Tuesday, June 11, 2019

The Price of A Trade War

Going back to the great Indian "Tamasha" of an Election in May 2019 and the stunning,unpredictable  majority win by the incumbent government ensures that the focus has shifted back to the economic side of things.

Trump's Trumpet↴

Twitter has been The Donald's trumpet,bleating out inanities,news,threats,views,personal opinions and this most colourful of characters has really let the World know what he even dreams about I guess.

It does however provide a highly unreliable feedback of coming policy decisions or actions.

The Price of A Trade War⇘

I cannot fault American logic as China and a lot of other countries have utilized 'favour' clauses to stack up trade credits in their favour by subsidizing production and gaining access to large markets for their products."Dumping" is an oft used but overlooked clause.

OBOR. China that leads in a synchronized Military - Industry push across most of Asia in Pakistan,Sri Lanka,Nepal,Maldives,Kazakhasthan have already seen the negative consequences of too much debt owed to Chinese companies that are backed by the Chines authorities. No where across the world is a ruling clique so involved in furthering their own interests and the single minded devotion to the task and the long term planning is frightening in its intensity.

Yet,China has been allowed to grow so vast and their shipping and trade tentacles reach almost every corner of the globe and any attempt to streamline trade or take punitive action will lead to the World undergoing upto a 10% de growth in major economies especially those in Europe that are bracing of Brexit.

Having written a whole paragraph,I am unable to comprehend the magnitude of the consequences or how and where the actual issues will arise.

Hopefully after having made his point President trump will settle for a gradual reduction in trade deficit and some tariffs without hurting Chinese egos.

De - Growth⇓

We in India are witnessing a situation where growth has slipped dramatically but inflation has not grown to threaten the economy but it is very close to doing so. A good monsoon,that looks unlikely,might change things for the better as many initiatives of the previous authority has fallen flat and "Made in India' has to be pushed to succeed or the 8-10% GDP dreams of economists will not materialize.

Markets are close to highs and yet a closer reading shows that 90% of the listed stocks are listless as earnings expansion has failed to keep pace.
Production > Demand,be it cars or clothes is not a positive sign.It leaves open the chances of a strong correction in prices post the Budget in July 2019.

My reading is that sometimes in those months succeeding July will offer bargain hunters in stocks a very good chance to create a portfolio for the next Year or two.

Those who read my blog would remember  this space saying that pre Election results was a good opportunity and the Nifty has moved from 11100 to 12100 albeit mostly in the large cap space.

Post July 2019 will be window no 2.

Focus on Public Sector Undertakings➤

The last 5 years have shown that this government favours PSUs and is ready to push in capital and orders to ensure business.I am positive on the following:-

A. State Bank of India(current market price 340-45)
B. Bharat Electronics (CMP 109) - which is in the defence space
C. Container Corporation of India(CONCOR,CMP 536)

Over the last one year the market has been challenging for investors and I have always said that those who expect the volatility to subside post elections will be surprised.But then its such conditions that create opportunities to find the next multibagger.

🔺For feedback or any discussion one can contact the author at 9831554477 or on twitter @dzango71