Wealocity's musings on what's happening Edition 1/Vol 10/Sept '17

Our Mid-Monthly Newsletter September 21, 2017

Scary World, Calm Markets Eurasia Group President Ian Bremmer says the world is facing “the most dangerous geopolitical environment” he’s ever encountered. But tell that to investors as stock markets rise across the world - even South Korea’s benchmark KOSPI index is up 19 percent this year. Despite a series of missile launches and detonating the most powerful bomb ever by the Hermit Kingdom, the southern neighbour and the world markets didn’t wither much. The silver lining though is that trade to major destinations through the first 20 days of the month is on a tear, including a 40% jump in the value of shipments to the European Union, and a 36% increase in those to the U.S as pointed out by Bloomberg's James Mayger. One of the big themes of the year has been synchronized global growth: the notion that, basically for the first time since the crisis, all the big economic regions are showing solid expansion. I know it’s boring to bring to notice the most obvious yet ignored. But are the current investors primed psychologically for a major decline in the stock market or are they likely to keep bidding up stocks for some more time to come? Those’re the critical questions. The only way to skip out of this mass psychology is through sticking to one’s investment philosophy particularly when the peer pressure is at its peak. A campaign ad released this week shows the chancellor as a young East German girl along with the slogan “For a Germany where anyone can realize their dreams.” The picture is a reminder of how Merkel remains her party’s central asset even after 12 years in power.  In the wake of protectionism across the world and especially in the Euro region, Merkel’s re-election would infuse a fresh lease of life. Godspeed,

ABOUT WEALOCITY Asseses situations both pro-actively and reactively to manoeuvre portfolios offering customised solutions at risk management   ArthSamvaad Our Mid-monthly newsletter

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Wealocity's perspective on what's happening around the world  Monthly Market Commentary Mar '17

There’s a simple reason the future always feels uncertain but the past seems relatively orderly: No one has any idea what the future holds, while hindsight allows us to assume that the past was more predictable that it actually was ~ Anon. UPrising!!! UP, the powerhouse state which contributed for the party’s grip in the parliament is back into their fold after a decade and half and the comeback is through a landslide victory. The gains of Uttarakhand & Manipur are signs of both consolidation and expansion. Punjab followed the most expected path while Goa seemed to miss Parikar's charisma, a sign of weakness that the opposition wants to exploit in Gujarat next year.  There's a slew of Initial Public Offerings (IPO) by the companies of late and a few more are expected in the weeks to follow. The plethora of offerings is due to the buoyancy in the general market, the continued influx of capital by domestic institutions. Underwriters have learned over the years to price IPO deals at such a level that a) the company raises a nice amount of money that greatly values the business but b) it leaves enough room on the table for an opening share price pop for appearance’s sake. We believe market would provide an opportunity enter through the secondary market at a short period from the listing for medium term to long term investing. Euro area inflation has accelerated at its fastest pace since Jan’13 and is expected to hit the 2% mark. The ECB’s latest projection foresee an average inflation rate of 1.3% this year. US growth was less diverse in terms of its contributors than previously thought in Q4 2016. Like the UK, growth is heavily reliant on consumer spending. To all intents and purposes, it was the sole driver of headline growth, contributing over 2 percentage points to the 1.9% figure. President Trump in his first address to Congress, struck a conciliatory tone urging Americans to set aside conflict and continued the election rhetoric of “I’m going to bring back millions of jobs”. Equity: India’s domestic MFs (pure equity+ELSS) have witnessed an unprecedented level of inflows over the past three years, both in terms of consistency and scale. Since May ’14, the inflows into equity MFs have been positive for all months except Mar ’16. Such a level of consistency and scale of net inflows has not been witnessed anytime in the past 18 years. We continue to forecast gains in equity in the short run with further IPO & FPO (govt) offerings. The domestic politics would add fuel to it. Debt: 10yr yield was volatile in a huge range of 6.37% to 6.98% last month due to RBI stance. The AAA corporate bonds have seen spike up in yields from 6.95% to 7.63%. With hardly any positive triggers, no further G-sec issuance and existing large MTM losses by PSBs, the fixed income is best avoided for the month.  Oil: The West Texas Intermediate (WTI) for April delivery continued its tumble below $50 a barrel creating concerns that the US shale industry could kill the oil market if it embarks on another spending binge. The increasing threat from the US production is leaving OPEC members unsure as to what to do next. As 'animal instincts' taking over the US manufacturing/mining industries, the possibility of further spends on shale could lead to unknown results in the medium term. 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.

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.