GREED & fear: Jefferies cuts India weight, ups China's, says this on Fed rate cut

Christopher Wood in his latest GREED & fear report said Jefferies will increase the weighting in China in its Asia ex-Japan long-only equity portfolio by two percentage points to adjust for the recent outperformance, adding that this will be paid for by reducing the weightings in India and Korea by one percentage point each. 

"The weightings in Alibaba, BYD, Tencent and CATL in the Asia ex-Japan long-only portfolio will be increased by one percentage point each with the investments paid for by removing the investment in the Indian industrial Siemens Limited," he said on Friday.

Amid US-China tariff war, Jefferies' Wood said investors are confused while, more importantly, corporates will be delaying investment decisions. GREED & fear’s base case is that a deal will be done by Trump with China, which will not be dictated by the National Security Lobby, just as Trump’s policy towards Ukraine is directly at odds with the stance of the National Security Lobby. 

"If such a deal is done, it will make American fund managers much more willing to invest in Chinese equities since it will no longer be a career risk to do so since China will no longer be considered uninvestable. Meanwhile, Chinese stocks continue to trade well amidst the current noise. China is also outperforming year to date which creates its own form of pressure on active managers," Wood said. 

The MSCI China has risen 16.1 per cent in dollar terms year-to-date, compared with a 2.1 per cent gain in MSCI AC World, while it is still trading at only 11.5 times 12-month forward earnings.

On India, Wood of Jefferies said: "For a reason not completely clear to GREED & fear, the whole European Commission had decided to visit the Indian capital last week at relatively short notice. But it clearly has something to do with India now being viewed as the most attractive area of investment after the dominant focus on China in the past two decades and more." 

He noted that the only time the entire European Commission has decided to descent on a country in such a manner, so GREED & fear was told, was a “solidarity visit” to Ukraine on February 24. 

GREED & fear noted that while there has been a few negative economic data releases in the US, so far bad news has not been good news for the stock market with both Big Tech and the broader small-cap Russell 2000 index correcting on slower growth concerns. 

Wood said it will not require many more weak data points or daily stock market falls for markets to start pricing in renewed near-term Fed easing, with the end of quanto tightening also likely moving up the agenda. 

"Remember that the Fed is still reducing its balance sheet by $60 billion a month. Indeed money markets are now discounting 70 bps of rate cuts by the end of 2025, up from only 28 bps on 12 February, with the first cut expected in June. In this respect, GREED & fear’s base case is that the Fed has already fudged the 2 per cent target and that the time for another Powell Pivot is approaching almost regardless of the next inflation data point," it said.

In this respect growth, or the lack of it, will likely be prioritised over inflation, it noted.