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India’s stock bulls are under-appreciating the risks to the nation’s booming market from any escalation in US-China trade tensions, according to UBS Group AG’s Chief Strategist Bhanu Baweja.
Investors are overlooking the danger of disinflationary winds from China, if the country’s exports are hit by President-elect Donald Trump’s trade policies, Baweja said in an interview. The bank has held an underweight stance on Indian equities since 2022, and last year called for Chinese stocks to outperform against the South Asian nation.
“The fact that investors are buying Indian equities aggressively right now, I think they must be careful about what happens in the future in China,” he said at the Swiss bank’s office in Mumbai.
Baweja said India is potentially vulnerable to a two-fold hit from China: stringent US tariffs spurring weakness in the dollar-yuan, which in turn would exert more pressure on the already-weak Indian rupee. He also expects China to redirect exports threatened by US tariffs to Europe and rest of Asia including India, hurting private sector investments as cheap goods flood the market.
India’s steel minister Thursday said the country is mulling a 25% safeguard duty on cheap imports of the alloy, according to a report by Reuters.
“China-related risk to Indian equities from the currency and the industrial capacity is underrated,” Baweja said.
UBS’ warnings are in contrast to its peers, who have touted Indian assets as a potential haven especially if Trump slaps tariffs on China when he takes office next month. Despite the recent correction, the nation’s stocks are on pace to beat emerging market peers for the fourth straight year, driven by record domestic inflows and first-time share sales, which are set to reach an all-time high.
Barclays Plc earlier this year spotlighted the yuan’s increasing importance for the Indian currency due to the widening trade gap with its Asian peer. The rupee-yuan cross has weakened just 0.3% this year, compared with the more than 2% depreciation in the Chinese currency versus the dollar.
“If the Indian currency weakens significantly at a time when disinflationary winds are coming from China in terms of dumping of exports, it will have implications for the stock market in India,” Baweja, an UBS veteran, said.
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