Chris Wood trims India exposure; says geopolitics biggest risk to markets

Christopher Wood, global head of equity strategy at Jefferies has cut his exposure to Indian equities by one percentage point in the Asia Pacific ex-Japan relative-return portfolio; and Australia and Malaysia by half a percentage point each in favour of China, which has seen a hike in exposure by two percentage points.

The rally in China, Wood wrote, has been fast-forwarded by the approach of a seven-day holiday with the CSI 300 Index up 8.5 per cent on Monday, and up 25.1 per cent in five trading days. The next day of trading in Shanghai will be October 8. 

“As a result, China’s neutral weightings in the MSCI AC Asia Pacific ex-Japan and MSCI Emerging Markets benchmarks have surged by 3.4 and 3.7 percentage points, respectively over the past five trading days to 26.5 per cent and 27.8 per cent. This highlights the difficulties facing fund managers in these asset classes in a country where key policy decisions are, seemingly, essentially made by one man,” Wood said.

Geopolitics a risk

A deterioration in the geopolitical situation is the biggest risk to global equity markets, Wood said, which he believes is not yet fully discounted by them. In case of an escalation of the crisis in West Asia and/or Russia – Ukraine, he said, all global markets, including India, will be hit badly, which they are not yet prepared for.

“I am still of the view that the biggest near-term risk to markets remains geopolitics. The conditions on the ground in Ukraine and the Middle East remain as highly charged as ever. Still a (Donald) Trump presidency will trigger expectations that at least one of the conflicts, namely Russia-Ukraine, will be resolved quickly,” Wood wrote recently in GREED & fear, his weekly note to investors.

Earlier this week, Iran, the Israeli military said, had fired missiles at Israel - a sign of worsening geopolitical crisis in West Asia. The Israeli government, according to reports, had warned of severe consequences in case Iran escalated its involvement in the conflict.

Oil on the boil

An immediate casualty of the geopolitical developments were the crude oil prices (Brent) that surged nearly 5 per cent from a level of around $70 a barrel on October 01 to over $74 a barrel. 

Over the past few weeks, however, crude oil prices (Brent) had cooled off from a level of $75 a barrel to $68 a barrel levels. 

The main driver, according to analysts, had been the news narrative of weaker-than-expected Chinese demand data, confirming that the world’s largest crude importer was still mired in economic weakness filtering into the construction, shipping, and energy markets.

The oil market, wrote analysts at Rabobank International in a recent note, remains at risk of a supply glut if OPEC+ proceeds with plans to return some of its sidelined production. 

They expect Brent crude oil to average $71 in October - December 2024 quarter (Q4-CY24), and forecast 2025 prices to average $70, 2026 to rise to $72, and 2027 to trade around the $75 mark. 

“We still await the flattening and decline of US tight oil production in 2025 alongside Russian compensation cuts to inject some price appreciation later in the year and in 2026, but overall the market looks to be on a longer-term flat trajectory. Geopolitical issues in the Middle East still support upward price risk in the long-term,” wrote Joe DeLaura, global energy strategist at Rabobank International in a recent coauthored note with Florence Schmit.