Trump 2.0, Weak Chinese Stimulus Lead Hong Kong Based Brokerage Firm CLSA To Go 'Overweight' On India, Cut China Exposure

Hong Kong based brokerage firm, CLSA (Credit Lyonnais Securities Asia) has raised its 'overweight' on Indian stocks by 20 per cent and cut its allocation on China in its Asia Pacific portfolio.

The move reverses CLSA's switch from Mumbai to Shanghai when in early October it went 'overweight' on China following Beijing's first stimulus on 24 September.

Turning ‘overweight’ essentially means Indian equities should perform better compared with other markets. 

This reversal comes after Donald Trump's victory in 2024 United States (US) Presidential election and a lower than expected stimulus by Beijing.

Trump has proposed up to 60 per cent tariff on Chinese imports into the US during his Presidential campaign, which could escalate the trade war between US and China.

"We committed a little more at the start of October by tactically deploying some of our over exposure to India towards China, at the time reducing our Indian overweight to 10 per cent from 20 per cent and raising our China allocation to 5 per cent overweight from the benchmark. We now reverse that trade," said CLSA's strategists Alexander Redman and Wei Sheng Wan in a client note.

"We are concerned that the investors are losing patience and are assuming that policy makers will lowball any further stimulus, and hence they may use the advent of those two occasions as an opportunity to reduce exposure," said the brokerage's strategists.

In India's case, CLSA remarked that though earnings momentum (in Q2 FY25) has softened, the outlook remains robust. India is one of the few emerging markets where a relationship between corporate earnings growth and the changes in the pace of economic output holds true, attributable to the country’s more domestically oriented equity market, it said. The brokerage highlighted that a chief risk for the Indian equity outlook is the acceleration in primary issuance which ultimately threatens to swamp the secondary market with supply.

CLSA further added that any escalation in the US-China trade war would be unsettling for Chinese equity assets, as the Chinese economic growth has been more exports depended than in 2018.

However, "by contrast, India appears as among the least exposed of regional markets to Trump's adverse trade policy," it added.

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