MUMBAI: CLSA, a foreign brokerage with a huge client base of funds investing in India, on Friday reversed its stand of being overweight on China and equal weight on India to ‘overweight India’ following Donald Trump‘s win in the US election. CLSA analysts feel that in Asia, China is expected to be most affected by Trump’s policies while India is least exposed to US’s policy changes.
CLSA has now doubled India’s overweight by 20%. The foreign broking major reversed its previous tactical allocation decision, shifting back from China to India. Its analysts cited three key factors for changing its position on China.
First, “Trump 2.0 heralds a trade war escalation just as exports become the largest contributor to China’s growth. The NPC (National People’s Congress) stimulus amounts to de-risking with little reflationary benefit,” the report said. “Higher US yields and inflation expectations sap scope for the (US central bank) and thus (Chinese central bank) to ease. We are anxious that these concerns lead to a buyers’ strike by offshore investors who built China exposure after the initial PBoC (Chinese central bank) stimulus in Sept.”
Analysts at CLSA feel that India stands out as one of the regional markets least vulnerable to Trump’s unfavourable trade policies. Additionally, with stable energy prices, India potentially offers relative foreign exchange stability during a period of US dollar strengthening.
“Paradoxically, India has seen strong net foreign investor selling since October, while investors we met this year have been waiting specifically for such a buying opportunity to address Indian underexposure. Domestic appetite remains strong, offsetting foreign jitters, and valuation, though pricey, is now a little more palatable,” the report said.
CLSA, however, has a caveat for India. Calling it “suffering from success: The risk of suffocation by primary flow”, the report pointed out that at present fund mobilisation in India through IPOs and secondary offers combined has reached 1.5% of market cap. This is a historic high level from where in the previous four occasions issuances as well as secondary market momentum had reversed. CLSA analysts feel currently this is the main risk for the Indian market.
