CSRI 2012 Emerging Consumer Survey

Key Themes of the report include: Varying levels of optimism, Cyclical headwinds interrupt the shift towards discretionary spending, The Appetite for Technology and The Role of Brands

Access the report here:

https://www.credit-suisse.com/investment_banking/doc/emerging_consumer_survey_2012.pdf

BD

On Europe, why Asian Stocks and an Ayurvedic Home Remedy!

 

Hi!,

 

A yet another tumultuous week in global financial markets, with the focus shifting from Greece to Italy, and markets questioning the viability of Italy's debt burden.  Europe, being the largest economic bloc in the world, matters (much to the  chagrin of us non-Europeans!)  and therefore ii is important to map out the alternative scenarios in which the current crisis could evolve, and  adjust the probabilities appropriately as we go along (as pointed out in last week's newsletter, based on Nobel Laureate Professor Kahneman's work, trying to predict  outcomes of financial markets provides  no better odds  than the game of rolling dice!).  With this objective in mind I  summarise below  the key points from two important articles which appeared this week  in the FT – Martin Wolf's Wednesday column and a note written by Gavyn Davies (ex-chief economist of Goldman & Sachs and   former economic advisor to the UK government):

 

-As pointed out by Nouriel Roubini in a recent paper, the real issue in Europe is the  financing of the balance of payments deficits in the periphery -  i.e. the "flow"  of debt. While, reducing the outstanding amount of debt is important (the "stock"), it is the reduction of the external deficits which can restore competitiveness and economic growth.

 

-Roubini outlines four possible options for  resolving the crisis: 1) aggressive monetary easing and stimulatory policies in the core combined with austerity and reform in the periphery, 2)  deflation and structural reform in the periphery to bring down wages, 3) permanent financing of the periphery by the core, and, 4) widespread debt restructuring and partial break-up of the Euro.

 

-The first option would work without much disruption, the second is likely to take too long to work and therefore evolve into the  fourth, the third would ultimately work for the periphery but risk insolvency in the core, and the fourth could ultimately work but be extremely disruptive in the interim.

 

-These options have serious obstacles: the first option would work but  is unacceptable in Germany, the second option is acceptable in Germany but (ultimately) unacceptable in the periphery, the third is unacceptable in  Germany, while  the fourth is (currently) unacceptable to everyone.

 

-The current situation involves a mix of the second and third options – austerity in the periphery with  reluctant financing by the ECB.  This could eventually morph into the first option if continuous  financing of external deficits results in inflation.

 

-The  external deficits of the periphery (totalling $ 183 billion) are  essentially  being financed by Germany (which has a matching external surplus of $182  billon), via the balance sheet of the ECB.  Prior to 2008, this was done by the private sector  (mainly by  banks buying government bonds ) but is now being undertaken by the public sector.

 

-In the long term the only viable solutions are the first and fourth options – either there is adjustment by all countries or the Euro breaks up.  An orderly exit by the weaker nations is likely to have serious global contagion effects and therefore leaves only the first option –  financing of the periphery, adjustments in both the core and periphery, resulting in growth and therefore an easing of the crisis.

 

Clear and insightful pieces, something which is sorely lacking in the current debate on the Eurozone crisis. The only two viable options – monetary easing and widespread adjustments versus the break-up of the  Euro,  provide a stark choice for core Europe – and in particular Germany. For all the public angst in Germany about  bailing-out the peripheral governments, it has been quietly (and indirectly) vendor financing the purchase of its goods and services to the tune of $182 billion a  year! As Gavyn Davies points out - its current plan of forcing the peripheral nations to undergo austerity to balance budgets and introduce  structural reforms (i.e. labour market flexibility and privatisation) while providing short term financing via the ECB – is unlikely to work (based on historical precedent) as it forces n unacceptably  major contraction of economic activity leading to devaluations by debtor nations. Unfortunately, this realisation is likely to take some time (another year perhaps?), thereby prolonging the uncertainty in  markets!

 

So how does one invest in these markets – as I have suggested in previous newsletters – keep a well diversified portfolio comprising EM stocks and local currency debt markets, multinational high quality stocks, global energy and natural resources, developed world high grade and EM credit bonds, US Treasuries and mortgages (primarily as an insurance policy!),  gold and cash. The markets are likely to  trade in wide ranges for the foreseeable future,  but the risks of a 2008 style meltdown are remote as policy makers have repeatedly shown their ability to act (if absolutely required!), so increasing exposure in the aftermath of steep downdrafts ,while lightening up a bit  subsequent to euphoric surges would be an appropriate strategy. Yes, this would require discipline and a strong stomach for volatility – but it seems that is what our policy makers around the world have hoisted on us!

 

http://blogs.ft.com/gavyndavies/2011/11/06/the-eurozone-decouples-from-the-world/#axzz1dHvEXqGW

http://www.ft.com/intl/cms/s/0/1299d48c-0a01-11e1-85ca-00144feabdc0.html#axzz1dSZMQPxR

 

 

The attractiveness of Asian Stock Markets:

 

As I have noted several times in past newsletters, Asian stock markets  currently offer extremely attractive  entry levels. Some interesting observations  made by Mark Galasiewski  (the editor of the Asia Elliot Wave publication):

 

-6 of the 8 Asian markets covered by him have yet to exceed their historical highs (in real terms) achieved in the late 80s and early 90s–  the exceptions are the the Hang Seng Index which  is only 22% higher than its 1997 high, and the Sensex Index which is only 6% higher than its 1992 (yes that is correct!) high.

 

-True bull markets exhibit gains on a real, as well as nominal basis – and Asian markets have yet  demonstrate  that over the last two decades!  This despite their economies growing (in real terms) at  6-8%.

 

-The Hang Seng Index P/E, which recently fell to 7, is at a level which has historically marked major bottoms in 1974, 1982, 1998 and 2008. The  P/E value of the Shanghai Index is also close to historical lows.

 

 

An Ayurvedic Home Remedy (Dr. Vasant Lad):

 

According to Ayurveda, allergies are a doshic reaction to a specific allergen, such as pollen, dust,  chemicals or a strong smell. Depending on the particular dosha (body's mental and physiological constitution)which is aggravated, allergies can be classified as vata dosha (air) type, pitta (fire)  type or khapa  (water) type. In my previous two new letters I have covered characteristics and treatments of  vata and pitta allergies and I present below the same for khapa allergies:

 

Khapa-type allergies  are often experienced during the spring season, when plants and trees shed their pollen into the atmosphere. When the pollen are inhaled, they irritate the delicate mucous membrane leading to hay fever, colds, congestion, cough sinus infection and even asthma.

 

-Take 1/4 tsp of the  herbal formula  sitopaladi (4 parts), yashti madhu (4 parts), abrak bhasma ( 1/8 part) with honey 3 times a day.

 

-Kapha type allergies result when excess khapa builds in the stomach and lungs. One method to deal with this is a purgation therapy (virechana) – take 1 tsp of flaxseed oil 2 to 3 times a day for 2 – 3 days.  Tripahala powder (a combination of three fruits/herbs which balance all the three doshas) can also be taken at night in a cup of hot water.

 

-Vomiting (vamana) therapy can also be very effective (if you have the stomach for it!).  Drink a few cups of licorice tea and follow it with a pint of water with a tsp of salt mixed in it. Drink enough to fill your stomach and then rub the back of the tongue and vomit it out!

 

 

Quote for the week:

 

Regards,

 

Aditya

 

 

 

 

 

 

 

 

 

 

--
Regards
Biharilal Deora, CFA, ACA

AsianBondsOnline Newsletter (14 November 2011)

You are a recipient of the AsianBondsOnline's Electronic Newsletter: Weekly Debt Highlights

To read the full report, data and graphs go to http://www.asianbondsonline.adb.org/newsletters/abowdh20111114.pdf?src=wdh&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j

******************************************************************************

News Highlights - Week of 7 - 11 November 2011

Bank Indonesia (BI) decided last week to cut its benchmark interest rate by 50 basis points (bps), bringing the BI rate to a record-low 6.0%. The Republic of Korea and Malaysia decided to keep their policy rates unchanged. The Bank of Korea left its 7-day repurchase rate at 3.25% while Bank Negara Malaysia held its benchmark overnight policy rate at 3.0%. Deepening turmoil in Europe and the global economic slowdown have shifted the policy focus of the region's central banks from containing inflationary risks to sustaining domestic growth.

*In the People's Republic of China (PRC), consumer price inflation eased for the third consecutive month to 5.5% year-on-year (y-o-y) in October from 6.1% in September due to a decline in food prices. At the same time, producer prices grew 5.0% y-o-y in October from 6.5% in September due to a decline in production material prices. Retail sales and industrial production growth also slowed in October to 17.2% and 13.2% y-o-y, respectively.

*Hong Kong, China's gross domestic product (GDP) growth eased to 4.2% y-o-y in 3Q11 from 5.1% in the previous quarter. Indonesia's GDP expanded 6.5% y-o-y in 3Q11, the same pace of growth recorded in 2Q11. Japan's GDP grew at an annualized rate of 6.0% in 3Q11. Malaysia's industrial production index rose only 2.5% y-o-y in September compared with a revised increase of 3.7% in August. Meanwhile, core machinery orders in Japan fell 8.2% month-on-month (m-o-m) in September and manufacturers expect a further drop in 4Q11.

*Last week, Fitch Ratings affirmed the Republic of Korea's foreign currency (FCY) long-term issuer default rating at A+ and revised its outlook from stable to positive. The rating agency also affirmed its local currency (LCY) long-term issuer default rating at AA with a stable outlook.

*The PRC posted its lowest rate of export growth in 8 months at 15.9% y-o-y in October, while import growth accelerated to 28.7%, resulting in the monthly trade surplus declining to US$17.0 billion. In the Philippines, exports declined 27.4% y-o-y in September to reach their lowest level since April 2009. Indonesia posted a balance of payments deficit of US$4.0 billion in 3Q11 from a surplus of US$11.9 billion in 2Q11, while its current account remained positive at US$0.2 billion.

*Malaysia's national mortgage corporation, Cagamas Bhd, issued MYR1.0 billion in medium-term notes (MTNs) last week. Pengurusan Air sold MYR430 million worth of 10-year Islamic MTNs that carry an annual profit rate of 4.16%. Meanwhile, Singapore's Ascott Capital sold SGD200 million of 5-year bonds at 3.8% last week and Straits Trading issued SGD225 million of 5-year notes at 4.3%. Lafarge Shui On Cement issued its first CNH bonds last week. The CNH1.5 billion 3-year bonds carry a coupon of 9.0%.

*Korea Finance Corp. priced US$750 million worth of 10-year bonds at a coupon rate of 4.625%. Proceeds from the bond sale will be used for the corporation's foreign currency lending and general operations. Also, Korea Development Bank plans to start a program to issue up to MYR3.5 billion of Islamic and conventional bonds in Malaysia.

*Government bond yields fell last week for all tenors in the Republic of Korea, and for most tenors in the PRC; Hong Kong, China; Indonesia; Malaysia; Philippines and Singapore. Yields rose for most tenors in Thailand and Viet Nam. Yield spreads between 2- and 10- year maturities widened in Indonesia, Republic of Korea, Malaysia, and Singapore, while spreads narrowed in other emerging East Asian markets.

******************************************************************************

Tell Us What You Think

For comments and suggestions on our website, please contact us at asianbonds_feedback@adb.org

******************************************************************************

AsianBondsOnline is an ASEAN+3 initiative, supported by the Asian Development Bank and funded by the Government of Japan. It offers easy, centralized access to information about the region's rapidly developing bond markets. The website contains essential data on current market activities, the legal and regulatory framework of each market, and monitors government policies and initiatives affecting the industry.

It covers the 13 markets listed above and the Asian regional market. The Office of Regional Economic Integration of the Asian Development Bank developed and maintains AsianBondsOnline.

Learn more about us:
http://asianbondsonline.adb.org/index.php?src=wdh&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j

******************************************************************************

You are currently subscribed to AsianBondsOnline as: biharilal.deora@gmail.com

To unsubscribe, go to:
http://asianbondsonline.adb.org/newsletters/unsubscribe.php?id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j

Questions? Comments? Contact us at: asianbonds_feedback@adb.org

******************************************************************************

Thanks/BD

Commodities as an Investment

"Interest in commodities has grown tremendously, partly because
commodities are believed to provide direct
exposure to unique factors and have special hedging characteristics.
This review discusses the instruments
that provide exposure to commodities, the measures and historical
record of commodity investment
performance, evidence about the benefits of strategic versus tactical
commodity allocations, and recent
developments in the market"

Here is the full publication available free from The Research
Foundation of CFA Institute Literature Review

http://www.cfapubs.org/doi/pdfplus/10.2470/rflr.v6.n2.1

Enjoy Reading

Thanks
BD