Daily India: India: 2018 Outlook – Strong Growth but Growing Risk of Policy Mistake and more

In this briefing:

1. India: 2018 Outlook – Strong Growth but Growing Risk of Policy Mistake
2. This Week in Blockchain & Cryptos: A Bitcoin Reversal; More Red Flags for Bitmain
3. India Banks – Record High LDR
4. Asia Gaming Preview 2019: Part Two Picks: Galaxy, MGM China and Nagacorp
5. Ten Years On – Asia Outperforms Advanced Economies

1. India: 2018 Outlook – Strong Growth but Growing Risk of Policy Mistake

The Indian economy is in a sweet spot currently. On one hand economic growth is strong and on the other hand, some of the risks have abated due to the sharp fall in Oil prices. Economic growth will thus be strong in 2019 with macro stability. However, given that 2019 is an election year, the risks of a policy mistake are high due to the divergence in economic growth between rural India and the rest of the country. It is very likely that the next few months will see some monetary easing on one hand due to the relatively benign outlook for headline inflation and fiscal stimulus on the other to prop up the rural economy. This given the backdrop of already strong overall growth and stubbornly high core inflation risks over stimulating the economy and consequent build-up of inflationary pressures – something akin to what happened in 2009 but on a smaller scale. However, that is a problem for 2020 or perhaps beyond. In the interim, 2019 promises to be a reasonably strong year with 7% plus growth, lower interest rates and strong growth in corporate earnings.

2. This Week in Blockchain & Cryptos: A Bitcoin Reversal; More Red Flags for Bitmain

The year 2018 was not the brightest for cryptocurrencies; Bitcoin (XBTUSD CURNCY) fell around 70% during 2018 and top altcoins like Ethereum (ETH BGN CURNCY), Ripple and Bitcoin Cash were also down around 80%, 85% and 95% respectively during last year. While it is difficult to pinpoint a single reason for this, a number of factors including, rising security concerns, increased scrutiny, failed institutional support and Bitcoin Cash hash wars have collectively contributed to this bearish sentiment in the cryptocurrency markets last year.

In this note we take a look at several top cryptocurrency and blockchain developments from last year, to see how they would fare going into 2019.

This is a collaborative report between Douglas Kim and myself.

3. India Banks – Record High LDR

A surging loan-to-deposit ratio (LDR) for India’s banks is a concern. It suggests liquidity conditions are worsening for banks; there may be considerable supportive lending; and should deposit flight ensue, there are increased knock-on credit risks.  The fact that LDRs are rising concurrently with sharply higher NPLs is especially worrisome.

4. Asia Gaming Preview 2019: Part Two Picks: Galaxy, MGM China and Nagacorp

• Global and Asia headwinds still rattle the gaming sector, but these three companies remain undervalued despite market sentiment.
• Macau’s solid year end performance continues to defy projections, producing a 14% y/y GGR increase.
• Galaxy will benefit disproportionately from the HKMB bridge traffic growth, MGM’s single digit market share will ramp up to double digits and Nagacorp may be the single most siloed gaming operator in all of Asia.

5. Ten Years On – Asia Outperforms Advanced Economies

You might be surprised to learn that in the ten years to 2017 Asia has outperformed advanced economies. Despite extraordinary monetary and fiscal stimulus and the damaging dollar-demand deflationary policies of the ECB, BoJ and BoE, the region is 188% larger in US dollar terms compared with 2007 while US dollar GDP per capita income is 170% higher. The parallel numbers for the advanced countries – the US, euro-area and Japan combined- are 19% and 13%. Asian stock markets have underperformed since 2010 but we believe that investors are still to fully acknowledge Asia’s strong growth fundamentals. Combined with cheap valuations there is significant upside for Asian equity markets.