Will US stocks give better returns than those in India?
In this issue:
» What if China dumps US bonds?
» FM banking on long-term infra debt funds
» Will Indian stocks outperform Chinese stocks?
» Global real estate investments to rise in 2011
» ...and more!!
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Has this scenario changed now? Noted investor Marc Faber seems to think so. He opines that the US and Europe present better investment opportunities in 2011 than in India and China. Especially since inflation is raging in both India and China and tightening of interest rates could stifle growth a tad bit. Moreover, stock valuations especially in India have run ahead of fundamentals.
We agree that India and China have many near term concerns to deal with, inflation being on the top of the pile. But from a long term perspective, the growth that these economies are likely to display will be hard to beat by the developed world. Moreover, the problems of the developed world notably excess debt, bloated deficits and high unemployment are not likely to go anytime soon. Further, the ineffective policy of the governments in the West of only throwing more and money at their problems is only expected to worsen the situation further. Which means that even if stock valuations in the US and Europe are cheap, they are not likely to move up much unless the scenario there considerably improves. That leaves us with emerging economies. But only after stock valuations once again retreat to reasonable levels.
Do you think US and Europe will provide better investment opportunities than India? Let us know or post comments on our Facebook page.
01:24 | Chart of the day | |
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A similar fear seems to have struck the US government that has borrowed a trillion dollars from its biggest lender - China. China (including Hong Kong) holds around US$ 1 trillion in US government bonds. And the US government now fears what if China dumps these bonds in the open market. Well, if that really happens, it would cause a plunge in the value of the already feeble dollar.
So the course of action for the US is to work on a Plan-B if this eventuality arrives. One way that economists are suggesting is that US would persuade its citizens to buy those bonds. This is what they did to fund the expenses of World War-II. But now, when the US government has run up such huge debts and there are voices to junk its creditworthiness, we are not sure whether there will be many takers for such bonds.
The core question again is - can China really do this dumping stuff? Despite the fears, it looks less likely. This is because a depreciating dollar will hurt China's own cause. One, it will lead to a huge rally in commodity prices. And two, China's own holdings of US dollar debt will face depreciation. Seems like a catch-22 situation for both the countries!
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A major source could be overseas funds. The finance minister has opened the gates for overseas funds raised by NBFCs. Of course, they would be subject to full hedging of currency risk and other prescribed norms. Given the paltry interest rate levels in developed economies, investing in India would be a luring prospect for them as well. It could well turn out to be a marriage of needs and a win-win situation for both.
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Food prices have been spiraling upwards everyday on climate concerns and poor yields. But, India's poor transportation system and long chain of commission grabbing middlemen are also at fault. Around 30% of farm produce is spoilt before it reaches the ultimate consumer. Increased demand is another factor. Demand for all raw materials has been rising massively in a country growing at 9% per year. Rising rural disposable income on account of the National Rural Employment Guarantee Scheme (NREGS) is also contributing to boost consumption. With low supply and high demand, prices only have one direction to go. And that is up, up, and away. And the rest of us, including the RBI can just watch the show, in tears.
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The estimate is still about half way to the market peak in 2007. However, the 50% jump in commercial real estate investments in 2010 from an eight year low in 2009 does not make the record look daunting in the short term. While we may reach there soon, the question is, will it stay there for long? Because if it crumbles down the way it did in the past, we may have the makings of another global crisis.
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04:54 | Todays' investing mantra |
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5 Responses to "Will US stocks give better returns than those in India?"
Krishan chander Anand
Jan 21, 2011It is high time to create storage facilities for the perishable goods close to the local markets rather than the centralised APMC markets. There is a need for the decentralised distribution markets of perishable goods which can cut down on transportation of the perishable goods with little transportation from one market to other market.
John Martis
Jan 20, 2011As long as US salaries for employees there remain more than 10 times the salaries prevailing in emerging countries, US economy will lag behind and totter. This is because the whole world has become a global village and water would take its own level.
Vivek Mahajan
Jan 20, 2011Financial markets are infamous for disregarding consensus amongst the market players. As the voices about the potential for appreciation of US & European stocks grow louder and louder, more and more analysts seem to be joining the chorus. Unfortunately, some of these well-known analysts who till September/October 2010 were persistently talking of a "double dip" have suddenly taken a U-turn towards the "recovery" theory. In my humble view investors should remain cautious for three reasons:
1)US has hardly taken any steps in the direction of structural changes needed in that econmy. Except for infusing huge doses of liquidity in the world economic system nothing else has been done. The core fundamentals of US & European economies remain bad and the continued "gush" of cheap money will ultimately result into a much bigger disaster not only for US & Europe but the whole world.
2)The connivance of some Politicians, the Fed and big market players (some of them are known financial criminals)in trying to build a false sense of euphoria about the markets and economy cannot be ruled out.
3)As a part of their "Grand Plan" it is quite possible that in the next couple of quarters these criminals after having pumped up the stocks, would be waiting to dump them on euphoric "suckers" (buyers).
As far as the Grand ole man Marc Faber is concerned, I have always revered him as a shrewd economist. But the gentleman of-late seems to be going berserk. After having remained doomy and gloomy about the US econmy since 2008, he too has taken a U-turn...and at a time when the US stocks have already had a big run. Perhaps he is finding it too painful to have been on the wrong side for too long and having missed the early action or ......perhaps he is getting ready for "suckers play".....or may be he has started running a hedge fund. Anyway, I pray he proves right this time. His comments on the China & India are quite approriate and well taken.
Vinod Furtado
Jan 20, 2011obviously you are missing a very important point. US companies are global companies and hence it makes sense to invest in US companies that earn majority of their income outside the US. Take for example Apple which reported excellent results for the previous quarter. Only 38% of the income was from the US, the remaining nearly 60% came outside. It will be more profitable to invest in such companies than in India.
V. D . Prasad
Feb 12, 2011US Economy is improving but slowly. But it is surely a win situation. In India,,Inflation,higher interest charges,Scams and corruption,bad food distribution policy,lack of interst,delayed decision,lethagic infra growth are all negative factors which may impede growth.