In a bold shift, CLSA, the Hong Kong-based brokerage firm, has upgraded its outlook on India while downgrading China, signaling a major reversal in regional market strategy. This move comes in the wake of Donald Trump’s U.S. presidential victory and the escalating trade war tensions between the U.S. and China.
India Outperforms, China Faces Challenges
CLSA has raised its India allocation to a 20% overweight position, a marked increase from its previous 10% overweight stance in early October. At the same time, the firm has reduced its exposure to Chinese equities to ‘equal weight’—a neutral stance—after being more optimistic on China just a month ago.
The shift is primarily driven by increasing concerns over the impact of U.S. tariffs on China, which are expected to exacerbate trade tensions. During his campaign, Trump proposed up to 60% tariffs on Chinese imports, and his administration’s China-hawkish stance has only intensified in recent weeks. CLSA highlights that the potential trade war escalation could significantly disrupt Chinese exports, which are already under pressure, further damaging the outlook for Chinese equities.
India: The Bright Spot in Emerging Markets
Despite some concerns over valuations—India’s equity market remains relatively expensive—CLSA sees it as one of the least exposed markets to the risks of Trump’s trade policies. Indian exports are far less vulnerable to U.S. tariffs compared to China, and the country’s strong domestic economy continues to offer growth potential.
The brokerage also notes that India’s corporate earnings growth remains robust, with many companies benefiting from a resilient domestic economy, even as the global economic environment grows more uncertain. However, CLSA cautions that rising primary market issuance (IPOs and secondary offerings) could eventually put pressure on Indian equities, potentially overshadowing some of the positive fundamentals.
China’s Stimulus Packages: Insufficient for Recovery
While China has launched a $1.4 trillion stimulus package in an attempt to revive its faltering economy, CLSA remains skeptical about its long-term impact. The brokerage suggests that the measures appear more focused on risk management than fostering genuine economic expansion. Given China’s heavy reliance on exports, particularly to the U.S., the looming trade war presents a significant risk to the country’s economic recovery.
Moreover, the second tranche of China’s stimulus package, combined with potential further measures in 2025, may not be enough to reverse the negative sentiment surrounding Chinese equities. CLSA argues that, with Trump’s hardline stance on China expected to continue, the outlook for Chinese markets remains grim, especially as U.S.-China relations continue to deteriorate.
Investment Outlook: The Road Ahead for Emerging Markets
For investors, the shift in CLSA’s strategy highlights the growing appeal of India in the face of escalating U.S.-China trade tensions. While India’s market faces some headwinds—particularly around energy prices and the potential for geopolitical instability—the country remains one of the few emerging markets offering scalable growth opportunities.
On the other hand, the outlook for Chinese equities remains less optimistic, as the country grapples with not only a potential trade war but also a slowing economy and an insufficient stimulus response.
As CLSA notes, “India may be expensive, but it remains one of the more palatable options for long-term growth in emerging markets, especially as China faces significant risks from ongoing trade disputes.”
Key Takeaways:
- CLSA upgrades India to 20% overweight and downgrades China to equal weight, reversing its October stance.
- India is seen as less exposed to Trump’s trade policies compared to China.
- Rising valuations in India are a concern, but the country’s strong domestic growth potential offers hope.
- China’s stimulus measures are deemed insufficient to overcome trade war challenges.
- Investors should remain cautious on Chinese equities, with a focus on India as a more attractive option.
For those looking to position their portfolios amid global uncertainties, this shift in CLSA’s strategy underscores the importance of focusing on resilient, domestically-oriented markets like India.
