Thursday, July 28, 2011

What Happens if China Slowsdown

“Risky things are not in themselves risky if you understand them and control them. If you do it randomly and you are sloppy about it, it can be very risky.” The key to success, he said, is figuring out “Where is the edge? And how do I stay the right distance from the edge?”

How far away is China from the Edge?China's growth faces downward risk in the coming months amid global economic uncertainties and fast-rising domestic inflation, the Asian Development Bank (ADB) said.
However, there won't be a "hard landing" for the world's second-largest economy, because "policymakers have learned lessons from the 2008 financial crisis and they have the ability to avoid bad results", said Iwan Azis, head of the ADB's Office of Regional Economic Integration.

The risk of the US sovereign rating being cut to AA from AAA is likely to increase borrowing costs and accelerate the depreciation of the dollar, meaning losses for China and other countries that hold US Treasury securities in their foreign exchange reserves

The GDP growth projection by the same bank has been decreased from 10.3% to 9.6% in FY11 and even 9.3% in FY12.

Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said that the August CPI figure might climb to 6.5 percent, and that might not be the year's highest level, considering rapid rises in food and non-food prices.
"Although the economy shows signs of a slowdown, it is moderate, which means a hard landing is unlikely. Another rise in interest rates is affordable for China and the central bank might lift rates in August," Lu said.

Despite all this even a stuttering China will demand commodities as inputs for manufacturing activity.Assuming that the exports fall,demand from the US and Europe slows and  commodity prices come down there is a silver lining that crude and food items will see a slower price rise which may have a tempering affect on the inflation that almost all South Asian countries are trying to control.

It will also have a positive affect in greenhouse gas emissions where in the past decade huge swathes of forest land in Brazil has been cut down to make way for soybean farming.Certainly this  is just an added benefit in the fight to save the planet but on a financial level might lead to a cycle of high demand and low production,so China is the key.

2nd August 2011

All eyes on President Obama as time draws a curtain on the debt row in the USA.Will the limits be enhanced and the bickering settled or will political vendetta let the country get into a quasi default situation.The commodity cycle will turn negative and the looming rating downgrade from AAA to AA,an unthinkable idea for the US.

The potential of a situation worse than the Lehmann Bros crisis cannot be ruled out.Similarly if the issue is settled it will signify some more financial easing and a flood of fresh money in world markets.Commodities will get new legs.

So 2nd Aug will decide trend for global markets,once India  and the FIIs  adjust to the rate hikes and the Monsoon being near normal the macro factors will turn slightly positive at least for the Indian equity markets.

Wednesday, July 27, 2011

The Day of Pundits...

I have not looked at the ticker tapes for a longish while,just seen afew interviews of Mr Nouriel Roubini etc and the mess in mess in Europe the debt imbroglio in the USA.Strange that in the 21st century most economists and their ilk are still feeling their way round data points and giving various interpretations.

In India,RBI says that the data used for declaring GDP,inflation by the Government is not reliable!In an era of information overload its still hard to quantify quality from the rest.Will a big Bank in Europe go the Lehmann bros way?Will Spain,Portugal follow Greece?

I feel the commodity prices are crucial and the RBI is wasting time hiking rates,the critical player is the Government that should look at the supply side issues and unfortunately the requisite infrastructure to support a growing economy has just not delivered.

Rather than fancy penthouses we need a strong Road development policy at the earliest.Just look at the conditions in even so called B Towns like Nagpur,Bhopal,Lucknow and you will understand.Yet the 'experts"predict a bleak outlook for Infra stocks!!

I would not be carried away by the interest rate hype,Indian banks are well capitalized and well managed,the top Real estate firms will ride out the slow down,don't think a growth differential of 7% or 8% will matter,what will matter that we keep growing consistently for another decade to really scale up and real the tribal areas where development will truly thrust this country into another orbit.

Tuesday, July 19, 2011

The Indian Stockbroker

Having seen one of the worst recessions in living memory 2008-09,the coming turbulence is a reminder of the unique way the Indian retail broking industry functions....big expansions when markets rise and vice versa.

Having spent a comparative amount of time in the rather staid retail banking sector I fail to understand why brand building,advertising,public relations budgets are slashed precisely when they are needed the most?I have not seen any innovation in products in the last 5 years,yet the pressure is on the frontline staff to sell,sell sell.

Why after 15 years of the IT bandwagon we still use it primarily as an esoteric appendage to all the varios facets that make up broking?Its only now that a few of the top brokers are buying CRM software to manage data and still it remains a very individualistic industry.

Some analysts are also bullish and some always bearish so 50% are always right!All one needs is to buy some airtime and say what comes to mind,there are no safety nets for that poor soul who depends on his information on business news channels.

In the Age of Information there is still a huge paucity of the "right"information.IT behemoths may be conquering the American and European shores but here hardly is an application developed for the equity markets.Hubris is evident in the channellization of the whole process

The Indian broking companies are market leaders in their own geographical areas but yet to make a dent on a National basis and yet the whole of South Asia awaits...

Is there a Leadership crisis in India,I for one always keep seeing the same old faces and they keep saying the same old things.Are our education systems such that we are afraid to say what we feel and look for the comfort of the herd?

Tuesday, July 12, 2011

Zimbabwe's Che Guevara-Josiah Magama Tongogara

You have probably never heard of Josiah Magama Tongogara, but he is Zimbabwe's Che Guevara, a liberation icon with streets named after him in almost every town in the country. Tall, bearded and charismatic, it was he who, as commander of the guerrilla army Zanla, towered over the Lancaster House conference that led to Zimbabwe's independence and the end of white minority rule.

Many expected him to be the first president of the free Zimbabwe, with Robert Mugabe, head of Zanla's political wing, Zanu, as prime minister.

But six days after the Lancaster House agreement was signed, Mugabe, on the Voice of Zimbabwe radio station, conveyed "an extremely sad message" to "all the fighting people of Zimbabwe": the 41-year-old Tongogara was dead, killed in a car accident in Mozambique on Christmas Day 1979.
Two questions have haunted Zimbabwe ever since. How different would the nation have been had Tongogara lived? And did Mugabe have him murdered?

As a child, Tongogara worked on the farm owned by the parents of Ian Smith, Rhodesia's last prime minister and the man whose racist regime he took up arms against. When he couldn't get a secondary school place, he left for neighbouring Zambia, where he later abandoned his job as bar manager at a white amateur dramatics club to join the struggle. His people's need for "land, land, education, land" was what drove him, he said in his last interview. In 1966, he led a group to China for military training.

Zanla's first Rhodesian prisoner of war, Gerald Hawksworth, said after he was released that Tongogara was always smiling, referred to him as "Comrade Hawksworth" and plied him with cigarettes during his captivity. He was fighting the system, he told Hawksworth, not a racial war.

The future of at least one African nation might have been different.

Thursday, July 7, 2011

House Cleaning in Indian Politics

Dear Reader do not say that you did not know that Murli Deora was close to the House of Ambani?The Marans did not armtwist those who stood in their way,not just them but a lot of Indian business families."The Polyester Prince"by Hamish Mcdonald will make interesting reading for those interested.

Every day the sun rises on a new minister facing news of corruption enquiries etc etc,Its not as if corruption never existed in India before the 21st Century!

I say its good,let us clean our house and admit that some people do get carried away by power.What disturbs me is the fact that the powerful IAS officers rarely face any look in although they are the true originators of most policy decisions and the ministers mostly a rubber stamp that changes every few years.

Let us be an open society,have respect for women and stress on charity thats genuine a la Narayan Murthy or Shiv Nadar.The corporate sector will be all the more global and attuned to the requirements.

Green energy along with food security is a theme I keep thinking about.It will be important to have clean energy as also uncontaminated food.Suzlon Energy,Indowind,Jain Irrigation all have the potential to be multi baggers.

You will remember my buy call on SBI when it was 2130,today the scrip is 2500 when the Chairman of SBI has turned bullish on his company and feels that it will be in the fortune 100.Easy for me to say,"I told you so!!!"