imports $115 billion in goods from China while exporting only $15 billion.
In recent weeks, sensing an opportunity in India & U.S. tension, China’s Foreign Minister visited India and set the stage for the first Modi–Xi meeting in 7 years. An agreement was also reached to resume direct flights and border trade, relax visa regulations, and start new border discussion mechanisms. Most notably, the Chinese state-run Global Times called India a “major power”, a term it has historically used only for the U.S., Russia, and Europe.
In short, China and India are seeking improved relations at a time of need for both countries. Greater cooperation between the world’s two most populous nations will no doubt be positive for Emerging Markets as they account for ~40% of such indices.
However, we do not think this news warrants a re-rating of Indian or Emerging Market equities in investors’ minds just yet. China’s support of Pakistan and ambitions in the Indian Ocean will continue to fuel India’s security concerns over the long term. And India’s U.S. exports are 4x those to China, suggesting that China stands to gain more than India and that India may simply be negotiating by proxy with the U.S. Finally, Indian equities are already at a valuation premium to other Emerging Markets and progress in the Himalayas is unlikely to make them even more expensive.
For investors sensing progress, we encourage a review of their broader Emerging Markets or Asia allocation, rather than a dedicated India bet.
DISCLOSURES
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This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Investments in emerging markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
