The shareholder is back in the stock exchange trading hall. Nanjing, Jiangsu Province, China, July 6, 2020
Costfoto |: Barcroft Media via Getty Images
China is a better short-term bet than India for investors looking to Asian markets other than Japan, according to Christopher Wood, Jefferies Global’s global strategy strategist.
“Structurally, I’m very angry with India,” Wood said Wednesday. “It’s just the beginning of a cycle of residential real estate that has been in decline for seven years.”
“But in the short term, I would prefer China to India, as India will be vulnerable to any Fed tightening or mitigation fears,” he told CNBC’s Street Signs Asia.
It was a difficult year for investors exposed to the Chinese market, in part due to Beijing’s regulatory pressure on the technology sector, particularly Internet companies. The tightening of policies in the real estate market, aimed at curbing excesses, has also affected the mood of investors.
The MSCI China Index, often used by foreign investors as a benchmark, has fallen by about 20% year on year.
“In my opinion, the worst of the Internet regulatory pressures [sector] “He’s with us,” Wood said. “The question is, how do the new rules apply?
According to Wood, China has tightened monetary policy for most of the year, and now it has reached the peak of tightening. It is unlikely that there will be a sharp easing, but there will be gradual steps that will put China in a different direction from the Fed.
“So this dynamic creates a more constructive background for Chinese stocks,” he added.
Analysts have previously said that China’s slowdown is likely to force policymakers to gradually weaken their monetary, fiscal and regulatory policies.
“So my ideal view of China … is to own Chinese stocks, but to defend your stocks with Chinese government bonds, which remains the most attractive market for government bonds in the major markets,” Wood said.
“The Chinese yuan is also expected to remain strong. Any reversal is a ‘buy opportunity,'” he added.
Risks for India
The Indian stock market has been resilient this year despite economic setbacks due to the coronavirus epidemic. The NSE Nifty 50 Index broke the 18,000 level in October, up about 22% to date, while the S&P BSE Sensex benchmark rose by about 20%.
Federal Reserve Chairman Jerome Powell said this week that the US Federal Reserve could step up efforts to reduce monthly bond purchases faster.
The Fed took unprecedented steps to ease the policy when the coronavirus epidemic broke out early last year. It cut interest rates to zero and set a $ 120 billion monthly bond purchase plan to support financial markets and the US economy.
Usually, when the Fed raises interest rates, investors redistribute capital from emerging markets and invest it in US assets as they bring in higher returns. This leads to the devaluation of the currencies of emerging markets against the dollar, puts pressure on their dollar debt.
The Indian economy will be “reasonably buffered” as long as the Fed does not move aggressively on policy, according to Jahangir Aziz, chief economist at emerging markets at JPMorgan.
“Lending growth is unlikely, there is no consumption, there is no growth in investment, the current account deficit is very well contained,” Aziz told CNBC’s Squawk Box Asia on Wednesday. He added that the Reserve Bank of India is also sitting on large foreign exchange reserves.
As of November 19, the RBI had $ 640 billion in foreign exchange reserves.
“Obviously capital flows need to respond to higher or stronger global conditions, but I do not really think that external vulnerability is something that India should worry about,” Aziz said.