Tariffs not going to move the needle much for Chinese or Indian markets: Mark Matthews
, MD,
Julius Baer
, suggests that while the tariff landscape between the US, China, and India is evolving, markets appear unfazed. He notes that exports are no longer critical for either the Chinese or Indian economies. Despite trade tensions, the Chinese market is performing strongly, with Hong Kong experiencing significant growth.
For the Indian market, the biggest thing will be the earnings and anything less than high single digits growth will disappoint the market as it is not particularly cheap.
Help us with your take on the markets and especially how do you see Indian markets shaping up because we have been doing pretty well. Nifty is at an 8-month high. Nifty Bank is very close to all-time high levels and even the broader markets are participating. Is the worst behind us when it comes to the tariff concerns, and earnings not doing that well?
Mark Matthews:
Generally, the tariff news is moving from escalation to de-escalation. Most importantly, the US-China relationship is improving. But with India, there were hopes that a deal would be struck by the end of this month and I do not know how much the market has priced that in. I have not heard any news about it happening. There is obviously this big sticking point about access to the Indian market for US agriculture companies and I understand why that is sensitive for India because there are a lot of jobs that could be lost in the rural areas if you open that market to the outside world. So, I do not know.
I do not think tariffs are going to move the needle that much. The biggest thing will be the earnings which you mentioned and typically in India, the earnings accelerate in the second half of the year. I am not expecting double-digit earnings for the April to June quarter, but I think that if it is anything less than high single digits, the market will be disappointed because it is not particularly cheap. You probably know it is at around 21 times price to earnings. So, we need some earnings to bring that price to earnings ratio down.
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What are you making of this entire US-China trade deal? You spoke about the India impact in terms of markets. But when it comes to some of these issues like tariffs or rare earth metals, where do you believe India stands, if at all, to gain from all of this? Can we expect some
global delinking with China
now that other countries could consolidate a better share of REM?
Mark Matthews:
Yes, possibly. The tariffs that the US has on Chinese imported goods were 30% until a couple of days ago. Now, they have gone up to 55%, and that is a very high number where companies can substitute from other sources, I am sure they will try. The Secretary of the Treasury, Scott Bessent, said that this is a preliminary deal and both sides are willing to continue to negotiate to get a permanent deal where the numbers are lower. I do not think 55% is the final number with China. But I do think that when all is said and done, when the dust is settled, the tariff on Indian imports into the US will be lower than Chinese ones.
If I just bring that back to markets, I do not think the markets are that fussed about this because exports are not really that important for the Chinese economy anymore. As you know, they are not for India either. So, this creates a lot of noise, but I do not know at the end of the day, how much it really hurts or helps either country's GDP. The Chinese market is one of the best markets in the world so far this year. The Hong Kong market is up about 20%. Last year, it was also up about 25%.
China is really back on the map and Bank of America hosted a conference last month in Shanghai where many investors from around the world went to Shanghai and many of them had not visited China since before Covid. The fact they were willing to get on an airplane and go all the way to the other side of the world shows that many people are willing to be constructive on China and view it as investable again.
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