Hong Kong regains fourth-largest market spot after rout in Indian equities

India cedes position as broader market rout shaves off $180 bn in mcap; China & Hong Kong markets have rebounded over 12 per cent

Hong Kong has regained its spot as the world’s fourth-largest market following a broad market rout in Indian equities. Currently, the Chinese territory’s market capitalisation stands at $4.9 trillion versus India’s $4.75 trillion, as per data compiled by Bloomberg.

In January, the domestic equity markets’ market capitalisation had surpassed that of Hong Kong following a spectacular rally in the small- and mid-cap stocks. On the other hand, the Hong Kong markets, after recording a four-year losing streak in 2023, fell another 10 per cent in 2024. However, from 2024 lows the China and Hong Kong markets have rebounded more than 12 per cent as authorities have strived to lift the economy and investor mood.

On January 22, Hong Kong’s market cap had dropped to $4.28 trillion -- nearly 5 per cent below that of India. When it looked like India would cement its place as the world’s fourth biggest market, a sharp slide in small-cap stocks cut short the South Asian nation’s stay. India’s market value remained above that of Hong Kong for most part of February and a couple of sessions in March.

From the peak of $4.75 trillion on March 4, India’s mcap has come off by over $180 billion.

The Nifty Smallcap 100 index slumped more than 14 per cent from its record high this year, while the Nifty Midcap 100 declines as much as 7.1 per cent.

The correction has come following market regulator Securities and Exchange Board of India (Sebi) raised concerns over stretched valuations in the small-cap space. Also, several mutual fund schemes that invest in this space have restricted investments to address the concerns raised by the regulator.

While boom has turned into gloom in the domestic markets, the opposite has played out in China and Hong Kong equities.

A steady stream of policy support measures from Beijing has helped end the rout and shift the market mood. Hong Kong’s Hang Seng has gone from being the worst-performing markets to being the best-performer. While, after sinking to its five-year low on February 2, China’s CSI 300 has jumped 12 per cent as authorities have taken several steps to prop up stocks.

Even after the sharp rally, China and Hong Kong market trade at a 12-month forward price-to-earnings multiple of about 10-12x, almost half of India’s 20x.

While the low valuations, rising share buyback programmes and government action has helped restore investor confidence in Chinese equities, analysts say any disappointing signals from Beijing can once again kick off another selloff.

Meanwhile, the slide in the smallcap stocks in India has stemmed with analysts ruling out a deeper correction.

“We remain constructive on the broader market, any deep sell-off in midcap from current levels seems unlikely and investors will likely use these opportunities to buy into midcaps,” said a note by HSBC last week.

“Midcap valuations have already come down to the five-year mean. Midcap market breadth has declined to 73 per cent from over 90 per cent at the beginning of the year (60 per cent being the normal cycle average breadth), signalling some potential downside but limited. Midcap premium to large caps has fallen to 17 per cent from 30 per cent in January which appears to be in the mid-cycle range,” the note added.