Showing posts with label China. Show all posts

Wealocity's perspective on the market happenings

Monthly Market Commentary Oct '17

Market Euphoria

As markets across the world notch new highs, a very important word is left to the wind - Caution. To just illustrate this, days around China's entry to WTO, any Co with 'China' in its name would rally and in Nov'99 "China Enterprises Ltd", a little known stock zoomed from $2 to $10.62 in about a fortnight (it now trades about 26 cents) This is 2017, and a Colorado based bio-tech Co has decided to change it's name from 'Bioptix' to 'Riot Blockchain', the stock surged over 50%

The Catalonian Conundrum

The Catalan Parliament has renewed to pursue talks with the Spanish govt. rather than declare independence immediately. At the beginning of this month, Catalonia, a wealthy region in the northeast of Spain, held an independent referendum. Spain's constitutional courts deemed this as illegal and has used Police force to prevent it from happening. Despite various hurdles the referendum went ahead and the results are in a huge favour of independence. Though, this mayn't represent the whole of the region's will due to the questionable quality of the voting, the region has begun to witness flight of prominent corporations and capital to Madrid. The Independence would effectively push it from the EU membership and would only increase their problems.

Saud and their Russian leaning

This was a fantasy till a few months back. With Russia always siding Iran, the arch rival of Saudi Arabia, the recent visit by King Salman is not just pathbreaking but should be viewed through the lens of the young crown prince, who's planning for radical changes to modernise his country. The inconsistent US foreign policy vacuum, falling Oil price and need for renewed influence in the region has pushed for this diplomatic move by Saudi. And Putin at the helm is a charmer with fingers across the region and beyond.
The Saudi's at one point of time were torch bearers of the US policy in the Middle East are now courting with their alley's rival. This shift is most credited to the US policies than Saudi's internal issues and Paranoia.

What's in it for you:

Asset allocation is the key going forward. As the theme of this commentary goes, we are cautious over the future market movements from hereon.

Equity: This year so far has seen quiet a run-up both in domestic & world-wide equity assets and it's anybody's guess from here on how the markets pan out. The markets are relatively no longer cheap and certainly are in a boom market. Staggered investments into equity are recommended with quality as a parameter.

Large cap and Equity arbitrage funds will be the flavour to savour. Pharma and value funds offer good investment choice for the longer term in a staggered manner over 3-5 yrs.

Debt: Continuing our view at the top about exercising caution, now debt exposure is to be considered NOT on the basis of the return generation but diversification, asset allocation and hedge point of view.

Dynamic Bond funds are the best bet in this regard and their benefits would take over 15 months to witness from these exposures.

Real Estate: The only green shoots is in the affordable housing all thanks to the govt.'s initiative. Also, due to Demonetisation and RERA, the RE prices have rationalised a bit and are at an attractive curve in some areas. A bit of exposure which yield incomes could be considered.

Investments in commercial property with a lease out facility is one avenue to consider. The other is buying an open plot with a lease out for commercial crops is another option.

Alternatives: The Bitcoin witnessed a flash crash today losing $600 and later recovering. It's cause though unknown, is believed to be a reaction to the Russian Central banker's new proposals for restrictions on exchanges celling the cryptocurrency. We continue to believe, the continued inflation in the prices of these alternatives would attract further govt. attention and regulatory scrutiny beating the very cause of their creation. We would witness such volatility in these assets in the coming days.

If mined and purchased for consumption could turn out to be profitable but any trade should be confined to the speculative limits of the individual.

Copyright © Wealocity, All rights reserved.

Our mailing address is:
dreams@wealocity.com

Disclaimer: All the views expressed are strictly personal and we recommend consulting your financial advisor for making any investment decisions based on your risk appetite, timelines and goals.

Wealocity's perspective on market happenings

Monthly Market Commentary Sept '17

The Infy saga

Indian corporates are not outstanding at corporate governance but certainly Infosys had a better perception among the investor community and is badly hit with the Sikka vs Founder tiff. To bring a perspective, MF industry held investments of Rs.21,285Cr in this stock as on 31st July '17 as per NAVIndia. Out of the 782 equity schemes, Infy was part of 421 schemes with the stock among the top 5 holdings in 222 schemes and is the top holding in 19 schemes. There was pressure to bring Nilkeni on board to set things right ASAP.

Marking the Markets

In the graph of NIFTY (Jan'96 - Jul'17) the green line represent the returns on a yearly basis where the biggest annual return is in the year '08-'09 when the Sensex delivered a stupendous return of almost 80% while in the very previous year the returns plunged to negative 53%. The least volatile year i.e. 2015, the volatility (orange line) was about 19% but the annual return was a negative 5%. This doesn't help us to conclude that every lower volatile year yields to lower returns.
What we infer from this graph is that one shouldn't rely on past performance while investing and a systematic investment helps to counter the volatility.

The North Korea Conundrum
It's futile for the US to exert pressure on China unknowing the history of the alliance. It dates back to the Korean war where the Chinese forces fought against the South (even Mao's son lost his life) and to cut ties would be more than over optimism from the US admin.
And the Chinese worry that any more stringent actions could lead to collapse of the regime, not a desirable outcome. Xi would be more worried if this could escalate in arms build-up in the region (Japan & SKorea) at odds with its policy

The Russian Probe
The relationship between the arch rivals has taken a further downward spiral with the accusations flying high about the Russian meddling of the US elections and the emails exposing incumbent family's involvement has co-mplicated things. Adding to the woes are the frequent attrition of WH staff.
These digress the current issues that need attention - debt ceiling leading to a possible govt shutdown, tax overhaul, response to hurricane Harvey, Irma, etc. derailing the nascent economic upturn.

The investor of today does not profit from yesterday's growth ~ Warren Buffet.
Equity
The MF inflows continue to surpass the older records which touched Rs.20,000 Cr in Aug alone. The structural changes of demonetisation and GST have contributed to a bit of contraction in the GDP than anticipated. There's been a significant dip in the manufacturing and stagnant services probably due to de-stocking, though a recovery is anticipated while a slight tax base expansion is already witnessed.
We continue to remain overweight on Equity though a staggered approach is recommended with a large cap bias. IT & Pharma continue to wander in woods while Infra seems to be attractive as a theme.
Debt
With RBI's intervention in currency markets along with tight monetary policy has resulted in greater FPI inflows. The industry and household credit remained low providing a headroom for further rate cut.
Dynamic bond funds still suit investors with a longer time horizon due to their very nature of dynamism and flexibility.
Alternates
There's been a growing interest in the investor community on the crypto/digital currencies. We continue to remain cautious despite the announcements by various countries.
Investments in these could turn speculative and should be looked as such at this juncture. Greater penetration would surely entice Govts to take notice and could well restrict their growth.

Wealocity's perspective on the market happenings. Monthly Market Commentary Jul'17

Farm Loan Waiver

There has been an increasing call for farm loan waiver from across the states and also from the Union govt. But, we believe this would be a temporary solution to a deeper malice. A statistic puts the total outstanding at about Rs.3LCr and any write-off move puts stress on the fiscal deficit. Add to that the state of banks, esp the PSBs which have substantial exposure to rural credit and the psyche it builds in the people's minds. RBI’s financial stability report warns that the banking system’s gross bad loan ratio will rise to 10.2% of the total loan book in Mar'18 from 9.6% in Mar'17. The need of hour is in employing modern farming techniques, scientific approach, improving overall infrastructure and eliminate counterfeit seeds/pesticides/fertilisers.

The recently concluded G20 meetings didn't bring much change to the global business environment but has shown the world the new US admin ways of dealing with the rest. Though, a common communique was drafted the resolve for the same was missing from the largest economic powerhouse. And later it was vetoed for a resolution against North Korea by rivals Russia and China.

The India-China boarder conflict is not new but this time there's been an aggressive stance by the Indian Army and also the administration. There's been a resolve to counter any activities around the boarder esp since the launch of 'new silk route'. The current Govt has expressed it's displeasure. Need to see how things evolve now-on.

What's in it for you:

Equity: The equity markets turn volatile in the near term with a uptick in the shorter term. The GST implementation would be complex so could create hiccups in the near term. Already we're seeing the wait period of the truckers on the highways shrink by about 25%.

We recommend staggered investments in the large cap space while hedge based investment for lumpsum. Geo political events are a concern.

Debt: The domestic inflation softened more than anticipated and so the RBI's dovish tone despite maintaining the interest rates as status-quo. This makes the possibility of a rate cut in near future.

This creates an opportunity for the medium term funds to provide stable accruals and also gain through the downward yields.

Commodities: The geo-political tensions and strengthened dollar bear impact on commodities. Except for steel most of the commodities including Gold/Silver are subdued and would further see pressure.

As we've forecasted at the beginning of this year politics would form the centerstage and so define the world economy, this newsletter dedicates most of it on that note.

US

Politics
The US President has made a U-turn during the second call to President Xi and had emphasised to strengthen the mutually beneficial cooperation on trade & economy while agreeing to honour the 'One-China' policy. The President however seems to be still on the campaign trail while lambasting the media.

Economy:
The US economy kept on adding more and more jobs in Jan but the wider economy growing at a moderate pace while inflation is at 1.6% nearing the set target of 2%. Also, awaiting word on the new President's tax plan.

China

Politics
As if a reciprocation of Trump's friendly call, China has banned all coal imports from North Korea. For the latter, it accounts more than half of it's exports to China and a fifth of its total trade. The Chinese move comes as it's neighbour acting more independently and the latest assassination of Kim's half-brother is the last straw.

Economy:
In an unprecedented move, the Supreme Court of China has blacklisted about 7mn bank defaulters and restricted them from using flights, bullet trains, book hotels, applying loan & credit cards or getting promoted.

India

Politics
On the domestic front, the current state elections have overshadowed most of the central govt's energies as it mandates the demonetisation adventure and define the future of the GST implementation in the next FY.

Economy:
The govt. is charting a clear strategy to steamroll the disinvestment activity by initiating the process of listing three railsPSUs viz., IRCTC, IRFC and IRCON, esp after the bumper listing of CPSE ETF.

France

Politics
The tremors of a possible win for the France's far-right are now aggravated by the shockwaves by the seeming cooperation between far-left and left. A win by either party is a fillip to anti-globalisation movement across the EU.

Economy:
Despite the IMF's belief that Greece deserves relief, the European lenders aren't convinced with debt at 180% of its GDP, thought the govt. achieved primary fiscal balance, repayment seems impossible at all.

Buzz

Midorexia - a label for the middle-aged and older consumers who act younger than their years.

This Australian Open when for the first time the finalists in both the men”s and women”s singles finals were all 30+ in their age (considered veterans in the pro tennis) also when the Indian Cricket team recalled Yuvi, Nehra and Dhoni (all 30+ veterans), it was like watching matches a decade old. Most of us regaled feeling that we’ve gone down by 10 years of our age. This is not just a feeling but a revolution unfolding across the world.

Its just highlighting the shifting status and expectations of a demographic whose members are living and working for longer and prioritizing wellness while challenging the typical age-appropriate behavior of older people. These consumers are transforming what it means to be older in terms of lifestyle and are more demanding in their consumption needs, creating what is increasingly referred to as the “Longevity Economy”. These changes are inspiring the financial advisors to extend the traditional boundaries of planning and execution of the retirement.

The Union Budget has set a tone of incrementalism and continuity, which within a few years would turn into a non-event, ideally how it should be. This budget had all the expectations of turning into populist as its between two big events of denonitisation and big state elections but we're impressed at the restraint shown by the FM.

Wealocity sees a reformist path other than merging the railway budget are:
5% reduction in the corporate tax for cos less than Rs.50Cr turnover,

lowering cash donations to the political parties,
making it unlawful to deal in cash over Rs.3L,
reduction of 5% in the 1st slab of individual tax,
restricting the tax concession for housing loan interest to Rs.2L and reduction of holding period form 3 to 2 years for considering LTCG.

The icing on the top is the empathy for tax payers who're a minority while crunching big data (the govt.'s keenness to hook the non-complaint).

The new US administration is on a mission to issue executive orders in it's attempts to live up to the election promises. This has resulted in pulling out of the burgeoning TPP though it was expected to add just 0.2% of GDP to the US in over 15 yrs. So, the cost of withdrawing seems small. But it would be a big blow to the free trade across the world and also significant deterrence would be lost to the ever expanding influence of China.

Already the new visa ban laws have attracted wide negative attention across the world while innumerable suits filed within the US by organisations and institutions. Despite all this political turmoil, the US economy continues to chug along with increasing consumer confidence. While US stocks touched newer highs, clouds are gathering over the lengthiest bull run ever in it's history.

The RBI's decision to hold the interest rates in this quarterly monetary policy is considered as surprise and hawkish. But, Wealocity believes the stance change from accommodative to neutral is pragmatic considering the unknown effects of demonetisation, the possible crude price hike, the strengthening US dollar and the impending FED rate hike.
By remaining neutral, the committee has shown that they would wait and watch the situation than have a preconceived approach. The bonds had the biggest rout in three years with this announcement.

The UK as it explores to invoke the article 50 of the EU, it tries to fight within while struggling to have a soft exit. To achieve this, they're warming up to the US, their natural and largest ally.
China's growth has become what economist's call Goodhart's law. It says, when an economic metric becomes the goal of a policy, it loses meaning as a metric. So, once the Chinese govt. decided to target GDP at 8% or 7% or 6.5%, the GDP growth lost its meaning as a reliable guide to Chinese economic performance. The biggest concern going into this year is the debt-trap the economy faces.

What's in it for you:

Equity: The much better-than-anticipated quarterly results post the demonetisation have given a fillip to the markets. The pre & post budget rally has added gleam with a sudden reversal in the FII has contribution, though the domestic inflows remained strong and historical highs. However, we believe the impact of demonetisation could be felt in this quarter results.
This is an opportunist time to have exposures to equity with higher allocation to large caps and select mid & small cap stocks/funds.

Debt: Though the reversal in stand without warning by the RBI in the interest rates, we believe further rate cuts could happen and has given an option to enter in the gilts now. The ideal exposure to dynamic bond funds would be good for fixed income space.

“People are trying to be smart - all I’m trying to do is not to be idiotic, but it’s harder than most people think.” ~ Charlie Munger.

Trend: This is a newer section we’re introducing from this month which captures our imagination of next big things in our lives, markets and/or business.

Electric cars and Tesla occupy that distinction in this month’s commentary. Just at the month end, Tesla launched Model 3, their cheapest ever electric car at USD 35,000 with a goal to produce 500,000 vehicles.

The pre-orders stand at 276,000 according to Elon Musk, the founder & CEO within two days of launch. Though, they’re notorious for their delays in delivery, they could probably end up with more cash issues this time. Watch out!!!

Terrorism: When the heart of the Europe was struck with terror attacks last month, the world markets remained unfazed - Was it a sign of defiance or an acceptance of such disasters is still unclear?

But, these attacks along with the recent events of deporting migrants by Greece and the voices gathering for Brexit are only adding woes to the borderless sustenance of Europe.

The continued rhetoric by Donald Trump, contender for Republican the US Presidential nominee is another nail drawing in for more protectionism. Of all, the central bankers in a bid to regain their importance in the scheme of things, are dangerously toying with the Negative Interest Rate Policies to prop up growth.

Italy: Europe and the world could soon wake up to additional financial risks posed by Italy. According to Euro stat, Italy comes 2^nd in the debt-to-GDP ratio with over 132%, a tad below Greece which continues to occupy the top slot. Greece being only the 44^th largest economy in the world has brought the global financial markets to the brink and what could Italy do being the 8^th largest economy? Save your thoughts.

Fed: Last December’s policy statement and the dot-plot predicted 3 to 4 hikes in to this year but we at Wealocity had our concerns expressed and have cautioned to a maximum of 1 rate hike at the best case scenario but with a bias towards the zero interest rate i.e. rolling back the hike Fed has done last year. We still maintain this forecast considering the larger than the anticipated fall in the commodities and the stagnant inflation (US) despite the job growth.

China: As it struggles to transition from a manufacture-led economy to consumer-led, the forex reserves are evaporated faster than anticipated. The reserves reached to $3.3tn in Feb, a record $1tn has moved out of China in 2015. While the official deficit stands at 2.4% of the GDP for 2015 and 3% (estimated) for 2016, the Societe Generale puts it at 3.5% and 4% respectively.

What’s in it for you:

Equity: Domestic equities have recovered from this calendar year’s lows but ended up on net negative for the FY & YTD basis. As an asset class, these are attractive and staggered investments are recommended with top-up on dips. A good monsoon is all it takes to see your portfolios bulge.

Debt: FMP (Fixed Maturity Plan) are attractive considering possible further cuts in the interest rates in the coming quarters. Also, dynamic bond MFs could take advantage of the evolving scenarios. Any tax-free bond issues to be lapped up especially by the investors at the retirement door-step

Commodities: In our last update, we’ve extensively covered why crude hovers within the current range and we reiterate the bottom’s done. Gold fights to shackle it’s resistance but faces hurdle while the rest of the metals remain humbled.

Disclaimer: The views expressed here are personal and any investment decisions to be made in consideration with the risk appetite, timelines and needs with an assistance from an advisor.

Monthly Market Commentary - Oct '17