It’s early days yet, but the initial winners and losers in the equity markets as a result of the trade war fears can now be seen. China is the biggest loser, because it seems to be US President Donald Trump’s main target and also because it is an export-oriented economy. As the accompanying chart shows, its stock market has been affected the most. Year to date, the Shanghai Composite index has shed 14% in local currency terms.

Retaliatory tariff moves by both the US and China have dampened overall stock market sentiment globally. Asian markets such as South Korea, Hong Kong and Taiwan have felt the repercussions too.

The Indian market, on the other hand, has remained an exception, outperforming its Asian and developed market counterparts. While a full-fledged trade war would have dire economic consequences, the Indian stock market continues to shrug off those worries. In rupee terms, the benchmark Sensex has posted 7.44% returns year to date. However, unimpressive returns in dollar terms explain why foreign investors are still shunning Indian stocks. But strong and incessant inflow of funds by domestic investors is making up for it. Expectations of an earnings revival in the June quarter are also fuelling optimism among investors.

Although the Sensex has touched a record high, the benchmark may not be a true barometer of the market. That is because the rally is driven by a handful of index heavyweights. While the large cap stocks have started to catch up, mid-cap and small-cap stocks have been beaten black and blue. So far in this calendar year, the BSE mid-cap and BSE small-cap indices have corrected 12.74% and 14.62%, respectively, while the Sensex and Nifty rose 7.32% and 4.68%, respectively.

Also, valuations across the board remain expensive, which is a warning to investors. As elections near, political uncertainty will rise and would have a bearing on the stock market’s movement.

As for developed economies, the US stock market is hardly impacted. In fact, global fund managers are bullish on the US economy and expect US corporates to report robust earnings, as the latest Bank of America Merrill Lynch global fund manager survey showed. The US remains a largely domestic-oriented economy, much as India is.

In Europe, although wages are rising, investors remain wary of political trends in the continent. Investors would closely watch cues such as winding-up of the central bank’s quantitative easing programme and change in direction by Italy’s new government.

Interestingly, some other equity markets are benefiting from the relentless pressure on key markets. According to global fund-flow tracker EPFR Global’s report dated 5 July, Russia Equity Funds posted consecutive weekly inflows for the first time since mid-April and Turkey Equity Funds took in fresh money for the 12th straight week.

“Earlier in the year, investors were treating these and other Emerging European markets as ‘value traps’ that appeared cheap until structural and political trends are factored in. Flows to these country and regional groups rolled over well ahead of Emerging Markets Equity Funds as a whole," EPFR Global said.

Saudi Arabia, Mexico and South Africa are some other equity markets which have been seen decent inflows as investors chase fresh opportunities.

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