Saturday, July 24, 2010

CHINA & AFRICA

China is a economic super power country not by its GDP numbers or by fiscal stimulus packages. Its powerful since it knows when and where to apply the power. Just like our Indian business men Shri.Late Dhirubhai Ambani knew where to give SALAAM.

China is holding 60% of the US treasuries and is also having a strong balance sheet of reserves. China have been slowly and quietly building its reserves and now it is now busy in applying its resources to other economies where its sees the huge potentiality of growth. In may last write up I have depicted that china have signed 14 new agreements with Europe and Greece across various sectors and have invested around $300 billion dollars till now.

But you will be surprised that china is also doing huge quantum of investment in Africa. In fact china is replacing its positional crown with Africa as an emerging economy. The research, undertaken by the UN Conference on Trade and Development (UNCTAD), however shows China is among the most active investors in Africa,.

China invested $2.5 billion in Africa between 2006 and 2008, China as a matter of fact, recently invested $28 billion dollars in several nations on the African continent. China is doing this at very slow rate as compared with the total inflow of FDI in Africa. Southern Africa remained the largest recipient of FDI within Africa, even though inflows declined from a 2008 high propelled by the Industrial and Commercial Bank of China's purchase of 20% of Standard Bank for $5.5 billion. South Africa was the fourth-biggest recipient of FDI on the continent, with $5.7 billion of inflows in 2009.

Very recently their was an article published in newspaper that china don’t want to be in the first position of the ladder of FDI. I want to make one thing clear to my readers that FDI increases due to higher M&A deals. Its is a strategic way of investment rather than direct setting up of factories and manufacturing hubs in an economy. Its true since china have created manufacturing hubs in Africa and helping Africa to be an emerging economy. How many economies play the game like the one being played by china is question of deep thinking.

We find a host of countries in Africa which have attracted the FDI inflow . The biggest local company abroad in 2008 was cellular group MTN with $13.3 billion of foreign assets, followed by Sasol ($6.7 billion), Sappi ($5.9 billion), Netcare ($5.6 billion), Steinhoff ($5 billion), Gold Fields ($4.8 billion), Medi-Clinic ($4.8 billion) and Naspers ($3.8 billion).

Africa has suffered once upon time due to the tussle among the strong economic nations. In plain words the battle between Europe and US have made Africa to suffer lots of pain. History bears the facts of America and European horrid brutalities in Africa. History clearly indicates that African peoples have been left in the lurch by foreign powers from America and Europe and the pathetic underdevelopment, the abject poverty and the desperate human conditions on the African continent has zero input from China and Chinese corporation.

America and Europe have been in Africa for almost a thousand years! And evidences about of how America and Europe have pauperized Africa by stripping the continent of tangible and intangible resources, ranging from human beings during slave trade, to raw materials during industrial revolution. More recently, stripping of African gold, diamond, petroleum and cheap labor. A movie was also made on this theme named Black Diamond. The nadir economic and political conditions in Africa are directly related to slavery, colonialism, apartheid etc.

China had a least role in all these heavy weight counter fights among the powerful nations. This is the main reason why Africans have readily accepted china’s proposal of investments and other policies. What makes china to make investments suddenly in Africa. Prime reasons are many, but among them top reasons includes:

• Diversification of its economic reserves.

• Utilization of low cost manufacturing as labour rates are abnormally low in Africa as compared with the rest of the world and

• Last but not the least China is in dire need of sustained and uninterrupted energy supply. Hydrocarbon is the demand in China and Africa has this huge reserve of hydrocarbon in its womb.

What ever be the reason but its far from the cruelty being offered by US and Europe to Africa, If china needs hydrocarbon then its paying the cost by replacing the Africa from the crown of underdeveloped economy to emerging economy. China is reducing its risk by diversification of its reserves. Investors have faced the burns of doing investments in one basket in the 2008 crisis. For example Investments in Europe have fetched negative return of 13.14% as compared to Asia pacific index excluding Japan which rose to 7.8% ending 12 months respectively . To add further feather to the crown world's largest 500 companies are having presence in emerging economies as compared to the dominance of western economy.US $12trillion GDP accounts for 30% of the world GDP. Surprised to find out but this reflects that new opportunities new lands are invented and they are contributing in real terms.
So if Europe and US needs to reduce the unemployment then its needs to invest in emerging economies and send their people to other countries. But that space is very narrow .In fact US and Europe might be getting the blessings of the cruelty they created in history

Thursday, July 22, 2010

JOBLESS US

The global powerful financial houses and banking giants needs a chemical to wash their foresight about the world economic recovery and GDP growth numbers projected by them in the last term. The International Monetary Fund (IMF) lifted China's GDP growth forecast for 2010 to 10.5 percent from the earlier projection of 10 percent. IMF) has raised its world economic growth forecast from 4 per cent to 4.5 per cent.IMF was cheered by the fact that the world economy expanded at an annualized rate of over 5 per cent in the first quarter of 2010 and that growth was stronger than expected in most countries, including the United States, Europe, Japan, Brazil, and India.

But why then the IMF need an eyewash to look clearly before declaring the growth numbers. Europe is out of the battle for the time being. China is slowing down as its export countries are not is a position for consumption of its Chinese goods.US is having more problems than its seemed before. It recovery worked well in boosting up the stock market and S&P index to touch 1000 mark. In real term s there is no economic strength in the US. Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17. Thirty-four states and territories reported an increase in claims, while 19 reported a decline. Companies announcing job reductions in July include New Brunswick, New Jersey-based Johnson & Johnson.

Even if we look into the Chart below we find that unemployment is only increasing and less indication of reduction.
Lack of jobs will restrain consumer spending, the biggest part of the economy, and lead to slower growth in the second half of the year. It will probably take a “significant amount of time” to restore the almost 8.5 million jobs lost in 2008 and 2009, Federal Reserve Chairman Ben S. Bernanke told Congress yesterday.

Moreover the number of people continuing to receive jobless benefits dropped by 223,000 in the week ended July 10 to 4.49 million. The figure does not include the number of Americans receiving extended benefits under federal programs. More funds will be deployed to cover the benefits of those US citizens for whom the benefits lapsed. The Senate yesterday approved an extension of unemployment insurance that restores aid to 2.5 million people who lost their benefits. In other words more tax payers money and more injection liquidity.

Inflow of tax payer’s funds will only flow finally to emerging markets and S&P 500. The only good news among all these is that according to the government 4,487,000 people filed continuing claims in the week ended July 10, the most recent data available. That's down 223,000 from the preceding week's upwardly revised 4,710,000 claims.US needs to understand that by just simply injecting the funds and buying back toxic assets will not help. What and solely the focus should be towards increasing manufacturing activities. Raising voices on yuan valuation will not help US manufacturing. Jobs needs to be created and strategies and focus should be on that and not buying assets and covering up the mistakes created by US financial giants.

So we are heading for a slowdown globally and this will affect Indian browsers and sentiment. Its a very difficult to say that how well the domestic triggers will play the fight with global challenge. If we look domestically we find that the Indian stock market is bound to touch 5800-600 levels.5800-6000 NIFTY VERY SOON
What we need to adopt is a slow and wait and watch option. Since any hasty investments might make us weep for a longer duration unless global economy takes a upward rally. We are in the middle of the results seasons and we need to pick stock with a long term theory and not on the basis of short term hiccups. Nifty will go for some correction but what will be the depth of the correction is hard to say since domestic reasons are strong enough to support the fall. Those who are saying that India is free from any type of affect of global imbalances must understand that FIIs are in problem and industries are dependent on export. Indian GDP numbers will touch 9% only when export picks up and FIIs and FDI continue their investments in India even during the forthcoming slowdown.

AFFECTS OF DRY INDEX


Billions invested to buy the toxic assets created wealth and profits for the Wall Street and global market. Pumping of money was made in such forms as if a big hole in the earth is being covered up by dumping soil. Great activity and a brave heart to spend trillion dollars of funds to buy fake deals and useless paper converted assets. Central banks across the globe came up with zero interest rates. Thanks to God since if anything was below zero then they should have applied. Zero interest rates and free flow of funds pumped up the global market particularly the stock market pulled up the funds and made the Indian and emerging browsers to the regime of 2007.Great gamble played and all activities of the culprits were covered up. This is really a fantastic system where if you kill thousand s of people across the world through financial weapons no one will punish you. Great going.
The World Stock Markets gained from US to China with small volumes of financial crisis earthquakes starting from Dubai to the latest one with Europe. We might have to wait and watch for some more countries to come out with similar tremors. Apart from the stock market the god blessed speculators who made their recoveries the world economic is still running very slow and very fragile for another round of dip. Now I am sorry to acclaim that IMF and World Banks are now very old and needs to have an eye operation to look into the real picture rather than simply increasing the forecast of world economy recovery.

Global trade is slowing up after the debacle of Europe. Trade is not slowing up by plummeting. Exports are also on the verge of death. Exports across the world have taken a hit and the biggest shocks will come from China and US. China was over heated so slowdown was eminent. But the global trade shrank more than 60%.

Proof of the pudding is in the Baltic Dry Index. Where the index proceeded to drop by more than 90% in the next six months. The index in question is called the "Baltic Dry Index," or BDI, and it once again merits a closer look: After peaking in May, the BDI has fallen for 35 straight days. So two points get clear that slow down have started way long back and the fall is continuous. A question which comes in the mind is that is IMF and World Bank taking these aspects in mind while generating outlook numbers.

If we check the index in 2008 we find a signal of global collapse was being displayed when the index was below by 90% at that point of time. The importance of the index is that it reflects the international trade in commodities because it measures seaborne freight rates, the cost of shipping bulk goods such as iron ore, coal and grains by sea.
In simple words more ships travelling more business happening if less it’s the sign of slowdown.
This time the number reflects and size of vessels being booked suggest that the fall in prices to transport seaborne freight and, correspondingly, the BDI, reflects weakening demand. If we look historic numbers of the index we will find clear positive correlation with the stock market and global economic outlook. In May of 2008 BDI hit its record high ever, 11,700 points, beginning its steep slope in mid-July. In Dec.5, 2008 it slumped to 663 pts, the Baltic Dry Index record low. In November, 2009 BDI gained 4661pts. As of July low. In November, 2009 BDI gained 4661pts. As of July 1st, Baltic Dry Freight Index settled at 2351 points, 55 points down from June 30th
Slowdown of demand reflects that manufacturing activity is not happening although we get the data of consumer sales etc. We should understand that good keeps in inventory is being consumed that have no connection with manufacturing. The real investments happen in manufacturing which increases the demand of consumption. Stock market is riding on the horse of speculators but there ride will last till the time they quit their portfolios. Once that happens the sell of and slow down trigger will be released.
Even if we ignore the index reading we still land up with some more hardcore analysis. China is slowing down and no immediate reasons are backing up that China will run as it ran in 2009.US is yet to come out and stand independently on its recovery foot. Europe is out of the battle due its frozen economic status for the next 3 years. So, global sales and consumption is now stagnant. The only country left is India and that’s too dependent on FIIs flow of currency .If business slows down in FIIs countries flow funds will get reduced and some pull back of funds will be made from Indian browsers.

The speculators who are seating on the sides and think that India is out of the trouble of slowdown of Balti Dry Index needs to have an operation of their speculative eyes.

Wednesday, July 21, 2010

TEMPTATION OF BEING SMALL

Traffic jam is not known but the frustration of each day in traffic jam is always new. As Indian infrastructure made a massive make over in the past couple of years the Indian transportation system also made a turn around. Host of flyovers and broad road structures have been introduced and modified to increase the speed of Indian corporate growth. Long Distance is no longer a concerning factor was ruled out earlier by Information technology but small distance always remained a matter of concern. By one click communication was easy for long distance but short distance physical communication was poor due to the road structures of India. Now where ever you look around you will find host of new polished shinning flyovers making the short distance a comfortable one. More than the roads and avenues of journey the automobile have made the journey not only comfortable but very cheap journey. Cheap not in the context oil prices ,but the vechiel of travelling. The small car space is the new mode of cheap journey.

In early 90’s small car replaced the concept that cars only belongs to rich people. They created a mind sight where cars were being dreamt by common people travelling each day by Bus and other troublesome modes. Maruti was the name of the company at that point of time which created and changed the consumer mindset. Changing the mindset was the big game which changed the fortune of Indian consumers who got the privilege option of dreaming and converting dreams of having their own car. A decade later the same theory again got recognized but by the world car manufactures across the world and identified India as the hub of small car consumer market.

Today the competition is fierce and in the coming days it will be very hard to say by gazing at the crystal ball about the future of the domestic car companies in India. Small is the only concept being produced in factories and companies are just feeling impossible to increase their market share at a rocket speed. We posted slogans of oil price hike and couple Bandhs rattled the normal life of the citizens across India but where is the real affect of the oil price hike. Cars are being sold just like pancakes consumed by school going children’s.

But if we completely ignore that big cars and luxury cars are out of the street race, then it would be quite rude matter. Big cars and luxury cars are finding innovative ways of selling their brands. If we take the entry-level of C Class Benz, it includes a 0 per cent interest rate for a 3-year loan or a low EMI of Rs 29,299 for a five-year period. Though the on-road prices of these cars are well over Rs 35 lakh, schemes like these do bring the vehicles within the reach. BMW has its own finance arm and that gives us more flexibility to alter the terms of the car loans. Small cars are a challenge but Big cars are not going to easily accept the defeat. Each day we find new small car concepts are flushing the Indian markets. Very recently Mahindra and Mahindra is set to launch its mini Xylo to grab market space in this segment. Fiat India is gearing up to make a splash of its own in the country’s burgeoning small car market by launching an India-specific car in 2012. If we look at the Industry growth numbers of automobile space we will find the real affect of oil price hike.

CAR SHOPPING.
Car sales rose nearly 31% to 141,184 vehicles last month, while commercial vehicles jumped more than 44 percent to 52,211 vehicles, according to data released by the Society of Indian Automobile Manufacturers. One of the prime reason for such a growth of the sector despite of fuel price hike is that family income is rising rapidly, putting a car within reach of millions of new consumers in India.
• If we look at the investment mindset of car makers in Indian market we find Audi, the premium brand of Germany's Volkswagen group, has earmarked 30 million euros to invest in India till 2015 for technology and product upgradation.
• GM India is arming itself with a whole new battle-plan for investment in Indian market with an investment of around USD 100 million.
• Investments by French companies in India are expected to touch Euro 10 billion (around Rs 60,000 crore) by 2012, and would be focused on automobile, energy and environment sectors among others.

So its well clear than India will be a pool of funds in the automobile sector and the competition in the coming days will not bring smile on the face of the companies. Domestic companies have to find and compete with innovative ideas and concept to deal with the overseas competition.

One thing is granted that Indian consumers will have new tastes and new demands as they have an never ending income generating force. In other words India possess the highest number of young generation of income holders whose taste and preference are enough to be tempted. What the automobile companies needs to understand is the way of luring that temptation. Just imagine Maruti the company which enjoyed the premium by simply changing the mindset of the consumers and asking them to dream and convert the dream of having a Car in front of their house.
The company which will be able to bring such changes and temptation will enjoy the tough ride with less effort.

WAIT AND WATCH @REAL ESTATE


One of my friend who is a well renowned real estate promoter was struggling  to pay  his bank loan in the year of 2008 when the recession have touched the shores of Indian real estate business. He had to almost sell all his properties of his own to pay back the loan of the bank. Even he had sold his under constructed residential and commercial properties at a very much lower rate than he should have dreamt in his worst nightmare.

2yaers after he stands well ahead of his worst days. He not only gained everything back but also made some realistic approaches. As we all know that earlier every real estate business was running at costly and lavish housing models. But when the recession started off every one realized that the growth of the business over the long term lies in the womb of small and affordable housing categories. This concept of small and affordable was not only recognized in real estate sector but also in automobile space too. That why toady we find the traffic jam is filled up with small cars. Real estate business took a sharp turn around and made dramatic changes in its approach. Small houses are the ones which are on the highest point of the demand followed with highest purchasing parity in this segment. So after the debacle of 2008  real estate moved towards small projects which have lifted the balance sheet  form the color of red ink. Today all the top 5 real estate developers across the country are floating in profits and prices of the properties are now about to cross the peak high of 2007-2008.This have been further approved by the leading home-loans lender, HDFC, feels that residential real estate prices in the country are hitting the peak levels observed pre-slowdown.

Small houses takes less time for construction as its does not needs any lavish outfits and the consumer numbers are very high. Hence wastage of capital due to delayed in sales process in next to negligible in small projects.. This  was equally applicable in commercial projects where large projects were divided and reduced to small sizes. At the same time the prices of the properties were back to 2007 levels and abundant flows of capital have increased the prices of the sector. Cost of raw materials were the only factor which have pushed up the cost of production but the higher level prices have not been able to affect the profit margin of the real estate sector.

But the situation for the coming days seems to be around for another small correction in the real estate sector. Prices are now so high that demand is taking a hit and will continue until prices comes down. Moreover the rising cost of loans is also putting pressure on the decision of consumers to go for fresh buys of real estate. Banks interest will put pressure put the high prices are the real trigger for pulling down the growth of the sector. We need proper valuation methods for the property prices and regulatory cap to check unhealthy price hikes for the sector. If these two practices are not adopted then the sector will make seasaw ride for very one. The consumers might postpone their decision of buying but what about the real estate developers they will have to face the building cost of inventory followed with increased working capital requirements.
At the same time  a huge number of projects have been taken up from all corners by the developers. If the slow down hits the road theme these developers will be under great threat. According to some private players its estimated that in  the next 12-months, over 4-million square  feet of office space will be available and this will put pressure on prices as supply is simply crossing over demand. The slowdown in Europe and China will put brakes over NRI sell of property and so again domestic demand will have to come for rescue but that seems to be over stretched. What we need a cautious approach for this sector where only one thing follows for now Wait and Watch.

Friday, July 2, 2010

BLACK GOLD 100$

I was planning to go for some shopping for some occasion at my home. The expense will be around 5000 bucks. I had made planning for the expenses from the past one month since as middle class family person one works out his expenses in the same format. The shopping was scheduled for this weekend and before the weekend the price hike of petrol and diesel followed with cooking gas was declared. Nothing much difference happened in rising these cost in my family, apart from foregoing budget of shopping by simply 1/3.

This is not the drama story of one family but all those except the rich compensated fat paid package holders. Global crude prices are around 70$ mark which quite low and the opposite reflection of the high price image is on India. We have read and heard a lot about this hike of the price of oil and etc. What we need to know is that why the price of crude in international market is hovering around 70$ mark and when the high price blessings are will be blessed and crude price will cross 100$ mark.

After the debacle of Europe and the latest measures related to pay cuts and reduction of expenditure, followed with a slow demand for the next few years have reduced the demand of oil in the European countries.

In crude and every commodity we know that demand increases the price and allows speculators to print money. Likewise the demand for crude is not so much as it was 6 months back in Europe. In US also the demand is subject to certain occasion and related to employment. If more jobs are created then demand pickups otherwise their also a drop in demand is transparent.

If we look for the demand from Asian economies we find China is now on the threshold of losing its steam of 10%+ GDP. As a result demand will not be picking up from china in the next 6 months time frame. Other Asian contribution towards oil apart from India is very less. In other way round India and china are the leaders in demand behind crude prices. But still the demand of India is not much capable to increase the global crude prices.
Below the chrat shows the sectorila utilization of crude:
In the United States, in contrast to other regions of the world, about 2/3 of all oil use is for transportation, as shown in the graph. (In most of the rest of the world, oil is more commonly used for space heating and power generation than for transportation.) Gasoline, in turn, accounts for about 2/3 of the total oil used for transportation in the United States. Other petroleum products commonly used for transportation include diesel fuel (used for trucks, buses, railroads, some vessels, and a few passenger autos), jet fuel, and residual fuel oil (used for tankers and other large vessels).
In the below chart we get to find the demand of Global CrudeConsumption :  
Global demand for oil is highest in the Northern Hemisphere's cold months. There is a swing of 3-4 million barrels per day (some 5 percent) between the 4th quarter of the year, when demand is highest, to the 3rd quarter, when it is lowest. (The precise amount varies from year-to-year, depending on weather, economic activity and other factors.)

While the 4th quarter is not the coldest in any region, estimated demand calculations are swollen by the traditional stock building that occurs during the period.

In the below chart one will get to understand the consumption of crude which reflects the demand created which pushed the prices of crude to 147$/barrel just before the 2nd recession attacked.

The biggest reason above all for the falling demand of crude is the absence of any major war game in the world at present. Since war situations spook the price of the crude.
So as of now and for the next one year cycle global crude prices will not breach the level of 100 mark and will remain below 90$ mark. Provided no war breaks out and the pace of consumption led economies remain to grow in the same speed as on current move.

Now I think the government is focused towards the oil marketing companies and the not the future demand of crude. After the price increase in Indian market crude demand from India will also drop. So finally crude prices will be around the mark of 70$-80$ and no threat of any increase of global crude prices.

Traders of commodity should reduce the exposure of crude as of now particularly the ones who are looking always for short term profits. Investors with a relaxed long term outlook invest in crude and remain invested and should have no fear of any further fall of crude prices. Unless the 50% of the world comes to an end crude prices will not drop below 60$ mark.60% mark might make my readers stretched but that the mark have been kept keeping further imbalances in economic recovery mechanism.So no 100$ crude price for the next 1 year.

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