A third strongman has managed to do what the two before him couldn't: Sever the link between the stock markets of China and India.
The correlation between the CSI 300 and the Nifty 50 indexes survived Xi Jinping's ascent to power in 2012 and Narendra Modi's election in 2014. Donald Trump, however, has succeeded in driving through a wedge. The link between equity prices of the world's two most-populous economies is now the weakest since at least the 2008 financial crisis.
In some ways, the decoupling predates the U.S. presidential election. Markets that ebb and flow in tandem 30 to 40 percent of the time had developed minds of their own by the time Britain voted to leave the European Union last summer.
However, correlations are supposed to be mean-reverting. The continued divergence of China and India this year, with the Nifty's 21 percent jump in dollar terms overshadowing a 5 percent gain in the CSI 300, shows that Trump's policies may be prolonging the separation.
It isn't that investors have become relatively more bullish on Indian earnings compared with those in China. On a price-earnings basis, the Nifty has on average enjoyed a 40 percent premium over the CSI 300 since early 2012. The gap, which widened to almost 100 percent when Modi's election as Indian prime minister started to look like a cinch, is currently 29 percent.
Even so, every gain in the Indian benchmark is making investors skeptical. A friendless rally, as Gadfly has argued, is good for the market because it's keeping investors focused on how, for example, Trump's proposed clampdown on H-1B work visas would hurt India's software exports. But companies like Tata Consultancy Services Ltd. and Infosys Ltd. are anyway stoking the embers of a dying industry. What's not getting enough attention is the impact of the other Trump proposal: tax reforms.
Now, a 15 percent U.S. corporate tax rate is probably a chimera, but if the ultimate political compromise in Washington is for a meaningful reduction in what companies pay, the lift to their profitability is bound to make them search for growth markets.
As New Delhi's own tax reforms pave the way for a common domestic market of 1.25 billion people, some of those U.S. investments could head to India.
From e-commerce to finance and payments, there's no Indian industry with a settled hierarchy of dominant local players like China's Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. A new wave of mergers and acquisitions is just starting, and everything is fair game. What's not obviously on offer -- like the family jewels of overstretched, unprofitable companies -- will eventually go to the likes of KKR & Co.
Given China's mountain of corporate debt, a property-led economic recovery there can't last very long: Even the current business cycle upswing may be on its last legs.
Xi is backing the One Belt-One Road initiative to buy some insurance against a more protectionist Trump, even though the risk of a border adjustment tax is receding.
While India has a massive jobs deficit, the almost 6 percent gain in the rupee this year suggests that becoming the next factory to the world with the help of a cheap currency is not on Modi's wish list. That's one more reason why a recoupling of the Chinese and Indian markets is unlikely to happen soon.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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