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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “Investment” Tag

10 takeaways from Xi’s Davos speech

Chinese President Xi Jinping delivered a keynote speech on Tuesday at the opening plenary of the 2017 annual meeting of the World Economic Forum in the Swiss town of Davos.

Here are 10 quick takeaways from the 50-minute address, which touched upon globalization, protectionism, world economy and China’s development among other subjects.

1. Many of the problems troubling the world are not caused by economic globalization. Just blaming economic globalization for the world’s problems is inconsistent with reality, and it will not help solve the problems.

2. Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend.

3. At present, the most pressing task before us is to steer the global economy out of difficulty.

4. Lack of robust driving forces for global growth makes it difficult to sustain the steady growth of the global economy; inadequate global economic governance makes it difficult to adapt to new developments in the global economy; uneven global development makes it difficult to meet people’s expectations for better lives.

5. The world should develop a dynamic, innovation-driven growth model; pursue a well-coordinated and inter-connected approach to develop a model of open and win-win cooperation; develop a model of fair and equitable governance in keeping with the trend of the times; and develop a balanced, equitable and inclusive development model.

6. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war.

7. The Paris Agreement is a hard-won achievement which is in keeping with the underlying trend of global development. All signatories should stick to it instead of walking away from it as this is a responsibility we must assume for future generations.

Daiwa to launch ‘Trump-related’ mutual fund

Daiwa Asset Management is set to start operating a mutual fund that invests in stocks related to U.S. President-elect Donald Trump’s infrastructure investment policy. Daiwa will launch the product on Tuesday.

The open-end mutual fund — the first of its kind in Japan since Trump’s election victory in November 2016 — is likely to be made available to retail investors by the end of the month.

 The U.S. infrastructure builder equity fund, which invests in U.S. companies, will quantify how much each stock will benefit from Trump’s infrastructure policy, based on criteria such as sales ratio in the U.S. and the degree of obsolescence of the target infrastructure. The details of the portfolio will be determined by how much share prices are undervalued and how competitive the companies are.

The portfolio, comprising 30-50 companies — mostly in the construction, transport and materials sectors — will be adjusted as appropriate as Trump’s policy takes form.

Trump has pledged to spend $1 trillion to overhaul the country’s aging infrastructure over the next decade.

Vibrant Gujarat Global Summit 2017: Big-bang promises missing

The 2017 Vibrant Gujarat Global Summit’s inaugural ceremony on Tuesday looked like a shadow of its own past glory as the trademark big-ticket investment promises were missing.

Several chief executive officers attending the summit praised Prime Minister Narendra Modi’s “dynamic and visionary leadership” over the past two and a half years.

The PM’s speech, which was at least a quarter of an hour shorter than last year’s, showcased India’s growth story. “Despite the global slowdown, we have registered excellent growth. India is a bright spot in the global economy.” The World Bank, the International Monetary Fund and other institutions have projected even better growth in the coming days, he added. 

 Listing out India’s global rankings on various indicators, Modi said, “Creating an enabling environment for business, and attracting investments, is my top priority.”

Modi was called a transformational leader by many, including Executive Chairman of Cisco John Chambers and Chief Executive Officer of Fairfax Canada Prem Watsa. Calling Modi the Lee Kuan Yew of India, Watsa said the Prime Minister can transform the country. The late Singaporean leader was the city-state’s first Prime Minister and is credited with transforming Singapore into a developed nation in a span of 25 years. 

Investment promises came only from a couple of people. Gautam Adani, chairman of the Adani Group, committed fresh investments worth Rs 49,000 crore over five years and Lulu Group promised Rs 12,000-crore investment.

India : Note ban gains ‘highly uncertain’, says Fitch

Benefits of demonetisation are “highly uncertain” and the potential positives are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects, global ratings agency Fitch said today. Taking into account the short-term disruptions, it also revised down the GDP growth estimate for the current fiscal to 6.9 per cent from the earlier 7.4 per cent.

“The note ban move has some potential benefits, but the positive effects are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects…benefits of demonetisation are highly uncertain,” the ratings agency said in a note.

“The intentions behind demonetisation are positive and in keeping with the broader reform efforts, but the short-term pains may outweigh the uncertain long-term gains,” it said.

Terming the note ban as a “one-off event” as people will still be able to use the new high denomination bills and other options like gold to store their wealth, it warned that “there are no new incentives for people to avoid cash transactions. The informal sector could soon go back to business as usual.”

World Bank latest reports says global growth to accelerate slightly

World Bank’s latest Global Economic Prospects report … headlines:

 
  • Forecasts global real GDP growth at 2.7% in 2017 vs 2.3% in 2016
  • Forecasts advanced economies’ growth at 1.8% in 2017 (vs 1.6% in 2016)
  • Emerging/developing economies’ growth at 4.2% in 2017 (3.4% in 2016)
  • Forecasts US growth at 2.2% in 2017 (vs 1.6% in 2016) … they say their forecast excludes effects of any policy proposals from trump administration

More:

  • Challenges for emerging market commodity exporters are receding, while domestic demand solid in emerging market commodity importers
  • Fiscal stimulus in US could generate faster domestic and global growth, but extended uncertainty over policy could keep global investment growth slow
  • Forecasts China’s growth slowing to 6.5% in 2017 (from 6.7% in 2016)
(Headlines via Reuters)
 
The World Bank looking at the recovering oil and commodity prices, noting this eases the pressures on emerging-market commodity exporters. Expects the recessions in Brazil and Russia to end.
As always the Bank notes uncertainties in its forecasts (all forecasters should), with upside uncertainty (in the short term at least) on US potential increased fiscal stimulus, tax cuts, infrastructure spending.  Looking further out, though, a surge in debt load, higher interest rates & tighter financial conditions would have adverse effects.
Also downside potential on a more protectionist trade stance.

Vanguard is best-selling fund manager of 2016

Vanguard has topped a table of the bestselling fund managers globally for 2016 after drawing nearly $200bn from investors, eclipsing the total amount of new money raised by its 10 nearest competitors.

 The Pennsylvania-based asset manager has benefited from the runaway success of its low-cost sales strategy, which has dealt a serious blow to pricier rivals in the active investment industry.

Amundi, the French fund house, was the second-bestselling asset manager, pulling in $35bn over the same period — roughly a sixth of Vanguard’s haul, according to figures compiled for FTfm by Morningstar, the data provider.

Timothy Strauts, markets research manager at Morningstar, said: “Vanguard is eating the rest of the US fund industry. It is dominating completely. Both its active and passive businesses are doing very well, mainly because [it charges] very low fees.

Vanguard is eating the rest of the US fund industry. The US market is all about fees and if you don’t have low fees, you don’t get flows

Timothy Strauts, Morningstar

“I can guarantee you Vanguard will be the biggest selling [company] of 2017. The US market is all about fees and if you don’t have low fees, you don’t get flows.”

Dimensional, the Texas-based asset manager, was the third-bestselling fund house, with $23bn of inflows, according to the data, which excluded flows to exchange traded funds. Including ETFs, Vanguard’s total was even bigger at $288bn.

How to Become a Trillionaire and Other Thoughts

Grab one of these:

zimbabwe_jan7

Careful what you wish for central bankers and fiscal policy makers.  Though we don’t see signs of “rollover risk” in any of the G5 or G20, it’s all about confidence and you know what Joe said about confidence:

Confidence is a very fragile thing.  – Joe Montana

.The World Economic Forum reports this about Zimbabwe’s ghost of hyperinflation past,

Zimbabwe was once so gripped by hyperinflation that the central bank could no longer afford paper on which to print practically worthless trillion-dollar notes. 

The government reported in July 2008 that Zimbabwe was experiencing inflation of 231 million percent (231,000,000%). However, the Libertarian think tank, the Cato Institute, believes that the real inflation rate was 89.7 sextillion percent or 89,700,000,000,000,000,000,000%.

It is interesting to note that the country is now grappling with the opposite problem.

Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is threatened more by the prospect of falling prices. But that doesn’t mean its people are ready to trust that hyperinflation won’t happen again.

Demonetisation a big blow! GDP growth may dip below 6% in FY17

With consumption spends in rural and urban India stifled by the acute scarcity of cash, the economy is set to clock sharply lower levels of growth in the current and coming quarters. While the initial days of demonetisation saw economists merely pruning their growth estimates, the cuts could get bigger.

Nomura, for instance, believes there is a downside risk to its Q1 GDP growth projection of 6.9% y-o-y. “Near-term growth may fall much more than expected,” economists at the brokerage wrote. They alluded to proprietary indicators which had slumped to their lowest level since the series started in 1996 and were consistent with a below 6% GDP growth.

While sales have decelerated across markets, given the larger volume of cash transactions, the hinterland has been hurt far more than urban areas.

From Flipkart to Paytm, e-commerce companies in India grow revenues, but losses skyrocket

Even without the curbs imposed on them, e-retailers don’t seem to have made too much money in FY16. While for some companies, the losses doubled, for others, it trebled, indicating many of them are simply buying revenues. In other words, they are driving sales by offering customers big discounts and spending large sums on advertising and promotions. This strategy should pay off in the long run, but for now while top lines may have grown, the losses, too, have ballooned. At Paytm, for instance, revenues have risen by nearly 200%, losses have increased fourfold.

While there’s no doubt more shoppers are buying on the Internet, the initial spurt in online spends appears to have been driven by discounts.

It’s not surprising therefore that investors are reluctant to fund too many e-commerce businesses at lofty valuations.

Between January and November, just $3.7 billion has been invested in these ventures, about half the $7.5 billion which came in during the comparable period of 2015, data from Tracxn Technologies shows.

How disillusioned investors are is clear from the markdown in the valuation ofFlipkart—the e-retailer is now valued at $5.54 billion, down from $11 billion as on 31 March, 2016, and the peak of $15 billion in June 2015.

Telcos need to invest Rs 1 lakh cr each to provide seamless data services

With the government’s move for a less-cash economy, telecom service providers will have to invest around Rs 1 lakh crore annually for the next five years to build a robust infrastructure for providing seamless data services, experts say.

Airtel is best placed, as it has got a payments bank licence. And, Vodafone has the experience of its mobile wallet, M-Pesa, which enables transactions between merchants and customers, an analyst told this newspaper.

Aditya Birla Idea Payments Bank, a subsidiary of Idea Cellular, and Aditya Birla Nuvo would also offer these services, with the latter having got a banking licence for digital payments. The new entrant, Reliance Jio, has also started its JioMoney e-wallet, to enable its users to pay from their bank accounts through the platform.
“The industry needs to invest Rs 5 lakh crore in the next five years to improve the overall infrastructure, including the data infrastructure,” said Rajan S Mathews, director-general, Cellular Operators Association of India.
Since 2010, he said, telecom companies had invested Rs 3.27 lakh crore in spectrum auctions to support growth.
According to Prashant Singhal, global telecom leader at consultancy E&Y India, an investment in the range of $10 billion (Rs 68,000 crore) is needed over the next two-three years by telecom operators to make data services more seamless. “There is need for more investment for better coverage and capacity.”