Emerging Markets Radar (July 23, 2012)

Saturday, July 21st, 2012

Emerging Markets Radar (July 23, 2012)

Strengths

• China’s big four banks made about Rmb50 billion of new loans in the first half of July, double the amount in June, Shanghai Securities News reported. Additionally, China’s outstanding real estate loans were up 10 percent year-over-year in the first half of the year.
• China is boosting this year’s railway investment plan by 9 percent to Rmb 448.3 billion ($70.3 billion).
• Turkish white goods manufacturers continue to gain market share, with sales increasing by 5 percent year-over-year in June. Domestic sales were up 3 percent to 634 thousand units, while exports were up 15 percent to 1.43 million units.

Weaknesses

• On July 19 the Ministry of Land Resources and Ministry of Housing and Urban-Rural Development jointly held an urgent video conference with local governments on how to prevent a rebound of home prices, and asked them to increase land supply for ordinary residential units. Although it had prompted negative sentiment toward the property sector, the government didn’t issue new policies to slow housing transactions, which are vital to investment activities.
• China’s Premier Wen Jiabao warned that the economic rebound isn’t yet stable and hardship may continue for a period of time.

Opportunities

• Borrowing costs in the Czech Republic are to remain low after Moody’s reaffirmed the country’s A1 rating this week with a stable outlook, four notches above Italy and five above Spain.
• With the trade deficit on a downward path and inflationary pressures diminishing, BMI expects that the Reserve Bank of India has sufficient space to resume monetary easing.
• In its July 17 report, Citi Research says China’s economic rebalancing is positive to the economy and the market in the long term, but should introduce uncertainties in corporate earnings amid slower growth and reforms in the near term. It points out that slow investment and the de-capacity process will likely bring gains for telecommunications, staples, health care, utilities, transportation, discretionary and property.

Threats

• Although China is adding investments to help stabilize economic growth, the country still intends to reduce the weight of investment in the GDP. Sectors that are related to or relying on investments may see sales and earning growth being revised downwards going forward.
• Trade figures published by the Bank of Thailand in July indicate that exports are falling short of consensus expectations for a robust recovery in 2012.
• BMI revised its forecast for Mexico’s average inflation from 3.6 percent to 3.8, as a recent outbreak of bird flu has driven up egg and poultry prices in the country, while a growing concern over the drought in the U.S. has caused grain prices to spike.

Tags: Bank Of India, Corporate Earnings, Downward Path, Economic Rebound, Goods Manufacturers, Inflationary Pressures, Land Resources, Local Governments, Ministry Of Housing, Negative Sentiment, Premier Wen Jiabao, Property Sector, Real Estate Loans, Rebalancing, Reserve Bank Of India, Residential Units, Shanghai Securities News, Stable Outlook, Time Opportunities, White Goods
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Monetary Policy: Week in Review (Feb 19, 2012)

Tuesday, February 21st, 2012

The article below comes courtesy of Central Bank News, an authoritative source on monetary policy developments.

The past week in monetary policy saw 3 monetary policy interest rate changes; Kazakhstan -50bps to 7.00%, Sweden -25bps to 1.50%, and Ghana +100bps to 13.50%.  Meanwhile the central banks of Pakistan 12.00%, Japan 0.10%, Chile 5.00%, and Georgia 6.50% all held interest rates unchanged.  The other key headline was the Bank of Japan expanding its quantitative easing program by another 10 trillion Yen to 65 trillion. The Reserve Bank of India also made a technical adjustment to one of its old policy rates.

Following are some of the key quotes and comments from the central bankers that met to review monetary policy settings over the past week:

• Bank of Japan (held rate at 0.10%, added to 10T to APP):  ”Japan’s economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen.  On the other hand, financial  conditions in Japan have continued to ease.  On the price front, the year-on-year rate of  change in the CPI (all items less fresh food) is around 0 percent.”
• Sweden’s Riksbank (cut rate -25bps to 1.50%):  ”Inflationary pressures in the Swedish economy are low. The economic outlook in Sweden has weakened as a result of developments abroad. In order to stabilise inflation around 2 per cent and resource utilisation in the economy around a normal level, the Executive Board of the Riksbank has decided to cut the repo rate by 0.25 percentage points to 1.50 per cent. The repo rate is expected to remain at this level until some time in 2013.”
• Bank of Ghana (hiked rate 100bps to 13.50%):  ”The Committee concluded that the balance of risks to inflation is elevated. To contain future inflation pressures and realign interest rates in favour of domestic assets, it is necessary that monetary policy continues to be fine tuned to ensure that inflation expectations remain anchored to keep inflation within the target band.”
• Banco Central de Chile (held rate at 5.00%):  ”Domestically, economic activity and domestic demand have tended to outperform forecasts from the latest Monetary Policy Report. The labor market is still tight. Credit market conditions are stable. Y‐o‐y CPI inflation is slightly above the tolerance range, while core inflation measures have normalized.  Inflation expectations remain around the target.”
• National Bank of Georgia (held rate at 6.50%):  ”Despite low inflation the real exchange rate had been appreciating in the end of last year. This is related to the faster nominal appreciation of the national currency vs. currencies of main trade partners. Real appreciation on one hand causes further widening of the trade deficit and on the other causes weakening of the demand.”

Looking at the central bank calendar, the only major central bank scheduled to meet next week is the Central Bank of Turkey.  Elsewhere the Bank of England will release its recent monetary policy meeting minutes (where it increased its APP by GBP 75B) on Wednesday; likewise the Reserve Bank of Australia will release its most recent monetary policy meeting minutes on Tuesday.

• TRY – Turkey (Central Bank of Turkey) expected to hold at % on the 21st of Feb

Also during the past week Central Bank News released data, extending back to January 1999, for the Global Monetary Policy Rate Index – Developed Markets.

Source: Central Bank News, February 19, 2012.

Tags: Bank News, Bank Of Ghana, Bank Of India, Bank Of Japan, Central Banks, Committee Concluded That, Domestic Assets, Georgia 6, Inflation Pressures, Inflationary Pressures, Interest Rate Changes, Overseas Economies, Policy Developments, Policy Interest, Policy Settings, Repo Rate, Reserve Bank Of India, Resource Utilisation, Riksbank, Swedish Economy
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Monetary Policy: Week in Review (October 30, 2011)

Monday, October 31st, 2011

The article below comes courtesy of Central Bank News, an authoritative source on monetary policy developments.

The past week in monetary policy saw 15 central banks announce interest rate decisions. Those that increased interest rates were: India +25bps to 8.50%, and Mongolia +50bps to 12.25%, while those that decreased interest rates were: The Gambia -100bps to 14.00%, Sierra Leone -300bps to 20.00%, and Georgia -25bps to 7.25%. Also announced was Angola’s central bank setting its new benchmark interest rate at 10.50%. The central banks that held interest rates unchanged were: Israel 3.00%, Canada 1.00%, Hungary 6.00%, New Zealand 2.50%, Japan 0-0.10%, Russia 8.25%, Namibia 6.00%, Sweden 2.00%, and Colombia 4.50%. Also in the news was the Bank of Japan announcing a 5 trillion yen addition to its quantitative easing program.

With just two months left in the year this week’s summary chart shows a good representation of monetary policy this year. The key word of course is diversity. On the one hand there is developed markets with unusually low interest rates (and low growth and low inflation pressures). While on the other hand is the emerging and developing markets with much higher interest rates (and relatively higher growth rates and inflationary pressures). Even within developing economies there is diversity in the trajectory of interest rates as some begin to feel the pinch of policy tightening, paired with the deteriorating outlook in western economies, and in particular the ongoing sovereign debt issues in Europe (short-term crisis-containment measures notwithstanding).

Some of the key quotes from the monetary policy makers are included below:

• Reserve Bank of India (increased rate 25bps to 8.50%): “both inflation and inflation expectations remain high. Inflation is broad-based, and is above the comfort level of the Reserve Bank. We expect these levels to persist for two more months. There are potential risks of expectations becoming unhinged in the event of a pre-mature change in the policy stance. However, reassuringly, momentum indicators, particularly the de-seasonalised quarter-on-quarter headline and core inflation measures, indicate moderation. This is consistent with the projection that inflation will decline beginning December 2011.”
• Bank of Japan (added 5 trillion to QE): “some more time will be needed to confirm that price stability is in sight and due attention is needed for the risk that the economic and price outlook will further deteriorate depending on developments in global financial markets and overseas economies. While steadily implementing its decision in August to enhance monetary easing, especially through the purchase of financial assets, the Bank deemed it necessary to further enhance monetary easing so as to ensure a successful transition to a sustainable growth path with price stability.”
• Central Bank of Russia (held rate at 8.25%): “Considering recent domestic and international macroeconomic developments and the effect of the monetary policy measures, implemented in recent months, the Bank of Russiajudged that the current level of money market interest rates is appropriate to balance the inflationary risks and the risks of economic growth slowdown in the nearest future”
• Bank of Mongolia (increased rate 50bps to 12.25%): “The rapid expansion of budget expense, cash hand-out from the Human Development Fund and the high increase in loans are contributing to higher demand. This sharp increase in demand builds the pressure on core inflation even the total supply and the real capacity of economy have not added on yet. The consecutive growth in prices of non-food products from the beginning of 2011 and the current stand in yoy 11.3% prove that the increase of total demand is bringing the growth of core price.”
• Riksbank (held rate at 2.00%): “The difficulties in resolving the public finance crisis in Europe has led to increased uncertainty regarding the future. In Sweden, growth is expected to be slightly weaker in the coming period. At the same time, inflationary pressure is low. The Executive Board of the Riksbank has therefore decided to hold the repo rate unchanged at 2 per cent and to wait to increase it until sometime next year.”
• Bank of Canada (held at 1.00%): “The global economy has slowed markedly as several downside risks to the projection outlined in the Bank’s July Monetary Policy Report (MPR) have been realized. Financial market volatility has increased and there has been a generalized retrenchment from risk-taking across global markets. The combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies. The Bank now expects that the euro area—where these dynamics are most acute—will experience a brief recession.”
• Reserve Bank of New Zealand (held rate at 2.50%): “Given the ongoing global economic and financial risks, it remains prudent to continue to keep the OCR on hold at 2.5 percent for now. However, if global developments have only a mild impact on the New Zealand economy, it is likely that gradually increasing pressure on domestic resources will require future OCR increases.”

Looking at the central bank calendar, next week will be a very interesting week in central banking with the very important US Federal Reserve and European Central Bank both announcing monetary policy decisions. All eyes will be focused on whether the US FOMC announces or hints at any further quantitative easing; meanwhile people will be watching to see if the new ECB president, Mario Draghi, decides to cut the interest rate or provide any other supportive measures to aid the faltering Eurozone economies.

Source: Central Bank News, October 29, 2011.

Tags: Bank News, Bank Of India, Bank Of Japan, Benchmark Interest Rate, Canadian Market, Central Banks, Containment Measures, Debt Issues, Developing Economies, India, Inflation Expectations, Inflation Pressures, Inflationary Pressures, Interest Rate Decisions, Low Interest Rates, Outlook, Policy Developments, Reserve Bank Of India, S Central, Sovereign Debt, Sweden 2, Term Crisis, Western Economies
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The Economy and Bond Market Cheat Sheet (October 31, 2011)

Monday, October 31st, 2011

The Economy and Bond Market Cheat Sheet (October 31, 2011)

Treasury yields were higher this week as European leaders reached an agreement in principle to recapitalize the region’s banks, address the Greek debt situation and expand the European Financial Stability Facility. This agreement largely removed the threat of another full-blown financial crisis and money shifted back toward riskier assets.

Another piece of good news that supported riskier assets this week was the release of third quarter GDP data. GDP rose 2.5 percent in the third quarter, matching expectations but also quieting some critics expecting the U.S. to fall back into a recession.

Strengths

• The resolution of the immediate crisis in Europe was the most significant positive event this week.
• GDP rose 2.5 percent in the third quarter as consumer spending rose 2.4 percent.
• September durable goods orders, excluding the volatile transportation sector, rose 1.7 percent. This is the largest rise six months.

Weaknesses

• Consumer confidence fell to the lowest level since March 2009, which was the bottom of the global financial crisis. Concerns surrounding jobs and real incomes drove the survey down.
• Global news flow continues to point toward an economic slowdown as U.K. factory orders fell to the lowest level this year, the Bank of Canada sharply reduced its fourth quarter GDP forecast and expectations are for growth to slow below four percent in Brazil next year.
• Inflation risks remain as the Reserve Bank of India raised interest rates by 25 basis points due to stubbornly high inflation.

Opportunities

• With the European news behind us for the time being, investors will refocus on economic data such as next week’s ISM manufacturing report, the Federal Reserve Open Market Committee (FOMC) meeting and October unemployment data.

Threats

• While the current European plan to deal with the crisis is a positive step forward, many details still need to be worked out. Moreover, the plan does not deal with potential problems in other European countries such as Portugal, Spain and Italy.

Tags: Bank Of Canada, Bank Of India, Brazil, Canadian Market, Consumer Confidence, Debt Situation, Durable Goods Orders, Economic Slowdown, European Leaders, European News, Gdp Data, Gdp Forecast, Global Financial Crisis, India, Inflation Risks, Ism Manufacturing, K Factory, Open Market Committee, Quarter Gdp, Real Incomes, Reserve Bank Of India, Treasury Yields, Unemployment Data
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Indian Economy Begins to Slow – Q2 GDP 7.7%

Wednesday, August 31st, 2011

by Trader Mark, Fund My Mutual Fund

It’s been a very rough year for Indian stocks, and indeed much of the emerging market space as central banks are fighting the easy money coming from the West (and Japan), by raising rates.  Inflationary pressures are still a concern in many of these countries, but it does appear the brakes are starting to work.  Of course the issue is not to break too hard.

India just reported a 7.7% GDP – while rip roaring in relation to Western developed economies, its significantly lower than we’ve seen the past few years.  (Last year I believe there was a print in the mid 9%s)  Looks like the construction sector has been hit the hardest from higher rates.

Via BBC:

• India’s economy grew 7.7% in the three months from April to June, compared with the same period of 2010.  It was India’sweakest growth for six quarters, but still better than had been expected.
• The slowdown is expected to continue as India’s central bank continues to raise interest rates to control inflation. “The latest growth number reinforces the view that although growth is slowing down, it is not collapsing as feared by some,” said Ashutosh Datar, economist at IIFL in Mumbai.
• Indian Finance Minister Pranab Mukherjee said he had been expecting a higher growth rate, but that given the muted recovery in the US and Europe, the figures were “not that much disappointing”.
• The Reserve Bank of India (RBI) has raised interest rates 11 times since March 2010. The next rate-setting meeting is on 16 September, when many economists expect rates will rise again, to 8.25%.
• Inflation in July was 9.22%, which was well above the RBI’s target rate of 4% to 4.5%. “India has raised rates much faster than any other major country, but inflation is also a bigger problem than in any other major economy,” said DK Joshi, chief economist at Indian ratings agency Crisil. Construction problems
• The sector breakdown showed that the construction sector had been one of the worst-performing parts of the economy.  Construction grew at an annual rate of 1.2% in the second quarter, down from 8.2% in the previous quarter, as rising interest rates and delays in planning approvals held up building projects.
• The manufacturing sector grew 7.2%, an improvement from the previous quarter, but well below the 10.6% in the second quarter of 2010.
• While 7% is extraordinarily high by the standards of European countries that are struggling to achieve 2%, there have been warnings from economists that it would be inadequate to fund the government’s attempts to deal with India’s endemic poverty.
• On Monday, a survey by the Indian Chambers of Commerce found that business confidence was at a two-year low.  It found that businesses had “growing apprehensions about the world economy entering into another recession“, while also worrying about how rising interest rates were hitting domestic demand.

Copyright © Trader Mark, Fund My Mutual Fund

Tags: Bank Of India, Central Banks, Chief Economist, Construction Problems, Construction Sector, Easy Money, Emerging Market, India, Indian Economy, Indian Finance Minister, Indian Stocks, Inflationary Pressures, Joshi, Market Space, Perf, Pranab Mukherjee, Reserve Bank Of India, S Central, Sector Breakdown, Target Rate
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Indian Gold And Silver Imports Surge By Stunning 500% In May

Tuesday, June 21st, 2011

India’s heretofore “insatiable” appetite for precious metals will need to find a new adjective to describe it, after it surged by an absolutely unprecedented 500% in May MoM, and 222% compared to May of 2010, touching on a massive $8.96 billion in imports in the past month. Putting this number in perspective the yearly average Indian imports are about $22 billion: in one month the country will have imported about half its average quota for the year! And while inflation may have much to do with it, events like the Sensex flash crash from last night certainly are not helping matters: “The gold story is puzzling” added financial analyst A S Kirolar. “Consumers are shying away from stocks and bonds and heading to safe assets like gold and real estate, but one cannot understand this given the meagre 12% growth in imports of petroleum and oil products.” Granted demand is not just at the retail level as ever more institutions are buying up gold: “Analysts maintained that India’s central bank, the Reserve Bank of India’s decision to grant licenses to seven more banks to import bullion has helped push up demand. Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore were added to the list. As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. Jewellers are getting easy supplies which is also helping push up demand. Moreover, the flow of scrap is also expected to fall from a yearly average of 200 tonnes, which could again boost imports, underlining the insatiable appetite of the Indian consumer.” Add ongoing Chinese demand for PMs, and one can see why calls for an imminent gold crash absent a global deflationary vortex are largely overblown.

Mineweb has more:

“Even as inflation and a widening trade deficit to $15 billion in May continues to weigh on the minds of Indian investors, the demand for fresh gold has continued to grow. This is very confusing, especially when one sees it against the backdrop of a 400% rise in the value of the rupee over the last decade,” said bullion analyst Anand Patnaik with a brokerage firm.

India’s commerce and industry minister Anand Sharma recently released trade figures. India’s imports have surged to a 4-year high at a scorching pace of 54% mainly due to rising oil prices and a surge in gold imports.

The country’s imports have jumped to $40.9 billion, which has resulted in the gap between imports and exports widening to $15 billion – a 67% increase which is the largest since August 2008, prompting the government authorities to caution that India’s trade deficit for 2011-12 could touch a record $145-150 billion.

Minister Sharma pointed out that exports of iron ore were down given the ban on exports imposed by the country. Imports in pearls and precious stones, however, have risen 24.6% to $ 5.20 billion, gold and silver by 222% to $ 13.5 billion and iron and steel by 13% to $ 1.80 billion, he said.

But the true cause of this endless demand is and always will be the threat of central bank hijacked purchasing power :

“People in India have accepted high inflation as a reality of life,” said Rajesh Shukla of the centre for Macro Consumer Research. Noting that Indians tend to use gold as a hedge against inflation, Shukla said this would be partly responsible for the spike in imports.

He added that high imports reflected a strong demand for the yellow metal, despite the weakening of the rupee.

The Indian rupee fell to its lowest in three weeks on Monday weighed down by losses in domestic shares and the euro, with dollar demand from oil companies also adding pressure.

“Bidding from oil companies is keeping the rupee lower. All of last week, the rupee depreciated. Hiking of key interest rates has further weakened the rupee,” said a forex dealer at a national bank.

And that’s merely the anchor for current gold prices at over $1500 even as stocks continue to sink. Once the Fed announced Operation Twist 2 either on Wednesday, or in one or two month’s time, the PM complex will explode, reaching $2000 in no time whatsoever.

Tags: Bank Of India, Banks In India, Chinese Demand, Gold And Silver, Gold Story, India, Indian Gold, Indian Imports, Insatiable Appetite, Jaipur State, Mineweb, precious metals, Punjab And Sind Bank, Reserve Bank Of India, Retail Level, State Bank, State Bank Of Bikaner And Jaipur, State Bank Of Mysore, State Bank Of Travancore, Stocks And Bonds, Vysya Bank
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Gold Market Cheat Sheet (January 10, 2011)

Sunday, January 9th, 2011

Gold Market Cheat Sheet (January 10, 2011)

For the week, spot gold closed at $1,369.57 per ounce, down $51.21, or 3.60 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 6.74 percent. The U.S. Trade-Weighted Dollar Index has surged 2.66 percent for the week.

Strengths

• Chinese 2010 gold output is estimated by government sources at around 340 tons, suggesting the country’s total consumption may have reached close to 600 tons. The new record of 340 tons is more than an 8 percent increase over the 2009 figure. This is now the sixth-consecutive year in which the country has raised its gold output.
• Saudi Arabia, one of the world’s largest gold consumers, said it is has began constructing the world’s largest gold factory. Saudi Arabia continues to be an important gold market in the Middle East region, as the country represents a third of the total gold demand in the Middle East.
• The Reserve Bank of India is allowing seven more banks to import gold and silver into the country. The move is set to fulfill the demand of the country’s citizens. While 23 banks already have the central bank’s permission to import gold and silver into the country, the recent approval has brought the count to 30.

Weaknesses

• Gold, which capped the biggest two-day drop in 11 months yesterday, may extend declines to the lowest price since September on speculation that an economic recovery will curb demand for the metal as a safe haven. “You’re seeing a reallocation of funds to higher-risk assets like equities. The big funds are absent from the gold market,” said Matthew Zeman, a trader at LaSalle Futures Group.
• The recent selling of gold by index funds may have finally run its course, according to John Howlett, division vice president of Mitsubishi International Corp. “The index funds that were giving away gold and silver like government cheese for these last two days seem to have finally run out of steam,” Howlett said.
• On a positive note, physical buying of gold in Asia is very strong. A Hong Kong-based dealer noted that buying was very brisk as long as gold remained below $1,400.

Opportunities

• According to BCA research, “Gold is a potential mania candidate” and “the gold bull market will continue in 2011.” The gold bull market, BCA Research argues, “has been driven by the potential inflationary implications of current large fiscal deficits and central banks that are prepared to stop at nothing to prevent deflation. It may be several years before developed-world real interest rates return to the norms of earlier decades, especially in the U.S. In this environment, gold will continue to be an excellent insurance policy and should continue to fare well when measured against the major currencies.”
• Mergers and acquisition activity in the North American mining sector will continue to be strong this year and could exceed the levels seen in 2010, industry experts said. In a mid-September survey of mining executives conducted by KPMG, 70 percent of respondents said that their companies were likely to pursue M&A activity in 2011. In addition, more than half of the respondents (54 percent) cited the need to increase reserves as the main driver for deals.
• “While gold has been trading near its nominal high above $1,400, we see plenty of room for continued long-term moves up, especially in the current global economic climate,” said Donald W. Doyle, Jr., Chairman and CEO of Blanchard and Company. Doyle said there are numerous factors that he believes will propel gold’s price in 2011 including: Currency instability, geopolitical conflicts, increased consumer prices and the raising of the U.S. debt ceiling.

Threats

• Jan Hatzius, chief U.S. economist at Goldman Sachs, predicted that the strength of the ongoing economic recovery will keep the Federal Reserve from having to implement a third round of quantitative easing (QE3). Furthermore, Hatzius forecasted that the Fed will not begin raising the federal funds rate until 2013, as deflation, rather than inflation, remains a far more significant threat to the U.S. economy.
• Barclay’s Capital expressed some caution on gold’s ability to outperform other industrial metals, such as copper. They noted with essentially all the major gold companies closing out their forward sales in 2010, gold investment demand will need to rise even more in 2011 to keep the market balanced at current prices.
• Eskom, the South African government-run power company, indicated this week that the country could be short 6 terawatts in the 2011-2012 financial year. A terawatt is 1 million megawatts or 1 trillion watts. In 2012-2013, the shortfall could be 9 terawatts. Eskom is talking to the largest 500 users of power to get them to decrease their consumption. This impacts the miners, particularly the deep level mines. Open pit mines use heavy fuel oils and diesel to generate production. Smelters and refineries are also impacted by this shortage.

Tags: According To John, Bank Of India, Currency, Division Vice President, Dollar Index, Gold, Gold And Silver, Gold Demand, Gold Equities, Gold Factory, Gold Market, Gold Output, Government Cheese, Index Funds, India, John Howlett, Lasalle Futures Group, Mitsubishi International Corp, Philadelphia Gold, Reserve Bank Of India, Silver, Silver Index, Sixth Consecutive Year, Spot Gold
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India’s Focus on Investor Protection

Monday, April 19th, 2010

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India’s Mumbai Stock Exchange

Week Ended: April 16, 2010

India’s financial sector watchdogs have demonstrated their independence time and again. For example, the country’s central bank, the Reserve Bank of India, was one of the few central banks that chose to break from prevailing global loose monetary policies. India’s other regulator, the Securities and Exchange Board of India (SEBI), which is equivalent to the Securities and Exchange Commission (SEC) in United States, has also come a long way in asserting itself. Established in 1992, SEBI has been making systemic reforms aimed at better corporate governance, deeper capital markets and more satisfied investors.

SEBI’s primary goal has always been investor protection. Its recent efforts to abolish entry and exit loads—sales charges paid by mutual fund investors—has significantly brought down investing costs. SEBI’s recent listing regulations have balanced the interests of minority shareholders with those of promoters intending to delist companies. It has also offered guidelines for enhanced disclosures and mandatory grading of Initial Public Offerings (IPOs). Real estate IPOs, for example, are required to reveal complete ownership details of land banks and report market-determined asset values.

The regulator has also been gradually raising India’s corporate governance standards. A decade ago, SEBI managed to implement the disclosure of quarterly financial results amid huge resistance. Recently, it required the semiannual disclosure of balance sheets, in efforts to limit the scope of any “creative accounting.” SEBI has also asked companies to increase the weight of independent directors on their boards as part of its efforts to create checks and balances. These checks are meant to improve auditor oversight following an accounting scandal that surfaced at a leading technology company early last year.

Developing capital markets has been a high priority for SEBI. About a decade ago, SEBI streamlined security transactions by eliminating the need for investors to hold shares in paper form. This was followed by their push to have exchanges implement online trading capabilities. To improve liquidity and price discovery, it recently introduced short selling and is now enhancing securities lending mechanisms that enable this. SEBI has also proactively introduced new asset classes and exchanges to enable broader capital market participation.

Despite its accomplishments, SEBI still has a lot of unfinished work. For example, the liquidity in India’s capital markets is significantly lower than expected. In addition, SEBI—which currently spurs product innovation—could arguably be better served to leave that function in the hands of the exchanges themselves, and focus on the task of regulating its markets.

Sunil Asnani
Research Analyst
Matthews International Capital Management, LLC

Tags: Accounting Scandal, Asset Values, Bank Of India, Central Banks, Checks And Balances, Corporate Governance Standards, Exchange Board, India, Initial Public Offerings, Investor Protection, Land Banks, Minority Shareholders, Mumbai Stock Exchange, Mutual Fund Investors, Ownership Details, Quarterly Financial Results, Reserve Bank Of India, Sales Charges, Securities And Exchange Board Of India, Securities And Exchange Commission, Systemic Reforms
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Marc Faber Bullish on Agriculture, Natural Gas, Indian Banks & Real Estate

Monday, December 21st, 2009

The following are highlights from part two of the three-part interview Dr. Marc Faber did on Indian television channel, December 19, 2009.

Dollar & Gold

The dollar has been weak, but in Europe, the ECB is also a money printer.  The euro has many problems as well as other currencies that have strenthened against the dollar.  This is one factor supporting the price of gold even though dollar has rallied.

Globally, we have about $7 trillion in foreign exchange reserves, up from one trillion in 1996, but the price of gold has not gone up seven times over that period of time.

Asian central banks, including Japan, hold 70% of the world’s foreign exchange reserve with less than 2% of their reserves in gold.  So, a lot of central banks will likely follow the Reserve Bank of India shifting some money into gold further supporting gold.

Key Bullish Commodities

Faber remains “very positive” about sugar, but believes there are two commodities right now that stand out in terms of being “incredibly depressed”:

1. Wheat – at its 200 years low, real inflation adjusted
2. Natural gas – “very cheap” right now

Though it is not very easy for individual investors to play in these commodities, Faber recommends essentially looking at all agriculture commodities. which have all come down, but not rallied as much as industrial commodities, such as copper and oil.

Best Way to Invest in India

The banks in the West are mostly over-leveraged with huge exposure in the residential and commercial real estate sectors.  In contrast, the Indian banks are “relatively sound”, as they did not play in the speculative CDO or the mortgage backed securities markets. With 700 million population and growing, India represents a hugh opportunity for the well-run banks.

Faber likes real estate in emerging economies, Asia and particularly, India. With an accelerated nation urbanization, and far less leverage, Faber sees a big opportunity in Indian real estate sector in the long run.

Note: Bloomberg reported that in a separate interview, Faber indicated Indian stocks could have a correction of 20% to 30% due to valuation.  Nevertheless, he remains upbeat about the long-term potential for India “because of the domestic consumption play.”  Banks, infrastructure and mining stocks are among sectors he favors.

Part 1:

Part 2:

Part 3:

Source: Indian TV via YouTube (here, here and here), December 19, 2009.

Tags: Agriculture Commodities, Asian Central Banks, Bank Of India, Cdo, Commercial Real Estate, Commodities, Dr Marc Faber, Emerging Economies, Emerging Markets, Exchange Reserve, Foreign Exchange Reserves, Gold, Gold Commodities, India, Indian Banks, Indian Television, Individual Investors, Industrial Commodities, Mortgage Backed Securities, Natural Gas, oil, Price Of Gold, Real Estate Sectors, Reserve Bank Of India, Securities Markets, Television Channel, Well Run
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