I saw a chart last week that caught my attention, and I recreated it below. It shows the market capitalization weight of Chinese and Indian stocks.

Finding historical weights is a little challenging, so my chart shows the year-end weight of the two countries, except in 2024, where I show the market weight as of June 30th, 2024. The picture makes it appear that the last half-year is a complete year.

That modest imperfection in the chart doesn’t hide the big picture trend: Chinese stocks have lost a significant share of the global markets while Indian stocks have gained market share.

While various factors were at play, I don’t think it’s a stretch to say that China’s ‘Zero COVID’ policy was a failure. It’s not a coincidence that their market share peaked in 2020 and has fallen off since then.

Global companies that outsource their manufacturing to China realized that they were overly concentrated in China and broadly decided to find other places to produce goods.

India is one of the primary beneficiaries of this shift, although other countries, such as Mexico, Vietnam, and the Philippines, have also benefited.

India has actively courted foreign investment in electronics, pharmaceuticals and automotive components. The government and private sector have both made significant investments in infrastructure to help facilitate more trade, and the government has implemented several economic reforms to attract investors, including lowering some taxes.

I liked seeing the shift because I felt emerging markets were overly concentrated in China, which comprised 30-40 percent of the broad emerging indexes.

Although China’s poor returns have hurt emerging returns in recent years, I’d rather have a more diversified exposure in emerging markets, especially since our political relationship with China has shifted in recent years.

I’ll be interested to see whether Indian stocks become more valuable than Chinese stocks in the coming years. If the trends continue at the same pace, it won’t be long before that happens.