The MSCI Emerging Market (EM) index recorded its ninth straight monthly gain in September 2025, marking its longest winning streak since March 2004. The index surged nearly 7 per cent last month — its biggest monthly jump since November 2023 — driven predominantly by Chinese equities, while India’s gains remained below 1 per cent.
China, which holds the largest weight in the index, has been the primary driver of EM performance this year, whereas India, the index’s third-largest component, has struggled to keep pace.
In 2025, the MSCI EM index has posted gains every month, while India’s market has advanced in only five. Year-to-date, the Nifty index is up 4.6 per cent, trailing far behind the MSCI EM’s 25 per cent rally. Chinese equities have risen nearly 30 per cent this year, contributing the bulk of EM gains, with China accounting for almost one-third of the index’s weight.
Reflecting this divergence, foreign investors are shifting capital out of India and into China. A report by Elara Capital showed that active global EM fund managers have reduced India’s allocation to 16.7 per cent — the lowest since November 2023 — while China’s allocation increased to 28.8 per cent.
Bloomberg data reveals that in the first half of 2025, foreign investors significantly increased exposure to Chinese onshore stocks, bonds, loans, and deposits — a simultaneous rise not seen since 2021. According to the People’s Bank of China, net inflows through June have already surpassed the total for 2024 by about 60 per cent. In contrast, India has seen USD 18 billion in outflows from foreign portfolio investors so far this year.
Valuation metrics further underscore these trends. India’s 12-month forward price-to-earnings (P/E) ratio stands at 20x, slightly below its 10-year average of 21x. Meanwhile, the MSCI EM index trades at 13.8x, above its 10-year average of 12x, with both Mainland China and Hong Kong markets near 14x. |
