China's Economic Woe

China has been the most preferred destination for Foreign Direct Investments (FDIs) from last few decades, has seen enormous amount of investment in Real Estate. Since late 90s China has built hundreds of cities out of nowhere.

“It is important to maintain a proper balance between savings and investments to beat the business cycle”.

China advanced a step further and made massive investments in infrastructure especially in housing and highways which leads to over infrastructure.

Series of major events which lead to Chinese economic woes:

• Huge Investment in Infrastructure (Highways and Housing) over the period of few decades.
• People deferred their investment decisions as Real Estate prices were on nosedive because of over supply (especially Housing) which had hurt the investment cycle.           
• People anticipated stock exchanges as alternative investment and their decision were backed by PBOC when it gave green signal to government agencies in direction to increase their exposure in Capital Market, particularly Secondary Market
• Even though, economy’s fundamentals were not good, stock market doubled in last one year till June because of lot of buying activity by retail investor most of who didn’t even had the knowledge of stock markets.
• During this period, millions of new Demat account were opened. It has been observed that in month of May 15 around 30 million new accounts became active.
• By the end of May, more than 80% trading activity was done through these accounts of retail investors. In US, 53% of trades execute using retail investor’s account and for India this number is only ~2%.
• Due to huge demand in stock market, indexes reached new high despite bad indicators and fundamentals. This made stocks overvalued.
• Crash begin from 12th June in Chinese market is mainly because of two reasons: First, PBOC put increase restriction in order to curb grey market. Second, already overvalued market started correcting to its market value.
• To boost investments PBOC artificially cut interest rate 5 times in last nine months, which continuously pressurizing Yuan even more of every cut(demand / Supply).
• To ease down the continuously growing pressure on Yuan along with the intention of boost exports, PBOC on 12th August devalued its currency by ~4%. And this move triggered the fear amongst investor community.

Open to discussion, Feel free to shoot queries :)

Source for Image: http://www.bloomberg.com/quote/SHCOMP:IND

Samuhik Nished (Collateral Damage)

In last few days you might have observe huge volatility not only in Indian Stock Exchanges but across the globe and agitation amongst investor community. Sensex crashed more than 1600 points in last week on 24th August, its biggest fall since 2008 crisis, not because of domestic factors but acknowledging the global rout triggered by Chinese policy maker’s effort of intentionally devaluing its currency by about 4 percent and worst Purchase Managerial Index (PMI) of around 47 since financial crisis of 2008. PMI is economic health indicator of manufacturing sector of any economy, if greater than 50 signify the expansionary phase in economy while less than 50 signify contractionary economy.    

Impact on Indian Economy:

1. Indian has trade deficit (imports are greater than exports) and policy makers are pushing hard to turn the table from a deficit to a surplus economy by providing various kind of incentives to exporters. China is export oriented country with a market share of around 14% in global export. As we know China is in trouble (For various reason which are out of the context of this blog) and in order to give boost to its derailed export oriented industry Chinese central bank devalued its currency, making its product/services even more competitive in global market, in turn raise trouble for Indian exporters.
2. On other hand, devaluation of Yuan make Chinese product more competitive in India as well. And if internal policy maker don’t intervene and save domestic manufacturers (electronics, machines, iron, steel etc.), may kill Indian domestic industry.
3. China is one of the biggest trading partner of India only second to UAE with total trade of ~ $80 billion at a deficit of ~63 billion dollars. Of the total export of India to china constitute ~ 53% of raw iron. And slowdown in China because of its falling internal demand will impact our iron industry and indirectly will have its repercussion on other industries as well.

Even though our fundamentals are strong, have enough reserves along with the impetus provided by “Make in India” campaign, we are in much better health than most of other emerging nations still feel the heat if dragon falls (China is second largest economy in world).

DETERMINED INDIAN GOVERNMENT: NSA TALK

There was a post on Facebook from one of my friend, pointing fingers on Government of India and its diplomatic strategies for making Pakistan to call off NSAs level talk which was supposed to hold on 23^rd and 24^th of August in New Delhi.

He posted: “India WTF you are doing with NSA level talk!!! NSA not present at press conference and external affairs minister says I am going to Germany!!! Every blood a solider shed depends upon you!!! Making mockery of it !!!”

For readers, let me give you a brief about these kinds of meeting. These are nothing but engagement of members two Governments (could be at Foreign secretary level, NSA level or at PM level) to discuss the long unsettled affairs and put in efforts to reach out an understanding. These kinds of dialogue between Government of India  and their Pakistan counterpart has been in place for decades since early 1990s or even before with almost same agenda revolving around sensitive issues like Kashmir, Terrorism, disputed territory and many more.

Now back to point, Pakistan called off NSA talk few hours before it get started. Well, this is not the first time nor is the last when media hyped dialogues between neighboring countries has collapsed hours before it begun.  But this time many people criticizing Indian Government for its adamant stand including one of my friend.

In order to understand his position and justifying my stand, let me take you through flashback. All this begin last year, when India called off foreign secretary level talks with Pakistan in response to its envoy meeting Kashmir separatist on the eve of the dialogue (of course, there shouldn’t be third party) and exhibited the non-compromising position of Government Of India on terrorism. Since then Prime Ministers of both countries have had crossed each other several times but never to engage except UFA summit held in Russia last month and was believed to be ice breaker, a genuine effort to revive diplomacy talks between the neighboring nations to tranquilize the escalated in tension in the region. In my knowledge, at UFA, Prime Ministers of both countries agreed on the agenda of NSAs talk restricted to terrorism only.

Then why everyone started criticizing our Government, when everything was discussed a month back. Was it because of government’s firm stand on not allowing the inclusion of K – word in agenda for deliberation and for not granting permission to Pakistan envoy to meet separatist leader.

My view point is different from those against government. I believe, when everything was finalized in advance, then why beating around the bush, why not stay focused and deal with one issue that supposed to be discussed and require urgent attention. When Pakistan can’t discuss terrorism, then I don’t understand the point in blaming our own government. I saw people saying, Kashmir and meeting with Hurriyat Leaders was always used to be the part of agenda. I agree!!! So what? What have we achieved of those talks? I my intellect, I don’t see any major fruitful outcome of those deliberations. Kashmir was diplomatic affair in 1950s, Kashmir is diplomatic unresolved affair now. So what is wrong in keeping such long impending affair aside for some time and sort out urgent issues like terrorism and I am sure, that would be in favor of both the countries (Win-Win Situation).

 Though I understand, if this meeting could have convened, had provided the opportunity to leaders of both the countries to share the table and tackle the issues need grave attention. I am very much in line with thoughts that, if this meeting have had convened could have ease the tension on border. 

But I don’t see any point for blaming Government of India for this whole episode. It’s just that this government at Centre unlike the previous government use different approach in dealing with this type of affair, use different methodology for strategizing, different way to grasp problems and proposing solutions. This government is doing something, our previous governments has not done (trying new course to tackle the issues). For these many reasons, I don’t believe, government should be blame.

Wo Kehte hai na “Jab sidhi ungli se ghee na nikale to, ghee nikalne k liye unlgi tedi krni pdti hai”   

 

 

OPEN FOR DISCUSSION J