Your Ad Here

Wednesday, August 3, 2011

No upside on equities; don't enter India now: Julius Baer

In an interview on CNBC-TV18, V Anantha Nageswaran, Senior Economic Advisor to Julius Baer talks about the current global scenario after a near crisis was averted with the passing of the US debt agreement.

Below is a verbatim transcript of his interview with CNBC-TV18’s Udayan Mukherjee and Sonia Shenoy. For complete details watch the accompanying video.

Q: Are you feeling bearish about global equities or do you think we have had a lot of pain and we are ripe for some kind of a bounce?

A: The bounce was expected after the so called debt ceiling increase but is hasn’t happened. Therefore, I am not particularly positive on equities. I am negative on equities. The world has to deal with both structural issues which have not been addressed since 2008 and a cyclical slowdown, both, in the West and East due to inflation concerns and tightening that has happened so far. Overall, the backdrop for equities does not look good.

Q: The US markets have already wiped off all of their yearly gains. Do you anticipate some more of a cut in the global markets?

A: I think so. The fact is the US has now a deal which imposes a short-term fiscal retrenchment which probably is something the country does not need. In the eurozone you have two big counties, Italy and Spain are seeing their bond yields rise. In Asia, you still have inflation concerns.

If by some chance these western countries eventually adopt reflationary policies by an additional round of monetary easing, it is going to complicate the inflation challenge for Asia. So whichever way you slice the argument, I don’t see an upside for equities. In fact I see quite a bit of downside in the second half.

Q: How much lower do you think the Indian market can go?

A: In terms of Sensex, we have always managed to hold the head above 18,000. Therefore, I believe that the market hasn’t really become a value play yet. I would wait to enter into the Indian market

Tuesday, August 2, 2011

India may see worst growth since credit crisis: Chetan Ahya

India's economy may be headed for a sharper slowdown than most are expecting, and could see its worst growth rate since the depths of the credit crisis, according to economists at Morgan Stanley.

"Clear signs of slowdown have emerged over the last 3-4 months," Chetan Ahya, an economist at the bank said in a report. Morgan Stanley cut its growth forecast for the fiscal year ending March 2012 to 7.2% from 7.7%. That's far below the government`s forecast for growth of 8.2% for the current fiscal year.

"We believe a combination of factors - including persistently high inflation, higher cost of capital, cut in fiscal spending to GDP, weak global capital markets environment and slow pace of investment - will cause a further slowdown in growth," the report said.

Other economists are also warning of a slowdown. Credit Suisse see India`s growth rate easing to 7.5% for the next 2 years, with more risks to the downside.

"Significant pockets of vulnerability do exist in the Indian economy, with real estate, big-ticket consumer durables and capital goods set for a particularly tough eighteen months or so," the bank said in a report.

The latest sign of a slowdown came on Monday, with data showing factory expansion was at its weakest in 20 months in July. That's on top of a moderation in car and retail sales as well as construction and investment spending in July.

India's economy was able to hold up relatively well during the economic crisis thanks to monetary and fiscal stimulus, but that stimulus has come back to bite the economy in the form of high inflation, say analysts.

"Persistently higher inflation is eroding consumer purchasing power," Morgan Stanley's Ahya wrote.

India`s inflation measured by the wholesale price index (WPI) - remains elevated at 9.4%. Little wonder, the central bank has been forced to hike interest rates, despite slowing growth. The monetary tightening will be accompanied by more fiscal tightening, according to Morgan Stanley, which says the government will be forced to cut back on spending to meet its fiscal deficit target of 4.7% of GDP.

Taken together, Morgan Stanley believes India's equity market - already the worst performing in Asia this year, could fall further.

"With slowdown in overall growth, we believe investment sentiment could remain weak over the next two quarters."

Copyright 2011 cnbc.com

The bear market is starting: Marc Faber

The bear market is on its way back, economist and contrarian investor Marc Faber, the editor and publisher of The Gloom Boom and Doom Report told CNBC Tuesday.

"The bear market is starting. When you compare equities to bonds and cash I don`t think equities are very positive," Faber said in an interview.

The SandP 500 (INDEX: .spx) has risen steadily since hitting its lowest point of the previous decade in March 2009.

Markets have been more turbulent in recent months as debt crises in both the US and the euro zone threatened to damage growth there.

"The Treasury market is telling you that the economy is in recession," said Faber. "So if the bond market is telling you that the economies of the Western world are weakening, but at the same time the stock market is still relatively high, I think the stock market is vulnerable."

He added his voice to those criticizing politicians in the US and elsewhere over the current problems.

"The politicians are all useless individuals. Nobody is reducing the problems in the US or Europe, just putting on a band aid and postponing the problems endlessly," he said.

"Some analysts think that there`s a chance economic data will surprise on the upside but I think, if anything, it will be on the downside," Faber added.

He believes that some companies will start to disappoint in the second half of this year.

China Bigger Risk

Second-quarter results so far have been a mixed bag, with major European banks such as BNP Paribas and Barclays announcing disappointing results on Tuesday, while earlier in the weekMotorola and engineering giant EADS performed better than expected.

The most recent plan for US debt, which the Senate will vote on Tuesday afternoon, involves more than $1 trillion of spending cuts and a hard-won raising of the debt ceiling.

Faber argues that China disappointing "is a much bigger risk for the global economy than the US because the US is no longer a major commodities buyer".

He believes that the impact of a decline in Chinese growth on the oil price could be critical for major commodities producers like Canada, Australia and the Middle East.

"If commodity prices are falling, then commodity producers will buy fewer goods from China," he pointed out. "This is something that the world central bankers can`t deal with."

Food price inflation is more of a problem in emerging markets than in the developed world as food is typically a much bigger part of annual spend in poorer countries, Faber pointed out, arguing that this could lead to worse than expected growth in China.

Faber, who describes himself as "ultra-bearish", said that he thinks that precious metals are the best place to be at the moment.

Despite worries about major euro zone economies including Italy, he is relatively bullish on the survival of the euro.

"What surprises me more is actually the strength of the euro and that it has not collapsed yet," he said

He believes that peripheral economies which drag down the euro will eventually be "chucked out" of the single currency.

"I would have chucked out Greece three years ago, straight away, and it would have been much cheaper," Faber said.

Gold`s (Exchange: xau=) position as a safe haven will continue to keep prices close to their recent historical highs, Faber believes. He said that he would buy gold if it falls below USD 150 per ounce again.

Copyright 2011 cnbc.com

Monday, August 1, 2011

Signs of a double-dip have emerged: Meredith Whitney

Analyst Meredith Whitney said she's seeing signs of a double-dip as cities and towns continue to get squeezed by cuts in federal funding.

This is certain to get worse as Congress and President Obama try to work out a deal on the debt ceiling, she said.

"I never envisioned we would come to this point where Congress couldn`t agree on raising the debt ceiling or we`d be in this dire situation politically," the head of Meredith Whitney Advisory Group told CNBC Monday.

"Our GDP number on Friday was an indication that states and local governments, which make up 12% of GDP, are really pulling back," she added. "We're certainly in a double dip on housing," which is putting "enormous pressure on the economy."

The states most tied to housing have had to cut social programs and raise taxes, which, in turn, pushes home values down even further, she said. Those states with "clean" balance sheets in areas she calls "the emerging markets of the United States" attract more business, have more tax surpluses and don`t have to raise taxes.

Some states are in bad shape because they relied so heavily on federal stimulus money, which ran out at the end of June, she said. Forty-six states have passed balanced budgets that include big cuts.

"This affects the macro environment, this affects employment, this affects spending, this affects every corporation within the United States because so many corporations are reliant on contracts from state and local governments," Whitney said. "So this [debt crisis] situation in DC exacerbates it, but the states are in a bad situation even without the situation in DC.

Another reason she is predicting a double-dip is layoffs, citing 50,000 jobs cut just on Wall Street, with thousands more by nonfinancial firms including Merck.

"All industries will [cut staff] and then it will get really bad when the state and local governments really start to impact the corporations" when they are forced to cut back on issuing contracts, she said.

Whitney, who predicted a wave of municipal defaults earlier this year worth upwards of USD 100 billion, stood by her predictions.

Her call on defaults "is playing out exactly as I thought it would," she said, but she stressed that "muni bond defaults are just a product of overspending and overleveraging the system. The call is so much bigger than what happens in the municipal bond world."

Copyright 2011 cnbc.com