CLSA goes 'overweight' on India, reverses call on China after Trump return to power

Last Updated18/11/2024

In just over a week since Donald Trump won the US Presidency, Hong Kong-based brokerage firm CLSA raised its India allocation to a 20 per cent overweight, while cutting exposure to China.

Donald Trump’s victory in the US presidential election has triggered notable shifts in global equity markets. Hong Kong-based brokerage CLSA has increased its India allocation while cutting exposure to China. The decision reflects escalating trade tensions between the US and China, as well as China’s underwhelming economic stimulus efforts.

India Becomes a Priority: CLSA raised India’s allocation to 20% overweight while reducing China to “equal weight.”
Reasons for Reversal:
Escalating US-China trade war under Trump, with proposed tariffs of up to 60% on Chinese imports.
Underwhelming impact of China’s $1.4 trillion economic stimulus package.
October Adjustments Reversed: The earlier decision to favor China due to its stimulus has been undone, as confidence in China’s market performance wanes.

Resilience to Trade Policies:
- India is among the least exposed to Trump’s protectionist trade policies compared to regional peers.
- The government believes India’s export basket would be less affected than China’s.
Valuation and Opportunities:
- Although Indian equities are considered expensive, CLSA now finds them more attractive.
- Foreign investor interest: Despite $14.2 billion in net selling since October, India’s long-term growth potential makes it a desirable emerging market investment.

Economic Growth Concerns:
- China’s growth remains heavily reliant on exports, making it vulnerable to US tariffs.
- Oxford Economics predicts a decline in Chinese exports by 0.5% due to tariffs, with significant impacts on industries like automobiles and steel.
Stimulus Insufficiency:
- China’s $1.4 trillion package aims to recapitalize banks, address property inventories, and boost consumption, but lacks sufficient scale to outperform regional peers.
Impact of Trade Surplus:
- China’s trade surplus with the US reached $380 billion in 2023, intensifying scrutiny and trade pressures from the US.

Economic Resilience:
- India’s domestically oriented equity market supports a correlation between corporate earnings growth and economic output.
- The Reserve Bank of India’s $700 billion forex reserves provide stability, shielding the rupee against external shocks.
Energy Dependency Risks:
- India imports 86% of its oil, 49% of natural gas, and 35% of coal, making it vulnerable to energy price volatility.
Equity Market Challenges:
- Rising primary market issuance, including IPOs, threatens to dilute secondary market momentum.

India’s Growth Potential:
- CLSA highlights India as a scalable growth opportunity in emerging markets, with robust corporate earnings and economic indicators.
China’s Trade and Equity Risks:
- Trade war escalation, combined with insufficient stimulus, could undermine Chinese equities and the renminbi.
- Hawkish Trump appointees, such as Marco Rubio, signal stronger US efforts to contain China.