CLSA Reverses Stance: India Gains Favour, China Downgraded Post Trump Win

Hong Kong-based brokerage firm CLSA has shifted its stance on global equity markets, upgrading India to a 20 per cent overweight position while downgrading China to an equal weight. The reversal comes in the wake of Donald Trump’s election as U.S. President, marking a significant pivot from CLSA’s earlier pro-China position in October.

The firm’s decision reflects growing concerns over an escalation in the U.S.-China trade war under Trump’s administration, coupled with scepticism about the effectiveness of China’s recent $1.4 trillion stimulus package. Trump had proposed tariffs of up to 60 per cent on Chinese imports during his campaign, creating uncertainty for Chinese equities.

India Gains Traction Amid Trade War Concerns
CLSA’s note, titled “Pouncing Tiger, Prevaricating Dragon”, highlights India’s relative insulation from adverse U.S. trade policies compared to other regional markets. While acknowledging that Indian equity valuations remain “expensive,” the brokerage said they are now “a little more palatable.”

“India appears among the least exposed of regional markets to Trump’s adverse trade policy,” the note stated, adding that Indian exports are unlikely to face the same headwinds as China.

The upgrade coincides with a period of net foreign investor outflows from Indian equities, with cumulative selling reaching USD 14.2 billion since October. Despite this, CLSA believes India’s economic resilience and limited exposure to U.S.-China tensions make it a favourable market for investors.

China’s Struggles Under Scrutiny
China’s equity markets, which had rallied after the first tranche of a stimulus package in September, are now underperforming despite a second tranche announced on November 8. CLSA expressed doubts about the endurance of the Chinese equity rally, citing the modest scale of the stimulus and its focus on risk management rather than growth.

“Recent developments suggest insufficient conviction to maintain an above-benchmark exposure to Chinese equities heading into 2025,” CLSA noted. The firm also raised concerns about China’s growing reliance on exports, making it more vulnerable to Trump’s trade policies.

Global Implications of Trade Wars
The potential for a protracted U.S.-China trade war has drawn attention from other analysts as well. London-based think tank Oxford Economics warned that U.S. tariffs could reduce Chinese exports by 0.5 per cent in 2023, with a greater impact likely in key sectors such as automobiles and steel.

The firm also pointed to the risk of policy shifts in China, including increased reliance on industrial policies, as a response to heightened trade tensions.

Outlook for 2025
CLSA’s move to overweight India underscores the country’s appeal as a relatively stable investment destination amid global uncertainties. Meanwhile, China’s equity markets face continued pressure from trade tensions, a slowing domestic economy, and questions about the sufficiency of stimulus measures.

As Trump prepares to take office, his hawkish stance on China and pro-India appointments in key roles could further shift the investment landscape in favour of Indian equities while keeping Chinese markets under strain.