CLSA Replaces China With India On Priority List

New Delhi: Global brokerage firm CLSA has reversed its early tactical shift from Indian equities to Chinese stocks, and has decided to raise India allocation, while cutting exposure to China. In its report titled ‘Pouncing Tiger, Prevaricating Dragon’, CLSA cited challenges facing Chinese markets in the aftermath of Donald Trump’s victory in the US elections as the reason for the move. “Misfortune can happen in threes. So, it has played out for Chinese equities over the past week. Trump 2.0 heralds a trade war escalation just as exports become the largest contributor to China’s growth,” the brokerage said.

Stating that it was sceptical on the endurance of the China equity melt up from the outset, CLSA said yet it committed a little more at the start of October by tactically deploying some of its over exposure to India towards China. It had reduced its Indian overweight to 10 per cent from 20 per cent and raising our China allocation to a 5 per cent overweight from the benchmark. “We now reverse that trade,” it said.

The reversal comes even as India faces sustained foreign investor outflows. Foreign institutions have sold a net Rs 1.14 lakh crore of Indian equities since October amid weak second quarter earnings and rising inflation. CLSA said several global investors it engaged with have been waiting for such a correction to address their underexposure to Indian equities. On the other hand, China’s economic struggles include deflationary pressures, sluggish real estate investment, and high youth unemployment. China faces prospects of higher tariffs under the Trump administration amid a precarious domestic situation that is a blend of deflation, falling property prices, rising youth unemployment, poor household confidence, stagnant real estate investment and growth in real retail sales at half the pre-pandemic rate.

“By contrast, India appears as among the least exposed of regional markets to Trump’s adverse trade policy. Moreover, so long as energy prices remain stable, India may offer a relative oasis of FX stability in an era of a strengthening US dollar,” it said.

Domestic appetite remains strong, offsetting foreign jitters, and valuation, though pricey, is now a little more palatable.