Will the US Fed taper its QE program or not? When will it taper? These questions have been on everyone's mind in the financial world. Ever since Ben Bernanke first hinted at a likely taper in May 2013, the world financial markets have reacted sharply to news pertaining to the Fed taper.
As we know, FIIs are the most important market movers as far as Indian stock markets are concerned. So an obvious question follows: How will the Fed taper impact India? Is India better prepared now to deal with such a situation?
Well, if you compare our present situation with what it was in May, you can say we are somewhat better off now. The government imposed curbs on gold imports. Exports are picking up. RBI took a series of measures to reign over the currency fall. So yes, relatively we are in a better position. But we have seen in the past how markets tend to come down like a house of cards when FIIs have dumped Indian stocks. So it's would be a bit presumptuous to say that the Fed taper will not impact Indian markets much
Growth may have slowed down in China, but that has not stopped large asset management companies from investing in the country. As reported in an article in Bloomberg, one of the reasons for this is the massive US$ 3.66 trillion currency reserves that the dragon nation has amassed. The US Fed's decision to taper its QE program some months back had given global markets the jitters. As a result, there was an exodus of capital from emerging markets including India. For the latter, this posed a problem because it is burdened with a rising current account deficit. But China has no such problem. Some of the other factors that are in favour of investments in China include the country's intention of moving away from an investment and exports based business model. But that does not mean that there are no other problems. For quite some time now, China has been plagued by issues such as shadow banking, unregulated lending and increasing debt burden of local governments. Efforts to bring these under control have led to cash squeezes that helped drive up borrowing costs. Also, China is looking to make the Yuan fully convertible. But this may not be that easy given the opaqueness with which the currency is managed. Thus, investing in China is not without its share of risks.
They say good things come in small packages. Currently there is not a single economic statistic that is showing some sign of recovery. The global economic risks are expected to get worse, much worse, before they get any better. Large corporates are reeling under the pressure of low profitability and poor interest coverage. Banks at the same time are courting networth erosion with mounting bad loans. In the midst of this, few midcap and smallcap stocks, that are by nature a high risk asset class, are showing a ray of hope. As per an article in Business Standard,274 companies listed on the BSE have surpassed their FY13 full year profits in first half of FY14 itself. Most of these stocks belong to the midcap and smallcap indices. Now, while this may be a reason to feel enthused about recovery, there is hardly enough case for investors to react.
Is the rise in profits reason enough for investors to jump at the opportunity of buying any and every mid and smallcap stock? We believe that the time is ripe for investors to exercise utmost caution. Instead of getting drawn to just the bottomline growth, investors must investigate if the growth is sustainable. More importantly if the companies recording high growth have safe balance sheets and good business models. Else going by such raw statistics to invest in such high risk asset classes can be a dangerous move we believe.
If you go shopping, you would certainly like to buy things that are flying off the shelves isn't it? You would buy the most popular thing out there. Not so when it comes to investing however. In investing, buying what's popular is not going to take you anywhere. Simply because if it's popular, it's more often than not fairly valued. Therefore the idea out there has to be to buy the most unloved asset and wait for the eventual upside to come. We believe gold could be a perfect candidate for this experiment. This is because its popularity keeps coming down with each passing day.
The latest to give the yellow metal the cold shoulder is billionaire investor John Paulson. Turns out Paulson has clearly told his clients he wouldn't personally invest more money in his gold fund. For he has no idea when inflation could accelerate, a scenario that usually makes gold the asset class of choice. Paulson can afford to do so for he already has gold in his gold fund. But those of you who don't, now is not a bad time to invest a small 5%-10% of your total wealth in the yellow metal. For as even Paulson acknowledges, inflation will eventually accelerate. It is only a matter of when.
Global markets gained modestly on favorable US economic data, including tame inflation and fewer-than-expected weekly jobless claims. Although the Fed has so far held off on tapering its monthly bond purchases, central bank officials still expect to begin to reduce the quantitative easing program in the coming months. The minutes of the Fed's late-October policy meeting indicate that officials are searching for other ways to provide support for the economy and that short-term interest rates are likely to remain low for a long time. The US markets closed at record high (up 0.6%).
China's central bank followed up this week on last week's announcement of significant economic and financial reforms. The Chinese equity market ended the week up 1.4%.Overall weakness in the Eurozone stood in contrast to rising business confidence in Germany. The Eurozone composite purchasing managers' index slipped to 51.5 in November, from 51.9 in October. All the major European equity markets closed the week in the red.
As we know, FIIs are the most important market movers as far as Indian stock markets are concerned. So an obvious question follows: How will the Fed taper impact India? Is India better prepared now to deal with such a situation?
Well, if you compare our present situation with what it was in May, you can say we are somewhat better off now. The government imposed curbs on gold imports. Exports are picking up. RBI took a series of measures to reign over the currency fall. So yes, relatively we are in a better position. But we have seen in the past how markets tend to come down like a house of cards when FIIs have dumped Indian stocks. So it's would be a bit presumptuous to say that the Fed taper will not impact Indian markets much
Growth may have slowed down in China, but that has not stopped large asset management companies from investing in the country. As reported in an article in Bloomberg, one of the reasons for this is the massive US$ 3.66 trillion currency reserves that the dragon nation has amassed. The US Fed's decision to taper its QE program some months back had given global markets the jitters. As a result, there was an exodus of capital from emerging markets including India. For the latter, this posed a problem because it is burdened with a rising current account deficit. But China has no such problem. Some of the other factors that are in favour of investments in China include the country's intention of moving away from an investment and exports based business model. But that does not mean that there are no other problems. For quite some time now, China has been plagued by issues such as shadow banking, unregulated lending and increasing debt burden of local governments. Efforts to bring these under control have led to cash squeezes that helped drive up borrowing costs. Also, China is looking to make the Yuan fully convertible. But this may not be that easy given the opaqueness with which the currency is managed. Thus, investing in China is not without its share of risks.
Is the rise in profits reason enough for investors to jump at the opportunity of buying any and every mid and smallcap stock? We believe that the time is ripe for investors to exercise utmost caution. Instead of getting drawn to just the bottomline growth, investors must investigate if the growth is sustainable. More importantly if the companies recording high growth have safe balance sheets and good business models. Else going by such raw statistics to invest in such high risk asset classes can be a dangerous move we believe.
The latest to give the yellow metal the cold shoulder is billionaire investor John Paulson. Turns out Paulson has clearly told his clients he wouldn't personally invest more money in his gold fund. For he has no idea when inflation could accelerate, a scenario that usually makes gold the asset class of choice. Paulson can afford to do so for he already has gold in his gold fund. But those of you who don't, now is not a bad time to invest a small 5%-10% of your total wealth in the yellow metal. For as even Paulson acknowledges, inflation will eventually accelerate. It is only a matter of when.
China's central bank followed up this week on last week's announcement of significant economic and financial reforms. The Chinese equity market ended the week up 1.4%.Overall weakness in the Eurozone stood in contrast to rising business confidence in Germany. The Eurozone composite purchasing managers' index slipped to 51.5 in November, from 51.9 in October. All the major European equity markets closed the week in the red.
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