CLSA shifts focus to India, will cut China investments : International brokerage CLSA has announced a major change in its investment stance regarding India and China. CLSA has announced that it will now increase its investment in India and reduce investment in China. This decision has been taken at a time when China’s economy is facing challenges and investment prospects in India look better. This stance of CLSA is a good sign for the Indian markets, because during the last few months, foreign institutional investors (FIIs) have pulled out money from India on a large scale, which has had a negative impact on the market. In such a situation, the changed stance of an important international brokerage is indicating improvement in the coming days. CLSA has given information about this new stance in its latest report.(Pouncing Tiger, Prevaricating Dragon).
CLSA’s new strategy
CLSA has adopted a strategy of increasing investment in India and reducing investment in China. In this way, it has announced to increase investment in India from 10% to 20%. At the same time, in view of the uncertain economic situation of China, there has been talk of cutting investment. CLSA believes that foreign investors are once again ready to buy in the Indian market.
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What is the reason for turning away from China?
The important question is why CLSA has suddenly made this big change in its stance. answer to thisCLSA has given in detail in its latest report. In this report, the reasons given for its changed stance on investment in the markets of India and China also include Donald Trump’s victory in the US presidential election, which is being considered negative for China. Other than thisAccording to CLSA, the increasing trade tension between America and China has had a negative impact on China’s export-based economy. CLSA has also termed the incentive policy announced by China’s National People’s Congress (NPC) as inadequate. The brokerage firm also believes that the rise in US bond yields along with rising inflation has increased the challenge for China’s monetary policy. Apart from this, the risk premium on assets in the Chinese market has also decreased, due to which this market has become less attractive for foreign investors. Overall, CLSA believes that the Chinese market is no longer looking that profitable.
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Why was India considered a better option?
CLSA has given many solid reasons behind considering the Indian market as a better option for investment than China. For example, it believes that there is no trade related tension associated with the Indian economy and markets as is visible for China due to tensions with America. According to CLSA, India is likely to be least affected by any trade tension among regional markets. Apart from this, domestic demand remains strong in the Indian market, which is balancing the effect of selling by foreign investors. According to the brokerage, India is also a comparatively safer market in terms of exchange rate stability, provided energy prices remain stable. CLSA has also noted that India’s growth rate remains strong. According to CLSA, the strongest opportunity for growth among emerging markets is visible in India. Apart from this, long term valuations of Indian stocks are now appearing attractive to investors.
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Potential challenges in India
However, CLSA has highlighted the positive factors associated with India as well as some challenges, the most important of which is the ‘over-supply’ of new shares in the market. According to the brokerage, the share of new share issues in the entire market cap during the last 12 months has been 1.5%, which is quite high. Apart from this, according to the report, India’s dependence on imported fuel is very high, due to which instability in energy prices can be a big risk factor.
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Positive signs for Indian market
Despite these challenges, CLSA’s changed stance clearly shows that it still sees India as an attractive destination for investment due to overall strong domestic demand, stable currency and good economic prospects. On the other hand, China’s economic problems and the possibility of trade tensions have affected investor sentiment. This change in CLSA’s stance is a positive sign for the Indian market, because its move may inspire other investors to reconsider their stance.
