“If you look at broad indices over the last six or seven years, multiples haven’t expanded that much… So why has the market done well? Because corporate earnings have been strong,” he explained.
Jain believes non-US markets, including India, appear more attractive from a valuation perspective, particularly as US equity markets seem expensive relative to interest rates.
“The S&P is trading at 23–24 times earnings while bond yields are at 4.5%. That’s hardly a bargain,” he noted.
Despite these valuation concerns, he emphasised that global capital still needs the US due to its depth, innovation, and lack of viable alternatives for recycling large trade surpluses.
“US assets are indispensable,” Jain said, while clarifying that his current stance isn’t to sell US assets, but rather to recalibrate exposure towards better-valued markets with sustainable growth prospects.
India, in particular, stands to benefit from the evolving “China+1” strategy, as companies seek to diversify manufacturing bases away from China.
“India is part of the solution from a US context,” he said, noting that the country’s relatively low trade surplus with the US and its large domestic economy make it a less vulnerable and more appealing destination for long-term capital.
On the broader US-China dynamic, Jain cautioned that despite recent dialogue, no real trade agreement has emerged.
“As the Treasury Secretary said, they had good discussions. This wasn’t even a framework,” he remarked, pointing to non-tariff barriers in China — such as subsidies and forced technology transfer — as the core issue, rather than just headline tariffs.
He also highlighted the structural nature of policy shifts that began under the Trump administration.
“People have rightly compared this to what happened in the early ’70s, when the Bretton Woods system ended,” Jain said. While short-term tariff adjustments may come and go, he believes the larger trend of rethinking globalisation and manufacturing is real and will continue shaping global markets for years to come.
Edited Excerpts:
Q: It’s been a year, perhaps a little more, since we last spoke. How the world has changed. Back then, we were discussing the possibility of Donald Trump becoming President. Now, he is President and has unleashed change at a pace few could have imagined. Your initial thoughts, Rajiv, before we dive into specific themes?
Jain: The magnitude of these changes is still underappreciated, because such shifts occur only once every few decades. People have rightly compared this to 1971, when the Bretton Woods system ended. Even a slight shift in the long-term trajectory of manufacturing and outsourcing under the Trump administration could be seismic. Geopolitical tensions have added another layer. I personally believe markets have yet to fully comprehend these shifts — the changes are very real.
Q: Many felt that until, say, last weekend, when the US-China trade talks took place. After two days, tariffs were slashed to levels far below even the most optimistic forecasts. Some say the Trump administration blinked. Are they truly committed to the kind of once-in-50-years changes you’re referring to?
Jain:
We take a slightly different view. Firstly, there was no actual deal. As the Treasury Secretary said, the discussions were good, but this wasn’t even a framework. It was simply about easing the first round of tariffs. For instance, at this point, the US tariff is 50% — 20% from a prior term and 30% added on top. China has agreed to keep it at 10%. But that’s not a deal. Both sides, particularly the US, view this as a way to cool tensions. Even the US-UK discussions amounted to a framework, not a binding agreement. Trade deals take time. From a business standpoint, clarity is still lacking. If you’re a manufacturer in China considering relocating to India, Vietnam, or back to the US, you’re still wondering: will tariffs revert to zero, or spike to 100%? The uncertainty is significant. We don’t believe there’s a deal in place.
Q: Do you believe China remains the main target for the Trump administration — the one in need of course correction?
Jain: Yes, that remains the objective. The real issues were outlined in a White House document released just before what they termed “Liberation Day.” It detailed the barriers to US exports — mainly non-tariff barriers. Chinese tariffs are not especially high; they’re in the mid-to-high single digits and could go to zero. The real concern is non-tariff barriers. China’s “Made in China 2025” strategy identified key industries to support through subsidies and incentives. They’re now leaders in more than half of those areas. That’s unlikely to change.
Technology transfer is another key issue. China is unlikely to abandon forced technology transfer, which was also on the table in prior negotiations. To give one example: the US has imposed tariffs on Switzerland, despite Switzerland having no tariffs on US goods. Why? Because this is also about jobs. The US industrial base has been hollowed out over the last three decades. The aim is to rebuild it. Switzerland also offers low corporate taxes, attracting many multinationals. So, the mix of tariffs, non-tariff barriers, and tax structures is aimed at making the US more competitive. We believe both sides are buying time. Let’s see what happens over the next 60–90 days.
Q: In that context, what’s your view on the “China+1” strategy? Countries like Vietnam and Cambodia benefitted during Trump’s first term. India hopes to gain this time. How do you see this theme playing out?
Jain: Vietnam is following the successful East Asian model — a path Japan, Korea, Taiwan, and Singapore took after the Second World War. India is different. While it is building out its manufacturing base, India has done remarkably well in attracting investment with the right policy mix. This helped China tremendously, and India is now benefiting too.
Vietnam has become a transshipment hub, which the US Trade Representative has flagged. That’s why Vietnam is not likely to escape scrutiny — we’ve already seen a 46% tariff imposed. Vietnam also runs a large current account surplus.
Our framework is simple: countries with large surpluses with the US are more vulnerable. That includes Vietnam, Korea, and Taiwan. India, on the other hand, does not have a large trade surplus. It has a sizeable domestic economy. From our perspective, India should be a net beneficiary. There will be hurdles — two steps forward, one step back — but the overall direction is favourable. Brazil and Indonesia may also benefit, unlike some of the surplus-heavy East Asian economies.
Q: We’ve seen a sharp recovery from the lows. What’s your view on US assets now? There was a brief panic about a major sell-off, but things have calmed. Is US “exceptionalism” making a comeback?
Jain: Frankly, talk of US exceptionalism has mostly been driven by market movements. But the US remains the innovation hub — Europe has little innovation and even China lags in cutting-edge areas. For instance, DeepSeek launched two years after OpenAI.
From an asset allocation standpoint, countries like China run over a trillion dollars in trade surpluses. These funds need to be recycled. They either go into US assets or stay within China. Europe can’t absorb that capital — its currencies would spike. Gold is too small a market. So the US remains indispensable for capital recycling.
However, from a valuation standpoint, US equities are expensive — both relative to history and to interest rates. In 2017, when Trump took office, the S&P was at 17x earnings and bond yields were 2%. Now, yields are 4.5%, and the S&P trades at 23–24x earnings. That’s not cheap. Higher bond yields exert real pressure on valuations.
We think it’s time to be more cautious. Non-US markets look more attractive. If US markets underperform, capital will seek markets with reasonable valuations and decent growth. India fits that bill, as do select European and emerging markets.
Q: So it’s not a case of selling US assets entirely, just rebalancing?
Jain: Exactly. To illustrate: India has been among the top emerging market performers over the last decade, yet foreign investor participation has been limited. Index multiples haven’t surged dramatically over the past six or seven years. So why has India’s market done well? Because earnings have been strong.
Ultimately, earnings matter. If companies are delivering and valuations are reasonable, investors will be rewarded. In contrast, US equities are pricey. European equities are cheaper, but many are cyclical — banks, industrials — and may struggle in a global downturn.
So, when assessing valuations, you also need to ask: how resilient will earnings be in a recession?
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