UBS Global Research says the idea that India’s weight in the MSCI Emerging Markets Index could converge with China’s has become less relevant after recent performance trends.
According to the firm’s EM and APAC Equity Strategy team, China has outperformed India by 33% in U.S. dollar terms year to date, reversing the narrative that India’s rapid growth and higher valuations would close the gap. As a result, China’s index weight is now roughly double India’s once again.
The report notes that even under optimistic growth assumptions for India, the MSCI China profit pool is expected to remain twice as large as India’s over the next five years.
UBS analysts said that the relative economic and corporate profit size continues to favor China, despite India’s stronger representation of its domestic economy within its MSCI index.
“MSCI India already represents a larger share of India economy, than MSCI China of China’s,” the brokerage said.
Valuations have been the biggest driver of index weight changes in recent years. UBS points out that China’s relative valuation position now looks more favorable than India’s.
Historically, the two markets traded at similar price-to-earnings multiples until about three to four years ago, but the divergence has since widened. Currently, China trades at a 33% discount to India.
The perception gap is also evident in how investors value similar businesses in each country. UBS said that if a stock with the same sector, growth, and return on equity characteristics were to move from China to India, its market capitalization would instantly be 2.3 times higher.
The brokerage also flags that while India’s corporate balance sheets have improved and leverage has declined, China continues to show stronger return on invested capital (ROIC) trends, even when excluding its large internet and artificial intelligence companies.
Chinese corporates, particularly in the listed space, maintain lower leverage compared with India’s peers.
Despite India’s structural growth potential, UBS adds that the probability of MSCI India’s weight converging with China’s in the next five years is low. The outlook also assumes that the inclusion factor for China A-shares remains modest.
In UBS’s view, the broader debate on China versus India equity performance continues to hinge on relative valuations, earnings growth, and profitability dynamics.
For now, UBS maintains its "overweight" stance on China within the emerging-market universe and keeps India underweight.
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