Is China the New America for Indian Investors?

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There’s a quiet shift happening in Indian portfolios.

For years, the script was simple. If you wanted international exposure, you bought America. You bought the S&P 500. You bought the Nasdaq. If you were feeling bold, you bought the Magnificent Seven and called it global diversification.

Now, that reflex is being questioned.

Since September 2024, while India’s Sensex has struggled to decisively clear its 85,500 peak, major Chinese indices — Hang Seng, Hang Seng Tech, Shanghai Composite — have climbed nearly 50 percent. After years in the wilderness, China is back on the performance charts.

And that forces an uncomfortable question: Is China becoming the new default trade?

The math is seductive.

The Hang Seng trades at roughly 13 times earnings. Compare that to the Sensex at about 22 times and the S&P 500 pushing 28 times. Even Hang Seng Tech, after its rally, trades below the Nasdaq on a price-to-earnings basis.

This isn’t just about cheapness. It’s about asymmetry.

China is the world’s second-largest economy. It grew at roughly 5 percent last year. It closed 2025 with a record trade surplus north of $1 trillion. Export strength offset domestic weakness. Stimulus returned. Pandemic controls are gone. The regulatory crackdown that crushed tech between 2021 and 2024 has softened.

And the corporate roster is formidable: Alibaba, Tencent, BYD, SMIC, Xiaomi, Meituan

These are not speculative startups. These are scale businesses competing globally. For Indian investors used to buying premium growth at premium multiples, China looks like value with optionality. That’s a rare combination.

Here’s the twist.

The resurgence in Chinese equities comes in the middle of renewed trade tensions under Donald Trump. Tariffs were supposed to isolate China. Instead, Beijing diversified trade routes, strengthened ties with Europe, and leaned into export growth. French President Emmanuel Macron, among others, has been quick to rebuild commercial bridges.

Markets are forward-looking machines. They are pricing in stabilization, not collapse. But let’s not rewrite history. From 2021 to 2024, Chinese equities were battered by:

Five-year returns remain negative. This rally follows deep pain. That context matters.

Here’s where the story gets complicated. For Indian investors, wanting China exposure and getting it are two very different things. Access is constrained.

After SEBI and the RBI capped overseas mutual fund exposure at $7 billion in 2022, most international schemes either shut for fresh inflows or severely restricted them. That limit hasn’t been meaningfully expanded.

In the U.S., Indian investors have dozens of mutual fund options. The top five U.S.-focused funds manage around ₹30,000 crore. For China? There are just four meaningful mutual fund routes, managing under ₹6,000 crore in total. Two major ETFs are shut. One fund restricts SIPs to ₹5,000 a month. That leaves essentially one widely accessible scheme.

That’s not market depth. That’s scarcity.

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Sophisticated investors have found alternatives.

One route is the Liberalised Remittance Scheme, or LRS. Through platforms like Interactive Brokers or newer intermediaries, investors can buy global ETFs directly — from issuers like Invesco or HSBC. But this isn’t frictionless.

You deal with:

And you need conviction. Most advisors suggest this route makes economic sense only if you’re deploying ₹5–10 lakh or more.

Then there’s the GIFT City route, where funds structure offshore feeder vehicles. Or at the high end, alternative investment funds with seven-figure minimum tickets.

For the average retail investor, none of this is elegant.

Let’s be honest about what you’re buying. When you invest in China, you are not just buying earnings. You are underwriting policy risk.

Between 2021 and 2024, the Chinese government demonstrated how quickly it can alter corporate fortunes. Entire sectors were reshaped in pursuit of political goals.

A fund manager described the system as “capitalist in socialist form.” That is both the opportunity and the hazard. Valuations are low partly because of this risk. Markets demand a discount.

Even bullish fund managers advise restraint: keep exposure in the single digits. Five percent of a portfolio is common guidance. Seven to ten percent for more aggressive investors.

Nobody credible is recommending 20 percent allocations. That alone tells you something.

Short answer: no.

The U.S. still commands a premium because its institutional risk is lower. Corporate governance is more predictable. Policy shifts are rarely existential. But China may be the new tactical trade.

For Indian portfolios heavily skewed to domestic equities, and secondarily to U.S. tech, China offers:

The Indian rupee has weakened against both the yuan and the Hong Kong dollar. That currency tailwind enhances returns. But China is not a core allocation for most Indian investors. It is a satellite bet.

Indian investors suffer from extreme home bias. The majority of equity exposure sits within Indian markets. That creates concentration risk.

Global diversification isn’t about chasing whichever index is hot this quarter. It’s about building resilience. The real strategic question isn’t whether China is the new America. It’s whether Indian investors can afford to ignore the world’s second-largest economy entirely.

The answer is probably no.

But nor can they afford to forget that the same market delivering 50 percent rallies can erase years of gains when policy winds shift. China is not a replacement for the U.S. It is not an all-weather bet.

It is a calculated risk — one that deserves respect, discipline, and strict sizing. Because in China, the upside can be powerful. But the policy turn, when it comes, rarely sends a warning.

Interested in learning more about Indian economy? Check out our previous coverage here:

The DTC beauty category is crowded. To break through, Jennifer Anniston’s brand LolaVie, worked with Roku Ads Manager to easily set up, test, and optimize CTV ad creatives. The campaign helped drive a big lift in sales and customer growth, helping LolaVie break through in the crowded beauty category.

Learn more

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Peeyush and Mohit

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