In a change of tone over the world’s two biggest emerging markets, global investors overseeing billions of dollars are slowly starting to favour China versus India. This reverses a year-long trend that has pushed stocks in opposite directions. 

BlackRock has upgraded Chinese stocks as policy hurdles ease, saying: “The time to position in China is now,” while trimming its exposure to Indian equities. Goldman Sachs Group and Nomura Holdings have both downgraded Indian stocks in recent days, with the former upgrading offshore Chinese equities at the same time. 

Valuations are the key rationale as the losses triggered by Beijing’s wide-ranging regulatory crackdown have made Chinese equities relatively cheap, while shares in the South Asian nation appear expensive after a world-beating rally. 

The MSCI China Index is trading under 13 times its one-year forward earnings estimates, while its Indian peer has a multiple of 22, putting the gap at two standard deviations above the average over the past decade. The Chinese gauge has fared better since the end of September after six straight quarters of underperformance. 

“There is more opportunity to allocate to China as the performance disparity between the two countries is one of the largest on record,” said Tom Masi, a New York-based portfolio manager with GW&K Investment Management, who recently trimmed his India positions. 

The pivot towards China comes amid growing optimism that its battered equities have factored in the worst of Beijing’s rein-tightening that at its most extreme had wiped off as much as $1.5 trillion in value. That said, an economic slowdown and a property market crunch are among factors that make being bullish on China a brave call.