Still Too Early to Buy Emerging Equities Given the Deteriorating Outlook for China and India

Equity Market Correction Marks Watershed Moment for Global Growth Expectations

Growing Risks of a Crisis of Confidence in Chinese Policy Settings

Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

Multiple Countries / Cross Asset Strategy

<h2><strong>India (neutral); bull and bear factors remain finely balanced before election</strong></h2><p>The deterioration in India’s macro-economic ratios has continued apace with further rises in energy prices compounded by the fall in the value of the <a href="https://www.smartkarma.com/entities/22832" target="_blank" data-smartkarma-citation="entities:22832:1">INR (USDINR CURNCY)</a>. The most pronounced deterioration has occurred in the fiscal deficit which now stands at 6.5% or 7% and rising, if the regional deficits are fully accounted for, compared with an average of 5.5% during the 2009 to 2013 period with government debt standing at 70% of GDP.</p><p>The current account deficit has also widened with forecasts up to 2.8% of GDP for the fiscal year ending in March 2019, but this still compares favourably with just under 5% recorded in 2013, whilst the current core CPI inflation rate of around 5.8% is significantly below the 10.1% average recorded between 2009 and 2013. The perception that the RBI is behind the curve in terms of monetary tightening, will begin to dissipate if UST yields and oil prices continue to fall.</p>

India (neutral); bull and bear factors remain finely balanced before electionThe deterioration in India’s macro-economic ratios has continued apace with further rises in energy prices compounded by the fall in the value of the INR (USDINR CURNCY). The most pronounced deterioration has occurred in the fiscal deficit which now stands at 6.5% or 7% and rising, if the regional deficits are fully accounted for, compared with an average of 5.5% during the 2009 to 2013 period with government debt standing at 70% of GDP.The current account deficit has also widened with forecasts up to 2.8% of GDP for the fiscal year ending in March 2019, but this still compares favourably with just under 5% recorded in 2013, whilst the current core CPI inflation rate of around 5.8% is significantly below the 10.1% average recorded between 2009 and 2013. The perception that the RBI is behind the curve in terms of monetary tightening, will begin to dissipate if UST yields and oil prices continue to fall.

Asian Equity Markets (Ex-China) Overview; Korea, Taiwan and India