India, China may find favour with overseas asset allocators: Richard Harris

Richard Harris, Entrepreneurial Fund Manager, Investment Strategist and Analyst, Port Shelter Investment, says if global markets are struggling, emerging markets will likely face the same challenges. However, if we continue on our current path, emerging markets appear promising. China is particularly appealing now as it enters a recovery phase in 2025. Additionally, there is growing interest in India from foreign investors, possibly because they see India as a unique opportunity. India might avoid the tariffs affecting China, making it an attractive option for manufacturing instead of relying solely on China.

For a world which was shaking, things are looking better. Have markets by and large digested the impact of a trade war?
Richard Harris: I do not think so because the game is not over yet. We had Trump coming out with some rather strident comments. He backed down pretty heavily when he actually spoke to the leaders himself and everybody says well it is just a negotiating ploy. But then we have to work out what other negotiating ploys are out there. If he starts sabre rattling and making policy from the stairs of Air Force One again, for instance about Europe, then it could be really quite serious.

The trade war between the US and Europe is very serious indeed. I am pretty sure that the Europeans. just like the Chinese, and the Mexicans and Canadians realise that if they throw Trump a few grains, he will back down on a lot of his more extreme pronouncements. But it still leaves a very difficult situation. People would not forget how aggressive he has been even towards his allies and they probably would not forgive either. It just made the whole tension between the US and many of its trading partners much more difficult. It is not going to go away.

But how does one deduce this entire piece and would you say that the dollar is only going to become dearer and would you say that the large chunk of the money flow will continue to be ploughed back into US equities?
Richard Harris: Well, in the short term that is probably the case. Where things are pretty important is if Trump's policies do start damaging the US economy, for instance the kind of instability that we are seeing, may knock confidence. We are seeing the job numbers maybe not quite as strong as previously. The consumer is very important. If the consumer feels they are now getting a bad deal from Trump and the economy, then things may well turn around.

So, at the moment yes, we have to look at a strong dollar, we have to look at the consumer still strong and companies still doing well and do not forget bull markets die hard. But looking further out there is quite a danger now that Trump's policies will hurt the US economy. If that happens, then we may well see people starting to talk about recession and the Fed putting interest rates down and that will pull the dollar down.

We are looking at a game of two halves. Early in the year, we are going to see things carry on pretty much as they are, but then as confidence starts to weaken, we may see a pullback in these indicators.

Do you think it is time now to position for a dull second half for developed markets and a strong second half for emerging markets? Is it time to start positioning like that?
Richard Harris: Well, it is always difficult to say that emerging markets will outperform global markets. If we see for instance 10% down in global markets, it is very difficult for emerging markets to back that trend. It is just because emerging markets often react to FII investment in India. It only takes a small allocation to go from Western markets into India to make a difference and the same the other way around because they are buying on the margin and prices are actually made on the margin.

If world markets are difficult, then emerging markets will be the same. But if we carry on as we are now, then emerging markets look interesting. China looks very interesting now because it is in a recovery phase in 2025 and also I am noticing there is a lot more interest in India from overseas asset allocators partly because maybe they have discovered that India is an interesting market, that it may escape the kind of tariffs that we are seeing from China and there will be a lot of substitution with people maybe finding India quite a good bet to manufacture in as opposed to having all their eggs in one basket in China.