Donald Trump’s recent election victory is poised to shift near-term investment flows toward India and Japan, as concerns over potential tariffs on Chinese goods loom large. The prospect of heightened trade tensions under Trump’s administration has led market participants to reassess their exposure to Chinese equities.
As investors digest Trump’s anti-China rhetoric, which includes threats of imposing tariffs as high as 60% on Chinese imports, financial analysts at Morgan Stanley have reaffirmed their preference for stocks in India and Japan over those in China.
India is increasingly viewed as a viable manufacturing alternative to China, appealing to investors due to its domestic-driven economy that offers a degree of resilience against global economic fluctuations. Meanwhile, Japanese equities are expected to benefit indirectly from Trump’s reflationary economic policies, which are likely to keep interest rates elevated. This scenario would strengthen the dollar while weakening the yen, thus providing a competitive edge for Japanese exporters.
“Supply chains are shifting away from China, benefiting not just Japan and India but also other nations in Southeast Asia,” noted Mark Mobius, a seasoned investor in emerging markets. “India stands out as a significant beneficiary because its workforce can rival China’s in both size and labor costs. If Trump maintains or intensifies trade restrictions on China, it will bode well for India.”
The looming threat of tariffs complicates Beijing’s efforts to stimulate its economy and bolster market sentiment through various stimulus measures initiated since late September. Consequently, the ongoing legislative meetings in China are becoming increasingly critical for investors.
Morningstar analysts Lorraine Tan and Kai Wang highlighted that if China’s anticipated stimulus measures fall short of expectations, investors might pivot from Chinese equities to Japanese stocks, similar to trends observed prior to China’s initial stimulus announcements.
Chinese stocks were already facing downward pressure leading up to the U.S. election, with a recent rally driven by aggressive monetary policy losing momentum amid a lack of substantial fiscal plans. The CSI 300 Index experienced a remarkable 35% surge from a September low until October 8 but has since declined by over 3%.
Republican proposals for increased tariffs on Chinese goods are likely to dampen growth prospects for the world’s second-largest economy, according to Morgan Stanley strategists including Jonathan Garner.
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