Moneycontrol Pro Weekender | What’s the nature of Trump’s game?

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Dear Reader,

The latest twist in the ongoing ‘Trump upends the World’ saga is a report by the New York Times saying that “Trump eyes a bigger, better trade deal with China". The report says, "Mr Trump has expressed interest in a deal that would include substantial investments and commitments from the Chinese to buy more American products… He would like an agreement to also include issues like nuclear weapons security, which he envisions ironing out man to man with Mr Xi, his advisers say."

The Chinese side has responded to the report rather stonily, merely saying that "trade wars and tariff wars produce no winners", but optimists believe it’s yet another indication that the US now recognises that the world is "multipolar" and is figuring out how best to advance its interests in this new reality. That viewpoint gained traction a few weeks ago, when US Secretary of State Marco Rubio, in an interview, said, "So it’s not normal for the world to simply have a unipolar power…. — that was an anomaly. It was a product of the end of the Cold War, but eventually you were going to reach back to a point where you had a multipolar world, multi-great powers in different parts of the planet. We face that now with China and to some extent Russia….’’. Together with the decoupling from Europe, this view suggests not just that Trump’s tariff threats are a prelude to negotiations, but, far more significantly, that Trump believes in a world split up into spheres of influence by the Great Powers.

It certainly doesn’t mean that there will be an end to the rivalry between the US and China. But if the view is correct, the Cold War rhetoric may be dialled down. History offers cautionary tales, though—after all, Britain and Germany had robust trade ties before World War I.

The end of the unipolar world, however, has upset quite a few people—European leaders, for instance, are devastated by the removal of the US umbrella. This FT story anxiously asks the question: Who will now stabilise the world economy? The implication is clear -- Instability is the new normal.

Global investors, though, remain unfazed. Bank of America’s survey of global fund managers this month said investors are bullish, long stocks, short everything else and cash levels have plunged to the lowest level since 2010. Surprisingly, despite all the angst about Europe, there has been a sharp rotation by fund managers to Eurozone equities. What’s more, 22 percent of fund managers surveyed said the Euro Stoxx index would be the best performing equity index in 2025, 18 percent each said it will be the Nasdaq and the Hang Seng while 17 percent favoured the US broad-based Russell 2000 index. Clearly, as the Survey said, investors are convinced that the "trade war" is no more than a "tail risk".

Nevertheless, 42 percent do believe that a global trade war is the biggest risk to global markets. In this regard, Monty Python had a sketch back in 1972 called the Fish Slapping dance, introduced by a fellow who with his distinctive hairstyle looks remarkably like Donald Trump. The fish slapping, of course, may well have been code for slapping tariffs on each other. Here’s the sketch, for your edification.

Be that as it may, there’s no question that the mood has soured on Indian markets. Bank of America’s Asia Fund Manager Survey for February 2025 said that “support for Indian equities, an erstwhile market favourite, continues to dwindle with allocations collapsing to a two-year low’’. China allocations, on the other hand, are at a 2-year high, thanks largely to DeepSeek shining the spotlight on the remarkable strides made by Chinese technology, and Xi Jinping’s recent meeting with technology leaders signalling that their days in the doghouse are over.

The fall in the Indian markets isn’t really about Trump’s tariffs, although they certainly play a role, and we wrote about the threat to Indian pharma exports. As we wrote here, a combination of high valuations, low growth, and a weakening currency is leading to a shift of funds out of India. This personal finance piece, for instance, says that all eyes are on market valuations. And then, of course, there has been the froth in mid- and small-cap stocks.

But it’s far from being all gloom and doom. The HSBC Flash India Composite Output index for February, an advance indicator of private sector activity in both manufacturing and services during the month, was at 60.6, up from a final reading of 57.7 in January. That shows strong momentum and although the PMI may not reflect conditions in the broader economy, it does point to the continuing recovery from the depths plumbed during the June-September 2024 quarter. The nowcast of growth in the RBI’s State of the Economy report puts Q4 GDP growth at 6.6 percent. The RBI’s survey of professional forecasters puts median Q3 growth at 6.4 percent and Q4 at 6.8 percent. With the second advance estimates of GDP growth for FY2024-25 and the Q3 numbers to be released on 28th February, we’ll know soon enough how robust the recovery has been. That will determine the outlook for earnings, which in turn will determine market direction because, as this article says, “even if Indian equities do not correct further, they can be expected to tread slowly or remain range-bound until earnings upgrades start to justify valuations”.

Also, global markets have now had plenty of time to prepare for higher tariffs. The dollar index has started to retrace and this article pointed out, “The new US administration’s stance to end geopolitical conflicts — Middle East, Russia-Ukraine — is positive for equity market sentiments and should support stability in commodity prices (especially crude) and therefore, could be aiding margins for India Inc.’’

The problem, of course, lies in trying to predict what Trump will do, simply because his role model seems to be Alice in Wonderland, who famously said, "I know who I was when I got up this morning, but I think I must have been changed several times since then." Also, "I can't explain myself, I'm afraid, Sir, because I'm not myself, you see." And a final one: "Who in the world am I? Ah, that’s the great puzzle!"

As this Rolling Stones song titled ‘’Sympathy for the Devil’’ said, what’s puzzling all of us is the nature of his game:

‘Please allow me to introduce myself

I'm a man of wealth and taste

I've been around for a long, long year

Stole many a man's soul and faith……….

…….Pleased to meet you

Hope you guess my name

But what's puzzlin' you

Is the nature of my game.’

Cheers,

Manas Chakravarty

In case you missed them, here are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks

MC Pro Budget 2025 Portfolio: These 18 stocks are set for newer heights on market rebound

Weekly tactical pick: Why one should consider this defence PSU, HEG, Intellect Design Arena, Engineers India,

SP Apparels, Cholamandalam Investment, SJS Enterprises, Crompton Greaves Consumer, SG Mart, Hindalco, DOMS Industries, Garden Reach Shipbuilders, Senco Gold, CDSL, Mazagon Dock Shipbuilders, Heritage Foods, ABB India

Markets

Are lock-in expiries in IPOs scary?

Banking sector holds key to markets

Arbitrage funds catch investor fancy as flows hit Rs 4,300 crore in January

Financial Times

CEOs’ forced smiles show the limits of AI-driven investing

Musk’s elevated status could raise X’s value too

BYD’s strategy shift is bad news for global automakers

Apple’s quiet pivot to India

Trade isn’t all about Trump

Companies and sectors

Why, despite gaining market share, is the M&M stock falling?

FMCG outlook remains tough

IT companies’ stable tech budgets may face macro headwinds

What do Q3 asset quality trends for banks show?

Dual regulation must go to arrest frequent deaths among cooperative banks

A huge opportunity in the healthcare space is attracting large business houses

NBFCs’ overall loan growth moderates in Q3, but gold loans surprise

Economy & Policy

BSE 500 records sub-10 percent topline growth for seven straight quarters

Are states borrowing their way to collapse?

How to read RBI’s forex intervention

How to make the nuclear tilt in the energy mix work?

RBI Survey: Indian farmers still love cash, but digital is gaining ground

Economic Survey reveals some risks in the financial system, but glosses over many others

Pro Economic Tracker

Geopolitics

Amerika Uber Allies

US-Europe alliance comes under pressure after Munich conference

Will Trump oblige as Modi dials M for India-US trade momentum?

Trump 2.0—a nightmare for macroeconomic policy makers

Trump’s policies could make the EU a contested geopolitical space

Tech & Startups

Startup Street | Remaking of a unicorn – the Zomato playbook

Personal Finance

Panic selling is the enemy of retail investors