Geoff Dennis, Independent Emerging Markets Commentator, says In terms of India, he has long thought that one has to be invested in banks, technology, and to a certain extent pharma. A broader consumer portfolio would require a little bit more confidence that the Indian economy will rebound. If investors see that, they will start to rotate some money towards consumers. But right now, it is not a great environment for emerging market investing because of what is going to happen in the US over the next several months in terms of new policies from the Trump administration.
Chinese leaders have signalled more stimulus for next year. There have been a slew of other measures in the past as well. But the big challenge for China continues to be a consumption boost. With these recent new announcements, do you anticipate a meaningful impact?
Geoff Dennis: I am pretty unimpressed by this because all you are getting here is more rhetoric from the Chinese. They are announcing apparently a dramatic statement that they are going for a prudent monetary policy to moderately loose. I have two issues with that. Number one, what are they actually going to do? What does that translate into in terms of monetary policy? Secondly, monetary policy easing has occurred over the last several months with no obvious impact on the economy, so that is point number one. Point number two, the promising fiscal action, but we do not know what they are going to do and we need to know the details, we need to put those policy changes in place because frankly it is fiscal expansion that the Chinese economy needs. So, it is rhetoric right now. We are not getting any details until March. The Chinese have developed a habit of over-promising and under-delivering on some of these policy measures. So, I am not impressed. I need to wait and see the details.
But will it lead to a meaningful impact? The Trump threat is looming large as well which could perhaps derail the growth process in the country?
Geoff Dennis: Agreed and this is why there is a greater urgency for the Chinese authorities to act now or at least rather faster than the three-month window that they have given themselves. This is typical of the way the Chinese do this. It is all a process. It is a prolonged process. While they are going to set out their goals and targets for 2025 at this current Politburo meeting, we need to see actual action on the fiscal side, particularly lower taxes and lower taxes on consumers and also real attempts to try to deal more successfully with the property sector which still remains very weak.
Meanwhile, there is the overhang of the tariff policies potentially coming in under President Trump when he is inaugurated in mid-January. Again, we do not know exactly what Trump is going to do. We have to wait and see but the Hong Kong market and the Hong Kong China Enterprises Index market rallying between 2.5% and 3% I think was an overreaction. The local market, the Shanghai Composite did nothing and that tells you foreigners are more excited about this than the domestic investors and I remain unimpressed. I want more details. And, of course, as you say, there is the tariff overhang still to come.But on the India point, we have seen FII selling in the past few weeks post the initial set of fiscal support measures came in from China. Do you anticipate further FII selling to China and then how does that really change the overall market set up here in India?
Geoff Dennis: Well, clearly India has hit a bit of a wall in terms of the market performance, as you rightly say. You have seen some significant FII selling. My call all along has been to kind of favour India at the margin over China and I have not got this one entirely wrong. I do not think you have really seen a sustained rally in China. You have seen big pops and then it has come back again. You have got a big pop today and it is probably going to come back again. Whereas I think with India, the challenge to its long-term performance here, the long-term performance of the Indian market is going to be more what happens in the domestic economy where obviously that more recent GDP number or that recent GDP number was a bit of a negative surprise.
So, what foreign investors need to know to get back into India is not necessarily what China is going to do there, we have to wait and watch for that. But they really need to know is this economy in India slowing sharply and does that reduce the attractiveness of the Indian stock market? For me, I have for many months now favoured India over China. It has not been particularly good call in the last couple of months, but I would stick to that on the assumption that the Indian economy is going to continue to grow quite well and is going to grow more rapidly than the Chinese economy where we continue to await real measures that will stimulate the economy as opposed to a lot of talk.
If you really talk about the broader set up, global set up, there is an expected boost for the US markets post Trump’s comeback and now China. Which sectors do you suggest for investors to look out for and which markets are currently looking relatively attractive to you?
Geoff Dennis: Let me answer the second question first. I mean, I posted something about a week ago which said America first means emerging markets last and unfortunately, the policy framework that is probably going to develop under President Trump when he takes office will, I think, be tough for emerging markets because logically it means that the dollar is going to stay strong, possibly strengthen further. I do believe bond yields will rise further, having pulled back a little bit recently, will rise again because of all the fiscal expansion that Trump is promising and so I think it is still going to be quite hard to get people really to put a lot of money to work in the emerging markets over the next several months, unless Trump comes in and does something completely different.
As of this moment, emerging markets have underperformed developed markets in 2024 by 1300 basis points, which is a big underperformance, probably one of the widest of the year. So, people are going to continue to be very wary about investing across the board in emerging markets. Now, what would I like? I think you have got to continue to look at oil, not least because of the latest uncertainty created by the collapse of the Assad regime in Syria, which is pushing oil prices up today.
In terms of India, I have long thought you have got to be invested in the banks, technology, and to a certain extent pharma. A broader consumer portfolio would require a little bit more confidence that obviously you have expressed just then that the Indian economy will rebound. If investors see that, they will start to rotate some money towards consumers. But my general point right now is I do not think this is a great environment for emerging market investing because of what is going to happen in the US over the next several months in terms of new policies from the Trump administration.
