Sitting on the Volatility Volcano, as Asian SUV Boom Continues…

India Vulnerable to EM Reversal, Li-Ion Batteries Set to Dominate Grid Storage...

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Thematic (Sector/Industry)

China Consumer staples / Thematic (Sector/Industry)

<p>The Indian underweight stance has paid off this quarter - the consensus consumption boom thesis rarely asks how it can be funded, given the country’s structurally weak terms of trade, chronic twin deficits and  persistent INR depreciation pressure. <strong>One key lesson of recent years for EM investors from Brazil to Turkey is that you can’t have a sustained consumer boom without the means to pay for it, via hard currency trade earnings and/or capital inflows driving FDI and domestic credit growth</strong>.  If China’s core macro problem is a structural demand deficit driven by its 40% plus savings rate, India’s is a structural savings deficit that caps credit growth and investment without external funding, which then leaves it vulnerable to periodic ‘margin calls’ via the INR and bond yields. While the recent (but fast reversing) oil slump has delayed a reckoning, that vulnerability will intensify now that fiscal expansion is underway globally. </p>

The Indian underweight stance has paid off this quarter - the consensus consumption boom thesis rarely asks how it can be funded, given the country’s structurally weak terms of trade, chronic twin deficits and  persistent INR depreciation pressure. One key lesson of recent years for EM investors from Brazil to Turkey is that you can’t have a sustained consumer boom without the means to pay for it, via hard currency trade earnings and/or capital inflows driving FDI and domestic credit growth.  If China’s core macro problem is a structural demand deficit driven by its 40% plus savings rate, India’s is a structural savings deficit that caps credit growth and investment without external funding, which then leaves it vulnerable to periodic ‘margin calls’ via the INR and bond yields. While the recent (but fast reversing) oil slump has delayed a reckoning, that vulnerability will intensify now that fiscal expansion is underway globally. 

Can India Fund A Sustained Consumption Boom?