Global brokerage CLSA has made a strategic pivot by reducing its investments in China and increasing its investments in India with a 20% premium. This is due to India’s stable economic situation and strong foreign inflows that will soon return to the country. The shift reflects China’s new economic challenges, as CLSA said in a note: “Trump 2.0 heralds an escalation of the trade war as exports become China’s biggest growth driver.” This issue was raised in the context of the re-election of the president of the United States, Donald Trump.
This reverses CLSA’s earlier decision to give allocation from India to China. The move comes at a time when India is facing an exodus of foreign investors and a pullback in FPIs due to weak September earnings and rising inflation. Foreign institutional investors have driven down Indian stocks by Rs 1,140 crore since October. According to CLSA, many global investors are hoping that such reforms will address the lack of investment in Indian stocks. Meanwhile, China’s economic problems include deflationary pressures, sluggish real estate investment and high youth unemployment.
In October 2023, India’s CLSA underwent a significant review, moving from a 40% underweight to a 20% overweight. The company cited a favorable credit environment, low energy costs due to declining Russian crude oil production and strong prospects for electricity market development as key fundamentals at the time. However, CLSA will abandon this strategy in October 2024 and reduce its surcharge in India to 10%, while Dragon Nations also added China in an early attempt to improve the market.
India is a safe haven amid global trade tensions
In view of China’s growing economic woes, CLSA reiterated its preference for India, citing a stable exchange rate in the context of a strong US dollar. India’s isolation from global trade tensions under the administration of US President-elect Donald Trump has increased its appeal as a safe haven in Asia, especially in light of possible political changes in the United States. The brokerage said India is a key beneficiary of the current business environment due to its stable exchange rate and economic performance.
The report also highlighted strong domestic demand for Indian stocks, which has helped offset valuation concerns and provided a buffer against potential foreign investment outflows. Domestic institutions have made net purchases of up to Rs 1.07 lakh crore in Indian stocks since October.
