America’s trade war with the rest of the world threatens to shake up long-held alliances, disrupt global supply chains, and reinvent methodologies for calculating the appropriate level of reciprocal tariffs. Now add another entry to the list of economic dogma being rumbled by U.S. President Donald Trump’s duties: the idea of a safe-haven investment.
Historically, the U.S. dollar has strengthened, and Treasury prices have rallied, as investors scrambled to buy assets perceived to be safe during financial turmoil.
In the market chaos since “liberation day” of April 2, several new patterns have emerged, and one shows that investors are viewing India as a hedge against a potential future flux in trade flows.
Indian stock markets, currency and bonds — while not being a perfect measure of the new trend — have outperformed U.S. equities, the dollar and Treasurys this year.
Meanwhile, more than four-fifths of its equity market is domestically owned. Domestic investors — who have regularly poured billions through systematic investment plans — typically shield asset prices from the whims of foreign investors during events that exacerbate volatility.
“The fortunes of India’s equity market are for the most part decided domestically,” said Alexander Redman, chief equity strategist at CLSA.
Morgan Stanley’s Chachra also pointed out that the recent decline in oil prices, preceding concerns of a global growth slowdown, is likely to be positive for India, given that energy accounts for a large share of India’s import bill. The inverse relationship between global growth and the benefit to the Indian economy appears to be another arrow in India’s quiver.
India imported $277 billion worth of fuel in 2022. This accounted for 38% of all imports into the country for that year, according to World Bank data.
The long decline in India’s stock market, which preceded the U.S. presidential elections and was driven by concerns over lofty valuations, has also brought down stock prices to more amenable levels.
“India has the most negative [earnings per share] revisions … across emerging and developed markets with the exception of Indonesia,” CLSA’s Redman said.
This has perhaps offered a floor for stock prices and mellowed the sell-off ravaging global markets in recent weeks.
The question investors are perhaps asking themselves is whether these trends are likely here to stay, or will the world go back to its old ways?
