India could be the beneficiary of anti-AI rotation trade: CLSA's Redman

India could emerge as a potential beneficiary and attract foreign investor flows due to the global anti-artificial intelligence (AI) trade, said Alexander Redman, chief equity strategist at CLSA. Redman was speaking to reporters as part of CITIC CLSA 28th India Forum.

 

“India is still a market that does capture a lot of imagination for foreign investors, because it’s still one of the last true emerging markets where you can take advantage of a demographic dividend and positive urbanisation, credit growth, reform and productivity growth. Few other emerging markets can offer you the characteristics that India has. And of course, it’s large, it’s broad, it’s scalable,” said Redman.

 

Redman said India’s investment appeal hasn’t improved much over the last 12 to 18 months, although its trading is now cheaper following the correction during this period.

 

“It’s not so much the carrot as being the stick that would force investors to re-engage. India, being a relatively broad and liquid market, offers a potential destination for the anti-AI trade. Other places might include countries like Brazil or bits of Asean, although their liquidity is a concern,” said Redman.

 

When asked about how the rally in Chinese equity markets impacted flows to India, Redman said he does not subscribe to the argument that they are mutually exclusive.

 

“People clearly did use India as a funding source for China over the last 12 to 18 months, but that was because India had exhausted its own rally and was overdue for a negative adjustment anyway. But I guess in the same vein, you could argue that if money is looking to rotate out of China, it can find its way back into India. But I don’t buy the argument that you can’t be in both at the same time. I think a larger draw for funds extracted from India over the last 12 to 18 months is probably Korea and Taiwan,” said Redman.

 

Speaking about US equities, Redman said that from a valuation standpoint, it certainly appears as if US equities are either in or at least approaching bubble territory.

 

“The earnings-yield-to-bond-yield ratio is the most unattractive for equities versus bonds since, quite clearly, 2002. Clearly, the market is also incredibly concentrated. More than half of the earnings of the S&P 500 are coming from just seven stocks. Almost half of the index’s market capitalisation is now held by just 10 companies. So, as and when you start to get a crack in the whole investment case of the MAG-7 or AI-related plays, the whole market is going to feel the collateral damage,” said Redman.