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

BlackRock Inc. 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 Inc. and Nomura Holdings Inc. 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 China’s regulatory actions have made Chinese equities relatively cheap, while shares in India 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 LLC.

The pivot toward China comes amid growing optimism that its battered equities have factored in the worst of China’s tightening that at its most extreme wiped off as much as US$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.

For BlackRock, the positive sentiment is based on the view that monetary policy in China will likely be accommodative next year and economic growth could be better than expected, said Lucy Liu, BlackRock’s portfolio manager for global emerging markets equities.

BlackRock moved China to a more neutral position from underweight, and narrowed its underweight call on internet services companies. Meanwhile, it is booking some profits on Indian shares.

Sell-side analysts also seem to agree. The MSCI China Index is seen advancing 39 percent over the next 12 months while the Indian counterpart is estimated to have less than half of that upside, according to analyst estimates compiled. (SD-Agencies)