Wealocity's perspective on market happenings Monthly Commentary Jun '17

Death of Paris Agreement Trump - Promise on track President Trump is on track of fulfilling his campaign promises to his voters. After many protectionist measures, the environment treaty brokered last year is trashed by the new US administration. This despite the developing economies like India, China, etc. are on a rampage to create new capacities in the renewable space. Not all across the US embraced their President's stand and started to do their own legislations in their cities, communities, etc. UK Election Results Dis'May'- Have the Millennials sought their revenge? That seems to be the case as more youth turned out to vote in favour of Corbyn's Labour party. Also, May could've relied on the very pollsters who predicted Bremain possibility as her 20% lead evaporated to a cut of 13 seats and most importantly pitting her into a minority government. For UK, a harsher Brexit could be a reality now. The 'Gulf' around Qatar When everyone thought the POTUS completed his first major tour of nations - the GCC, on a sane note, a major crisis emerged out and all the fingers lead to Trump. Isn't it a coincidence that the Qatar sanctions were announced just as his air force one took off. Rumours have it that Trump gave a thumbs up to stifle and wipe out Qatar, the pain point for Saudis and the new crown prince's plans. It's an irony for Saudis mention terrorism! The current crisis has the potential to spill beyond the region. Are we heading into a Kuwait situation? Interest Rate Divergence As reflation takes a breather, the approach to interest rates seems to diverge across the Atlantic. While the EU and the rest of the world maintain status quo, the US is looking to increase the interest rates. This FOMC meet this month, could sound on those lines. Though, the growth in employment staggered, the wage growth is eluding. Domestically, RBI is at loggerheads with the Finance Ministry though the former is in a wait-and-watch mode with monsoon season approaching and GST implementation as triggers for a rate cut. What's in it for you: Equity: With no major headwinds and continued fund flows, the equity market has not lost its steam. The near term market is still in the bullish phase and investments could be very opportunistic and staggered with a horizon of 3 years.  Debt: The interest rate dilemma hangs on for any directional change in the fixed income space. Small exposures to hybrid debt is recommended with a 3 year horizon. Commodities: As US ditched the Paris agreement, Crude seems to head nowhere despite the production cuts by OPEC, while the US rate hike could further bounce the greenback the safe heaven seems to lose it's sheen further. 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. 

“The future is already here, it’s just not evenly distributed.” ~ William Gibson

Demonetisation and IDS

As the initial brouhaha settled, the merits and demerits are emerging with better clarity. Also, the under-preparedness from the govt. and scarcity of the cash is glaringly visible despite new note introductions by RBI. The IDS is slowly turning into a sham with more skeletons tumbling out each passing day.
 
The RBI's monetary policy also reflects this wait & watch mode while being accommodative.

Us & the US

There's suddenly a divergence in the way the economies are moving. The US is on a gas peddle while the rest of us are still pondering. The possible expansionary policies is driving the appreciation of the USD.

This with the European bank woes incl the world's oldest, BMPS are only adding fuel to the uncertainty. China's growth remains sluggish while India's internal issues forced to take a breather.

What's in it for you:

Equity: The domestic markets tend to consolidate at these levels  with intermittent opportunities available, though. Despite the uncertainty of the impact of the demonetisation the equity-class remains attractive in the 15-24 month timeframe.

Debt: Contrary to the market expectation, the RBI retained status-quo on the rates. The impact of the latest govt. moves are unclear yet and so the waiting game. Dynamic funds seem attractive in the short to medium term horizons.

Gold: The run-up could be curtailed, at least, thanks to the appreciating USD. The concern is due to the counter-productive happenings in the Europe and the ECB actions that could lift the prices up. 

Crude: Though the recent OPEC deal has lifted the oil price, the implementation would decide the extent of price support, which seems negligible considering the history and also the waning influence of Saudis.