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Merrill Lynch: China Stocks Favored Over India Stocks

Although both are posed to outperform most developed markets, at least one senior wealth management executive believes that Chinese stocks should be the preferred choice over Indian stocks based on the former’s presently low valuation.

“Emerging markets China and India are quoting in the range of 12-13 and 17-18 price to earnings, with India clearly outperforming the rest of the world,” Stephen Corry, director and chief investment officer of Merrill Lynch Wealth Management’s Asia-Pacific region, told Reuters in an interview. “We expect China to outperform India in the second half of 2010.”

“It’s just a relative call,” he said. “The relative valuations went very high compared to other regional equity markets.”

Acknowledging that “Indian equities have outperformed [Chinese equities] year to date,” Corry believes that Chinese stocks represent a good value buy at the moment while Indian stocks are fairly and accurately priced.

“I think Indian equities right now are pretty much priced for perfection,” he said.

Since the beginning of January, India’s Bombay Stock Exchange Sensitive Index (Sensex) has outperformed the primary bourses of its BRIC counterparts with modest growth of 3.2 percent. Brazil’s Bovespa Index has dropped about 3.5 percent so far this year and the Russian Trading System Index has declined by 5.4 percent. Meanwhile, coming in as the world’s third-worst performing index of 2010, China’s Shanghai Stock Exchange Composite Index has dropped off nearly 18 percent since the beginning of the year. However, the Chinese bourse has looked more promising lately.

Since hitting a 52-week low on July 2, the Shanghai Composite Index has seen its value rebound with growth of 14.8 percent to date while India’s Sensex has increased by 3.7 percent over the same period. At noon on Wednesday in Shanghai, the Sensex was trading at 18,112.34 and the Shanghai Composite Index was valued at 2,663.91.

“I think there is a compulsion we are now beginning to start to see of people shifting out of India and moving their allocations more in favor of China going forward,” Corry said.

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