India Up, China Down; More US Fed Rate Cuts Coming: Jefferies' Chris Wood

Christopher Wood, Global Head of Equity Strategy at Jefferies, is bullish on India and has increased weightage on the fast growing economy. However, there is a downward revision for China.

In his popular note, 'Greed And Fear' the veteran market tracker also said that though the US Federal Reserve has taken a hawkish tone in its latest monetary policy, there is scope for more cuts in the new year.

"More Fed rates are coming, if only because of the unacknowledged need to reduce debt servicing costs," the Greed & Fear note dated Dec. 19 read.

The Jefferies' note dated Dec. 19 announced some adjustments to its Asia Pacific ex-Japan relative-return portfolio. It increased weights towards India and Singapore by one percentage point and 1.5 percentage point respectively.

The weightings in China, Indonesia and the Philippines, on the other hand, will be reduced by half of a percentage point each, while the weighting in Hong Kong will be reduced by one percentage point.

India currently commands the second highest weight in the Asia Pacific ex-Japan, as recommended by Jefferies, with a 1.1% overweight against its weight in the MSCI AC Asia Pacific ex-Japan index.

Interest payments on the debt held by the US government have grown to their highest level in over two decades, when considered as a percentage of the country's gross domestic product, while the gross debt as a percentage of GDP is also at multi-decadal highs.

DSP Mutual Fund's Netra report for the month of December highlights this, also stating that "The biggest risk that US and global economy faces is a sudden and large drop in US spending or its ability to finance its spending."

If the US Federal Reserve chooses to keep the funds rate unchanged, interest payments expenditure will rise to an all time high of 5.7% of GDP at $1.7 trillion, DSP said.

"If the Fed embarks on another 75 bps of interest rate cuts, the Federal Interest payment expense will rise to 4.1% of GDP, the highest levels in nearly 25 years," DSP's report stated.

Since the report was released, the US Fed has cut 25 bps, and indicated only 50 bps more in the year ahead, in line with DSP's hypothetical stated above.

The US, which is infamous for the largest military spending across the world, has recently seen interest payments on its debt climb higher than its defense expenditure, as a percentage of its GDP.