Samir Arora on market fall: China re-balance only tactical short-term move, can’t predict geo-political risk, be ‘reactive’ to global cues

Helios Capital's Samir Arora

Markets are spooked by concerns around foreign investors re-balancing their portfolios in favour of China, and selling stakes in India. Plus, geo-political tensions are also keeping investors guessing about the potential risks to markets. How real are these risks and how to deal with these. Market veteran Samir Arora shares his strategy

Is 'Sell India, Buy China' trade taking root worrying you?

In my view, it doesn’t really matter. I don’t think foreign investors will actively "Sell India to buy China" beyond some marginal trades. Yes, a small percentage of funds, constrained by assets, might be selling India to buy China. But largely, when China does well, flows will go into emerging market funds, Asia-Japan funds, and Asia-Pacific funds, which is a positive for the entire region, including India.

China’s poor performance has been dragging down indices and returns for these funds. You can’t thrive if the entire region is struggling. If China does poorly, you can outperform relatively, but ultimately, you do better when the whole region, including China, is doing well.

But valuations – China is still super cheap. Investors could choose just China focussed funds, right?

Well, the Chinese market has suddenly become 25% more expensive than it was two weeks ago. If China was, say, 20% of the index and is now up 25%, the whole index’s valuation has increased by about 5-7%. That means India is now 5% cheaper than it was a week ago. That’s how the market works. That’s how the world thinks.

Meanwhile, Indian mutual funds are sitting on cash. If other markets, like the U.S. (due to rate cuts) or China (because of stimulus), perform well, Indian fund managers will also deploy cash with more confidence.

Also read: Stimulus Effect: China, Hong Kong markets soar together; $3 trillion surge in two weeks

How do you see the geopolitical situation? Will it blow up or keep humming in the background without much damage?

It's difficult to say whether this will turn into something big or not. Israel is fighting multiple groups—Hamas, Hezbollah, the Houthis, and directly with Iran. We can only be guided by the markets themselves. Major markets, such as the U.S. and Asian markets, suggest that this conflict is still seen as contained. But yesterday there were more strikes…

Right now, it seems Israel may be thinking that if Trump wins, he will support them, and if Kamala Harris wins, she might push for a peace agreement. So, perhaps Israel is frontloading its actions. It's too complex for us to take a clear view beyond a certain point.

How do you view crude at $75? If there were a real geopolitical risk, wouldn’t we have seen a bigger jump?

Exactly. If the war were expected to be serious, markets wouldn’t be this calm. There's been talk that oil prices might drop—Saudi Arabia even suggested it could fall to $50. Also, if Trump wins, which I think is more likely, there will likely be downward pressure on oil prices because (a) he's more proactive and aggressive in dealing with the Middle East, and (b) they’re lifting many restrictions on oil drilling.

The fact that oil prices aren’t rising, and markets aren’t falling, shows that the world believes things are relatively stable. And I’m just part of that world—I’m not the price setter, I’m the price taker. This is the collective thinking of the global market.

So what’s your approach?

Be more reactive rather than proactive.