Goldman Sachs: Clients are most concerned about "whether they see funds flowing from India to China," the answer is "without a doubt, yes"

The Chinese stock market has experienced the largest scale of increase since 2008, becoming the focus of global capital attention. Goldman Sachs has raised its rating on the Chinese stock market to "overweight" in its latest report, expecting a further increase of 15-20%. The current market focus is whether the overseas capital giant ship will adjust its course amidst cheers and head towards China.

Taking the Indian stock market as an example, Goldman Sachs has already answered: "Without a doubt, yes."

The latest data shows that global funds have recorded a record high net selling of Indian stocks, with the Indian stock market facing the largest net selling by global funds since at least January 1, 1999.

Goldman Sachs: When the Chinese stock market sees "intense" buying, the Indian market will become fragile

Considering that the Indian Nifty index fell by 4.5% last week, marking the worst weekly performance since June 2022. According to Goldman Sachs' Indian trader Nikhilesh Kasi, the most frequently asked question by clients in the past two weeks has been "Are we seeing funds flowing from India to China?" To this, Kasi has clearly answered: "Yes." And he explained that based on the observed fund flow, this trend is very evident.

Kasi stated that the Indian stock market is the second most overweight market in emerging markets. More importantly, India ranks second in terms of weight among all emerging markets.

This means that when China experiences such "intense" buying, the Indian market will become fragile.

Foreign institutional investors sold approximately $4.5 billion last week, marking the largest single-week sell-off in the history of the Indian stock market, and this happened in just four trading days.

The sell-off amount shown in the above chart is $3.2 billion, as it does not include the estimated $1.2 billion sell-off on Friday Kasi believes that foreign institutional investors are selling their most liquid assets in order to extract maximum liquidity in the shortest time possible.

Goldman Sachs traders' selling intensity is twice as high as before, and this process is mainly dominated by unidirectional long strategy funds (LO).

Market Awaits More Policy Measures to be Implemented

However, it is worth noting that the epic surge in the Chinese stock market in the short term has sparked much discussion in the market. For example, the Hang Seng China Enterprises Index has risen by over 30% in the past month, ranking first among more than 90 global stock indices tracked by Bloomberg.

Ma Hao, Chief Investment Officer for Invesco Hong Kong and China, stated:

Market sentiment may be overextended in the short term, but people will eventually return to fundamentals. Due to this surge, some stocks have been overvalued.

Morgan Stanley Asset Management also maintains a cautious attitude, believing that the key lies in whether more policy measures can be introduced, as the market is waiting for new policy guidance to be consolidated. Xu Changtai, Chief Market Strategist for Morgan Stanley Asia Pacific, said:

More policy steps are needed to boost economic activity and confidence. The policies announced so far can help smooth the deleveraging process, but balance sheet repair is still needed.

Xu Changtai also believes that the uncertainty in the global economy will have a certain impact, such as the upcoming U.S. election just a month away.

However, considering that the valuation of the Chinese stock market is still low, many institutions are quite optimistic. Matthew Quaife, Head of Global Multi-Asset Investment Management at Fidelity International, stated:

The market rebound is not over yet, and there is still a large amount of funds that need to be rebalanced, especially from global investors. From a technical perspective, valuations are still below average, and the rebound may continue. Of course, the extent to which the rebound can translate into returns remains to be seen