Conflicting Analysts and Convicted Rapists

Fri, 2011/01/28 - 12:38pm | Your editor

 

Your editor started out worrying about conflicting views of Chinese growth from Standard Chartered and Maquarie Bank China hands. But the prognostication problem goes deeper. A comment by Tim Price of Britain's PFP Wealth Management:

 

Given their role in the financial crisis, taking investment advice from investment banks is a bit like taking marriage guidance advice from convicted rapists. Nevertheless, as The Economist points out, Goldman Sachs and SocGen recently held investment strategy conferences that were poles apart. “In the Goldman world the forecast is for eternal sunshine; visitors to the SocGen world would need to carry an umbrella and a gas mask.” Which nicely summarises the lack of conviction at large in the investment world – perhaps 2011 will be a muddle-through year after all. One common theme to all the SocGen presentations was apparently the use of CAPE, the cyclically adjusted price/earnings ratio for the US stock market, popularised by economist Robert Shiller. Stocks look overvalued by roughly 40% on this measure, trading at a level that SocGen analyst Andrew Lapthorne suggests has previously delivered average real returns of just 1.4% per annum.

Buying the (US) stock market at current levels may deliver disappointing returns, then. But we are talking averages, of course, which hold little appeal or relevance to those of us who are focusing instead of bottom-up value, defensiveness and not least yield. And stocks, of course, are not the only game in town – but at a time when both cash and bonds have been effectively discredited as meaningful asset classes by central bank market manipulation, they represent the only traditional asset class with any hope of generating real returns if analysed selectively and with conviction.

That two large financial institutions can contemplate the same investment landscape and come to such radically different conclusions also acts as a reminder that institutional advice and management inevitably incorporates [sic] biases and conflicts.

(Price's firm is at 3 Windsor Court, Clarence Drive, Harrogate, HG1 2PE tel: 01423 523311 and at Lion House, 72-75 Red Lion Street, London, WC1R 4FP, 020 7400 1860, both in Britain or www.pfpg.co.uk)

 

 

Frida Ghitis writes about the Middle East impact of riots in Egypt:

“The flames lapping at the heels of Arab dictators put much heat on the diplomatic security platform underpinning Israel (and its economy.) We don’t know how this will end, but Israel has much at stake in what happens in Egypt, the first Arab country to make peace with it, and Jordan, the second. I expect Israeli stocks to behave timidly on the upside for now.

“Ultimately, Israeli shares have proven resilient in the face of turmoil.”

 

Today's blog includes reports from our far-flung network of reporters around the world, in Japan, India, and The Netherlands, plus reports from Korea, Deutschland, France, and Latin America and Canada as well. We have a sell note on one of our positions. Our network is paid for by subscriptions. We have not set the system up to block people using a "day pass" to view our portfolio for only $25 to prevent multiple passes to the same person.

 

I cannot believe that someone who valued our service enough to log on repeatedly using a day pas would try to cheat on the fee to subscribe, barely a dollar a day. And that when reproached he insulted both your editor and the webmaster. Oh brave new world that has such people in it!

Read more »

A Sample Recommendation, for NRI's: Tata Global

Thu, 2011/01/27 - 2:25pm | Your editor

 

 

Here is a report on Tata Global Beverages Ltd. from our new Indian team of analysts, at Religaretech. It is not a buy recommendation for those who have to trade the Global Depositary Receipt in Britain. This is legal for Americans as the stock has been out over 90 days. But TTAZF is extremely illiquid. So I think only Non-Resident Indian readers who have reliable family members able to trade in Mumbai should consider buying. The BSE stock is traded at TGBL. I am posting this for all to see because I want pre-subscribers to see what one of our reports contains. Since most readers are not NRIs, they won't be hurt by our sharing this article. Over to Ranjan, the head of research and his colleagues Anurag and Nishant:

 

TGBL’s share has registered a 52 week high of $ 3.08 and a low of 1.94 on the Sensex. When measured by the 3-months Rate of Return, it underperformed against the benchmark. Moreover, TGBL fell by 10.2% during the past six months, while the Sensex gained 5.5% . Since the close of the 2001-10 fiscal year, in Mar. 2010 ,TGBL’s return was meagerly positive at 0.9%, but well below the Sensex’s return of 7.1%. Over a year both TGBL and the Sensex gave a healthy return, 9.6% and 13.3% respectively.

Last Oct. TGBL formed a 50:50 JV with PepsiCo India Holding Pvt Ltd for non-carbonated, ready-to-drink beverages. They plan to launch bottled water, fruit-flavored instant iced tea, jelly-based tea, and other products. The new JV will tap into the price-sensitive segment of the market but one which is growing rapidly. Packaged water overall produces sales of $325-$435 mn/yr, and is growing at a robust 20%/yr. Last Dec. as part of its fund raising plan, TGBL indicated it is likely to dispose of minority stake in its UK arm to private equity investors. It is being advised by Rothschild's investment banking firm. The diverstiture will probably be of a 10-12% interest in the Tata UK sub, Tetley Tea. Tetley enjoys more than 35% market share in its home market and the brand is sold in over 40 countries. This funding move supports the world’s second-largest branded tea maker’s strategy of expanding into new categories and countries, mainly by takeovers. It aims at revenues of $5 bn by 2015 from the existing $1.5 bn.

TGBL plans to make up for unimpressive Q2 results by acquiring more lucrative health beverage and snack products globally. Volume growth in Indian tea is a bare 1% now compared with 3-4% two years back and is in a flat trend globally. So food and other beverags acquisition is likely. As part of its strategy to diversify beyond beverages, TGBL, grown by takeovers over the past few years, is likely to go shopping in the food space with fast-growth small to medium-sized buyouts in coming quarters.

TGBL reported tepid growth of 3.1% at $321 mn (YoY) for Q2 (to end Sep'10.) Consolidated sales growth was hurt by low volumes in its key markets because of price hikesand the adverse effect of the exchange rates. The tea division comprises of 76% of total revenue, and registered growth of 4%. The remaining revenue came from the coffee and other products segments which rose by a mere 1%. Net profit plunged by 82% to $11 mn YoY due to an exceptional item and soaring operating expenses, up 7.1% to $293 mn (YoY). Exceptional items were attributed to restructuring business and translation impact from forex hedging in overseas subs.

Moreover, persistent pressure on sales volume in key markets and raw material price volatility for key raw materials (tea and coffee) along with currency fluctuations will probably keep TTAZF’s profit under pressure in FY2011.

 

Vivian adds: this is a little-known piece of India's Tata Raj (empire) but a basic element. TTAZF was the first stock for which Tatas created a Depositary Receipt, now followed by motor cars and IT, both much more liquid and widely-traded. If you want to see more ideas like this which you can act upon even if you are not an NRI, subscribe.

Read more »

El-Baradei Returns

Thu, 2011/01/27 - 1:37pm | Your editor

 

More blizzard. The view is gorgeous, diamond studded trees with glittering icicles dripping, the air scented and the ground covered with Christmas trees awaiting the dustmen since Epiphany. But Mayor Bloomberg says not to go out unless you have to so I am sticking to my office. I commute by elevator.

The official big news is that Standard & Poor's has downrated Japan because its hopelessly deadlocked government cannot do anything about the country's mounting deficit. This is clearly meant to be a warning for this country, but it is actually irrelevent for Japan. Firstly, the downrating has been forecast for months because S&P told us it was re-examining Japan's AA rating. So now it is AA minus. But since most Japanese govt debt is bought by Japanese nationals, this will not affect markets.

Far more exciting is the return to Egypt of Mohamed El-Baradei, the Nobel Prize winning former UN civil servant who headed the International Atomic Energy Authority. Mr. El-Baradei ran against Mubarak in Nov.'s fraud-laden Egyptian presidential elections and won a dubiously low 3% of the vote. Mr. El-Baradei is not only seeking support within Egypt from the discontented youths who are demonstrating against the regime at risk of their lives. He is also aiming to give the West (and above all the US) an alternative opposition to support in place of the Moslem Brotherhood, terrorists, anti-Christians, and leftists, all of whom Mubarak demonizes and paints as the only opposition to his rule.

The Egyptian bourse has fallen 18% in two days because of street demos, and trading has now been halted. No, it is not buy-time in Cairo or Alexandria. To say nothing of Tunis. Or Sa'ana. Or Algiers.

My dispute with Fidelity is now in the hands of arbitration. But two bits of news comfort me. Firstly, it turns out that I and many subscribers own a stake in the company which acquired Stallergenes, my trade for which I suffered a guillotining rather than an execution. The Ares buyer in Switzerland turns out to be an investment fund which I own.

The other revenge is that the creators of the hit off-Broadway play Avenue Q, a take-off on Seseme Street and political correctness, are now producing a new on-Broadway musical. It is called “The Book of Mormon”. I suspect that some if not most of the young, male, and poor Fidelity International desk traders in Salt Lake City who botched my sale are members of the Church of Christ of the Latter Day Saints. Mocking Mormons is a B'way tradition, as in Angels in America.

It is certainly a tough religion, prohibiting not just alcohol, but also tea and coffee. I had a Mormon friend in college, Barbara von R., whose Junker mother had converted after escaping from East Prussia at the end of World War II, and learning what horrors had been done by the Nazis in her name. Being very posh with lots of quarterings in the Almanack de Gotha, Barbara's Mutti converted all her ancestors to her new faith. But her husband walked out in disgust. My triumph was persuading Barbara to eat my beef bourguignonne despite it having wine in the gravy, because all the alcohol evaporated during the cooking, and the role of the wine was the same as in the classic German “Sauerbraten” we both grew up with. I've lost touch with her.

More for paid subscribers from Peru, Israel, Australia, Sweden, Britain, Singapore, Brazil, Japan, and New York, where I have a side-note on the state oversight board taking control of Nassau County (a posh area on Long Island.)

Read more »

Aethelred the Unready

Wed, 2011/01/26 - 12:25pm | Your editor

 

Your editor is being snowed under by the 4th blizzard in NYC this winter. She admits that she missed Pres. Obama's State of the Union address yesterday night. My comment is therefore indirect. I went to the opening of Richard Wilson's new opera, Aethelred the Unready. Aethelred's last aria goes:

I've spared the world travail

Shunning every brute aggression

Inclining toward more lyric expression

Through gentle ornament and apt detail.

 

Maybe Aethelred's current followers as rulers of England were too aggressive. The Conservative-Liberal coalition opted to prematurely cut Britain's government deficit by eliminating programs and raising taxes. The tax rises only really hit this year.

British Dec. quarter GNP numbers show what happens when deficit spending is slashed during a recession. Growth falls, in Britain's case by 0.5% in the quarter, at a time when other countries' GNP is rising. The impact on growth was mainly from cuts in government jobs so far.

Here is NYU Prof. Nouriel Roubini's comment:

The UK government has engaged in a forceful reduction of its fiscal deficit (“Plan A”) to ensure debt sustainability and thereby reduce the risk of a loss of market confidence in public finances. The move has been effectively endorsed by Bank of England Governor Mervyn King, who has said that further quantitative easing could be used to support the economy if necessary (“Plan B”). However, the risk to the market was overstated, as the UK has enjoyed safe-haven status while pressures have intensified in eurozone countries. We see no assurance that the rest of the economy will continue to expand while the government tightens its belt, and Plan B might not be enough to offset the recessionary risk, given that the Bank of England’s base rate already has been lingering just above zero. Supporters of immediate fiscal tightening say that there are signs of recovery, led by the private sector, but we expect private consumer demand to be subdued in 2011.

There is a message from the British experience for fierce deficit cutters back in the USA. As with Britain, there is a political component in the demand that taxes and programs be cut even before economic growth is assured. Toadying to tea party activists can cause a double-dip recession, for which the Republicans could then bear the blame, something like what happened to Herbert Hoover. I expect that some Republican mainstream pols are aware of this.

Being a nuclear power nut (thanks to living for years in France where the country runs on atomic electricity), I am glad that some of the anti-nuclear scare-mongering from environmentalists has been beaten back by the Administration.

More for paid subscribers from lots of corners of the globe today, as I am again snowed in, and as I spent yesterday morning with Messrs. Dow and Jones. I had futile hopes of getting a handle on the conflicting outlook of Macquarie and Stan Chart over China. Fuggedaboutit. The panel were not logical or complete, preaching their own politics, their own book

My favorite takeaway quotation from the session was by Michael J. Woolfolk, PhD, managing director of BNY Mellon. He said three times:

 

"The G7 is expected to grow faster than expected."

 

No, it does not make sense. Another of his Polyanna comments troubled me too because I don't believe it:

 

"Investors have learned their lesson and won't pile into an asset class."

 

Now for paid subscribers starting with France and Britain with side trips to India and Vietnam, Singapore and Brazil, India and Korea, Norway, Holland, Colombia, Japan, Australia, and Canada.

Read more »

No Bloomberg Machine

Mon, 2011/01/24 - 7:03pm | Your editor

 

Because I am attending a Dow Jones forecast session Tuesday, this newsletter is being sent out Monday night. While I have made fun of prognostication as the New Year begins, it is a firm Wall Street tradition. Besides, I need some forecasts.

 

Here's why, first from Bloomberg website datelined Davos:

Global gross domestic product will swell to $143 trillion by 2030, allowing for inflation and market-exchange rates, from $62 trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.

Lyons and his colleagues predict a 'super-cycle' of historically high growth that will last at least a generation and will be led by booming trade, investment and urbanization, according to a report published in November. He reckons such a cycle has occurred only twice since the end of the 18th century: the four decades before World War I and the three following World War II. He's betting the new phase will contribute to a reversal in the three-decade decline for U.S. bond yields after 10-year Treasury notes lost an average 40 basis points a year since the early 1980s.

 

An alternative view from Shirley Zhao and Michael Kurtz from Macquarie Equities Research in Hong Kong think Chinese investors are dropping growth stocks for value ones:

With tighter monetary conditions and high seasonal cash demand impinging on market liquidity and fundamental earnings visibility, mainland institutions have begun to question the pricey valuations of the A-share Consumer, Mid- & Small-cap, and Health Care stocks. Latest data show rotation underway within equities from growth to value (including value in some cyclical sectors).

{Comparing Q4 to Q3] expensive Consumer and Health Care sectors are less Overweight while cheaper Property has been increased to a modest Overweight from slightly Underweight previously, and Financials are less Underweight. Mainland institutions' top three Overweights now are Machinery, Food, and Health Care. The higher-valuation Retail sectors are no longer among top Overweights.

This rotation largely explains A-shares' YTD relative sector performance, with last year's best-performing sectors (Health Care, Consumer Staples, and Info-tech) underperforming and suffering recent consensus EPS downgrades.

Downside risks may be limited at the market-wide, index level [because]:

*Big caps, Shanghai A-shares, large-cap dominated trade at trade at a reasonable 12.4x forward PER, a 28% discount to their long-term average. Yet even after substantial YTD underperformance, Shenzhen A-shares (mostly mid- and small-caps) still trade at an expensive 23x forward PER, an 18% premium to the long-term average.

*[But Chinese lack] better asset class alternatives. Mainland institutions have recently trimmed overall equity holdings slightly in the process of beginning a rotation toward value; but with high inflation and the PBoC shy about higher interest rates – meaning lower real interest rates – we expect cash and bonds to remain less interesting than reasonably valued stocks.

*Similarly, while recent retail investor activity has seen in lower 'equity participation rates' and slowing new account formation, negative real savings deposit interest rates should sustain underlying demand for better inflation-hedged vehicles outside the bank system. We think reasonably priced stocks will offer a more compelling inflation-hedge than China's frothy and policy-constrained property market.

 

So while Davos man is predicting a double decade boom in China, two respected analysts sitting in Hong Kong (whose main business is picking China stocks) are talking about constraints on growth, value rotation, and hedging against inflation. They come up with stocks faut de mieux rather than because they really like the equity outlook. So I need a Dow Jones guru.

 

My office is being redecorated and is a right holy mess, another reason for taking off. The man from Fidelity who phoned my office to tell me they were banishing my account yesterday left a number where I tried twice to return his call. The number does not produce a human being and you cannot leave a message. So much for Old Faithful.

Three readers turn out to be unknown stockbrokers, happy to lure in my account. But they are rather too elite for your editor. I want lots of free data, free pricing, and internet trading, such as I was promised by Fidelity, and such as I had earlier with E-trade except when I was outside the USA. Since I pick my own stocks, I don't really need too much hand holding, unless one of the posh brokers wants to contribute a Bloomberg machine lease, something I cannot afford.

 

Other readers suggest Charles Schwab or Interactive Brokers. I don't know much about Schwab but I use IB in the Covestor yield account which readers are allowed to track for a fee. I find it user-unfriendly, and do not like having to pay for pricing information. Reader JC is testing Schwab on a tough trade. He wrote:

 

 

I've never seriously tested Schwab's exotica handling capacity for price and execution. I did buy the now famous Lynas as  Australian shares in 2006 at their International Order telephone desk but generally I don't make the effort to buy difficult to buy -maybe even inconvenient to buy- stocks. So when those come up, I generally let them pass. Feeling inspired, I'll call the International Desk tomorrow when they are open. I would guess it will be quite an easy transaction. 

 

He will be buying a share recommended by me for paid subscribers. Global Investing is a profitable business, but it hardly counts as a major earner. I make money by following my own advice. If I didn't run the newsletter I would not have access to Dow Jones indexes, Macquarie research or the work of Frida Ghitis and Chris Loew, whose finds reported yesterday I purchased the moment the newsletter was published.

 

More for paid subscribers follows from Panama, Australia, and Japan. We sold two funds from the Pacific Rim countries yesterday and bought into developed countries.

Read more »

Two More Trading Alerts

Mon, 2011/01/24 - 3:16pm | Your editor

To make room for our new buys we are selling two shares from the Model Portfolios today. More information for paid subscribers only. Join them. Your heirs will love you more if you do.

Read more »

Two Buy Alerts in One Day

Mon, 2011/01/24 - 12:21pm | Your editor

*Chris Loew writes up a tech company from Japan first.

Nidec Corp (NJ), the top maker of brushless DC motors, will not just sit and spin. Its aggressive expansion plans will help rise with market trends. We should ride it with them.

Nidec'se cooling fans and disc drives are used in many PC and electronics applications, but it is aiming at new outlets for automotive, household, and industrial motors. With plants in China and India, NJ last year purchased with strong yen two Emerson divisions, Commercial and Industrial Motors, and Appliance Motors and Controls.

Brushless DC motors in electronics have better energy efficiency, while offering less noise and electro-magnetic interference than AC motors. With autos incorporating ever more electronics, these benefits will lead to more DC motors in cars. The EU requies higher energy efficiency for home appliances to cut carbon dioxide. Nidec’s BLDC motors answer this need too.

Banned by Fidelity

Mon, 2011/01/24 - 12:19pm | Your editor

Today I got a call from Fidelity to say my account was being closed and that I have to find a new broker. I did not stay on the phone to discuss the details because you expect your blog. That gives me another thing to complain about in my arbitration case.

 

A macro-economic report on Japan follows from our man on the scene, Chris Loew:

Foreign investors have been increasing Japan’s weighting in their portfolios since strong corporate earnings reported in August 2010, despite the high yen, caused a rethink of prospects. Is Japan the great overlooked and underloved opportunity?

Political drift is likely to stall real change and that’s good!

Everyone knows the Japanese government cannot afford the increasing retirement pension costs for its aging population. Nor can the ruling Democratic Party of Japan afford the goodies it promised during the elections, like child subsidies and removal of highway tolls. Also, the national debt is already multiples of the GDP. One solution is raising the sales tax, but the last time PM Kan floated this idea, his party lost the upper house election.

The administration is weak, with low approval levels, and the NDP is divided over whether to force former party boss Ichiro Ozawa to testify before the Diet about campaign finance fraud charges.

Don’t expect the issue of government debt to be seriously addressed. For investors (other than in bonds) that’s probably good; a hike in the consumption tax rate in 1997 from 3 to 5% precipitated the bursting of the asset bubble and could lead to a dreaded double-dip this time.

Exchange rates have stabilized, but makers of industrial commodities are losing out to Korea and Taiwan. Specialty product makers should be all right, especially when they can design products and make key components in Japan while doing cheap assembly work in low-wage countries. But tire, steel, and chemical makers are hurting. Consumer electronics can be largely considered as commodities these days as well; a flat screen TV from Toshiba is not very different from one from Samsung. Stick to strong niche manufacturers and avoid commodity producers.

Can Japan exit form deflation? Some firms that slashed bonuses post-Lehman have restored them, but new graduates are not finding jobs. Some money-losing group firms are being cast adrift to sink or swim, or merged with competitors. The latest wholesale price report showed a decline. It is too early to say deflation is over. Stimulus measures had their effect, but are winding down now. Expect to wait a while for real growth; accordingly, choose companies with low debt, which equals staying power.

Play sectors. Most investors are looking to pare back defensive positions and go for those areas most likely to benefit from a recovery. Big reversals can be seen when manufacturers go from low to full equipment utilization, but only if exchange rates allow them a profit. So, steer clear of commodity manufacturers and go for specialty makers with very strong market position. Moderate short term losses might be tolerated if their debt is low and market position very strong.

 

We follow with a techology company find by Chris Loew, another from Frida Ghitis, and news from Britain, Spain, Portrugal, Israel, Germany, Belgium, Holland, Switzerland, Sweden, and Japan, for paid subscribers. Join them and your portfolio will grow.

Read more »

Snowed under again

Fri, 2011/01/21 - 11:54am | Your editor

We had another dump of snow overnight and I have a dental appointment so today's blog will be short.

 

Drug companies may not do better with right-leading governments than with lefty ones, at least not in Britain. U.K. Health Secretary Andrew Lansley warned drug industry officers on taking office for the Conservative-Liberal coalition in Britain the he would chop prices of new meds below what they were seeking. Lansley is a Tory. The minutes of the talk were obtained by Bloomberg under the British Freedom of Information Act.

More about drug profits, oil drilling, stock arbritrage, and nuclear power for paid subscribers follows from aroung the globe.

Read more »

Arab Outlook and Goldman Sachs

Thu, 2011/01/20 - 12:59pm | Your editor

 

Events in the Arab world are surprising, but it's hard to know what they signifiy for other Arab countries. In Tunisia, the long-time corrupt Ben Ali regime was overthrown by street deomonstrations following a self-immolation, recalling 1960s Vietnam. Now similar suicides by some fo the 40% unemployed male youths typical of the Arab world are reported from Egypt, Algeria, and other countries.

This can play two ways. Will the lesson of the Tunis uprising result in quick reforms by other Arab ruling group, or will street fighting and barricades spread across the borders?

Sudan probably will have to give up its oppression and control of the Christian-animist southern tribal regions, after an internationally supervised vote. There are other fissiparous regions all over the Arab world, like Darfur, but also in countries like Egypt, Iraq, the Gulf states, and even Morocco where I ended 2010.

But most Arab countries do not have such an evil reputation that international supervisiors oversee their elections for fairness. So most elections remain Chicago-style warped. Will the trend to fair elections take off in the Middle East? Note that there is nothing unIslamic about voting. About 45% of Moslem men and women worldwide have a right to elect their leaders, in Indonesia, Pakistan, India, Bangladesh—if not in the Arab world.

Meanwhile in Lebanon, the government has fallen because Syrian-backed Hizbollah does not like the likelihoood that the UN tribunal examining the murder of ex-Premier Rafiq Hariri will censure both Damascus and the internal Shia leadership. Saudi Arabia has “washed its hands of Lebanon”, because Bashir al-Assad, the Syrian president, ordered the pullout despite a deal with the Saudi ruler.

There is one striking feature of all these recent events in majority Arab-speaking countries. They have absolutely nothing to do with Israel and the Palestinians, a perpetual focus of commentary on the region.

For pundits as well as for the Arab street, the conflict with the Jewish State is a diversion from the real aspiration of Arabs – like other people -- for justice and an end to impunity, political and economic fairness, voting rights, clean government, jobs and development.

Now a note from reader FH (in Sweden) about my blog yesterday and replies:

I am a confused by your newsletter over the last couple of weeks concerning India, and China. Are you advising your readers to avoid China, Asia, and India and sell out of funds etc in this region? I miss a comment from you on Goldman Sachs recommendation? Do you agree with Goldman saying to “avoid China”? And what about India?

I replied. The top of the blog with general economic news is more widely distributed than the stock advice. It is posted all over the web. If I think that the macro trends mean we have to do a trade, I
tell readers in the subscriber part below. I do not think that the Goldman report requires that we act on it.

While I am concerned about an India or China Index Fund, we do not own such a thing . We invest in non-index small and mid-cap companies in both countries not the index. We are using a closed-end small cap India fund as a "place-holder" until we get something I can publish from our new India stringer who is still getting to know the ropes (He started Jan. 1).
As for Korea or Thailand, they do not face the same inflation risks. They are not huge exporters of price-sensitive goods and their p/e ratios are lower because of perceptions of political risks. I am not a yellow shirt but I think the Thai government's new spending plans, aimed at rebuilding flood-damaged infrastructure with regional oversight, sounds like good sense. The same thing will happen in Brazil, Colombia and Australia. There is an inflation risk but the citizenry needs the repairs. Pakistan maybe.

Some of these budget measures also will have international impact, from Oz for example. Spending will weaken the A$. This actually has the effect of cutting international inflationary trends and slashing commondity prices. Thailand will be able to export rice, garments, and car parts more cheaply and competitively. Colombia and Brazil will stop having to worry about its currency becoming too globally attractive. I like infrastrucutre programs a lot better than exchange rate measures, inflow disincentives, and other alternatives, because they respond to a real need.

Nishant Mishra added from India:
In the current economic environment,  inflation is the only cause of concern. It could lead  to a rise in interest rates by ~25bps during the policy review January 25 by the Reserve Bank of India (central bank). But this will not create any unnecessary long run panic. India is taking measures to prohibit the exports of essential commodities. This will shrink the food inflation by March end.

The stock market short-term drop is seasonal, a routine year-end exercise. Total foreign institutional investors net equity inflow in 201 hit a record $29.36 bn against $17.45 bn in 2009. Besides, 1700 foreign funds are registered with the Securities & Exchange Board of India showing their deep support for Indian fundamentals.

Direct investment inflows are also high. The Foreign Investment Promotion Board of India approved 19 foreign direct investment proposals worth $969 m. These inflows will help the rupee appreciate against the dollar.

 

SK added his opinion on currency trends in the Scandinavian world: “The SEK has gone up (a lot), and the Swedish economy is doing well. Swedish banks expect the EUR/SEK to be in equlibrium again in the end of the year, as they expect ECB to raise the interest rate to avoid overheating the Germen economy. I expect the same. The Swedish central bank has been about 6 months ahead of the ECB since the financial crisis begun.”

More from Scandinavia, Canada , Israel, India, South Korea, Britain, and Thailand for paid subscribers follows:

Read more »