China vs India stocks? Here's HSBC's top pick

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While many investors wouldn't touch Chinese equities with a bargepole following the dramatic market meltdown that unfolded over the summer, HSBC's taking a contrarian approach, advocating mainland stocks - particularly over their Indian counterparts.

That call would surprise some.

While stocks in China were swooning, Indian financial markets have been relatively steady. India's economy is now expected to grow at a faster clip than that of China, having long lagged its neighbor.

The reversal in fortune even spurred India's Finance Minister Arun Jaitley to recently remark that the country could be the world's new growth engine. HSBC seems less convinced.

"China is now more defensive than India. Given low valuations, especially in China, there is an upside risk that signs of stabilization in growth in China could lead to a sharp reversal in fortunes, particularly if Beijing's policy response shows more urgency in the coming quarters," Herald van der Linde, head of Asia Pacific equity strategy at HSBC wrote in the bank's Asia Equity Insights Quarterly published on Tuesday.

"Our message is simple – don't ignore Chinese equities," he said.

After a precipitous 34 percent drop in the Shanghai Composite between June and September, the benchmark index is currently trading at a price-to-earnings ratio of 13 – compared with 18.7 for India's BSE Sensex.

Read MoreIndian FinMin sees India as a new world engine for growth

While India is one of the few macro bright spots in the region, with economic growth set to outpace China this year, HSBC is underweight the market, which it deems a highly crowded trade.

"Consensus remains firmly overweight India. We wonder how long this might last," van der Linde said.

"High fund holdings, premium valuations and slow pace of reforms make us reluctant to enter the market," he said, adding that earnings growth expectations are waning as well.

The bank sees 22.5 percent upside for the MSCI China before the end of the year, and 1.4 percent downside for the BSE Sensex over the same period.

Elsewhere in the region, the bank is overweight on Singapore and Taiwan, neutral on Korea, Indonesia and the Philippines and underweight on Hong Kong, Malaysia and Thailand.

"In North Asia, we prefer Taiwan to Korea for two reasons: (1) Taiwan's tech companies offer better growth prospects; and (2) Taiwan trades at a deeper discount, offering better relative value than Korea," van der Linde said.

"In ASEAN, valuations are low and earnings downgrades are starting to bottom but currency weakness remains a key risk," he said.