A powerful stockmarket rebound is coming

May 23, 2009

In this issue:
» Gold losing its sheen
» Job market on path to recovery
» Obama needs eco. lessons from Manmohan Singh
» Sensex's steepest weekly gain in 17 years
» ...and more!

Barton Biggs, the former chief global strategist for Morgan Stanley, and one who has been dubbed by international media as the 'big picture man', has predicted powerful stock market rebound led by emerging markets. "There has been and continues to be an unprecedented amount of stimulus all around the world. The system has had an incredible adrenaline shot, so I think we're going to have a pretty strong recovery," said Biggs, who now runs the New York-based hedge fund Traxis Partners LP.

Biggs has been especially positive about the emerging markets given that the economies out here are growing at a much faster rate than the growth in world GDP. As he'd recently told CNBC, "They're going to be the first ones out of this recession."

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The rising stock markets may be making most investors wealthy but is indeed giving a hard time to people involved in the business of gold in India. As if the higher prices weren't enough, the allure of making quick money is forcing a lot of people to abandon the relative safety of the yellow metal and pile into the stock markets, which are witnessing a renewed surge. This in turn is dragging down demand for gold to record low levels. Just to put things in perspective, as per the Wall Street Journal, jewelry demand during the Jan-March quarter was the lowest in 20 years in India, the world's largest market for the yellow metal. Even investment demand turned negative for the first time. And unlike western countries, where people have little options apart from few commodities like gold to prevent their wealth from eroding, India is still expected to log in a positive GDP growth rate, which in turn could drive its stock markets. Infact, even the appreciation of rupee against the dollar is not likely to help much as higher international prices will ensure that any price correction is not significant. Hence, unless prices fall significantly, gold demand in India may show little signs of picking up.

After the all pervading gloom which the global financial crisis had cast on all countries including India, some small but sure signs of recovery in the economy have kept the markets upbeat. And there seems to be one more positive development on this front. As per a survey conducted by the recruitment services firm Antal International and published in the Economic Times, the job market in India appears to be showing major signs of recovery with the current hiring level soaring to as much as 47%. This is in sharp contrast to the start of 2009 when the scenario was very bleak indeed. Not just India, but the survey has found that recovery signals are being witnessed globally too. Recovery in the job market has been more prominent in Asia, wherein 46% of the businesses said that they are currently recruiting. Of course, a significant recovery is still a long way off and it would probably not be wise to assume otherwise. But given the intensity of the crisis, even these gradual but visible signs of recovery are enough to lend a ray of hope.

In a recent speech by RBI Governor D Subbarao, he expressed how it is getting increasingly difficult for the government to offer additional stimulus packages to the economy. While another stimulus package could help the economy in the short-term, a sustainable recovery would require the government to return to fiscal consolidation. Further, large borrowings by the government would run against the low interest rate environment that the RBI is trying to maintain to give a fillip to investment demand. Also, while pointing out that sectors such as cement, steel and automobiles were showing signs of revival, the governor said that the global financial outlook remained uncertain. "These signs are not unambiguous - there is as yet no clear sign of export decline reversing the trend, and credit growth continues to be subdued" said Mr. Subbarao.

The Organisation for Economic Cooperation and Development (OECD) feels that the rate of the slowdown is easing and that the global economy is no longer in a free fall. With the recent stupendous rally in the stock markets, we are reminded of something investing veteran Jeremy Grantham had said a while back, "Be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before." OECD also opined that the huge size of the stimulus packages in the US is ensuring that it is recovering quicker than Europe and that the crisis is closer to its end. A recovery does not mean that we start to have very clear positive figures but it means that first, the world economy stops contracting

In an interview with a leading business daily, Steve Forbes, the chairman and CEO of Forbes Media Inc. shared amongst other things, his view on the US President, Barack Obama and his administration in their initial days in the White House. He is of the opinion that the newly sworn in President needs to brush up on his economics, especially relating to free trade and its importance. In addition, he also mentioned that some of the actions and measures taken by them (the administration) were mainly to please their local constituents. One example in case is the President signing the legislation banning trucks from Mexico. In contrast, his praise for our own Prime Minister, Dr. Manmohan Singh was apparent when he said "When the new government is formed in, I hope the Indian Prime Minister will visit President Obama and assist in his educating process".

Without a doubt, the Indian indices were the top gainers amongst their global peers during the last week. Celebrating the formation of a strong stable government inclined towards economic reforms, the country's benchmark index, the BSE-Sensex ended higher by 14% over the previous week. It may be noted that this is the steepest weekly gain since March 1992. In terms of the performance of specific sectors on the bourses this week, stocks forming part of the realty, capital goods and consumer durables spaces emerged as the top gainers during the week. The BSE-Realty and BSE-Capital Goods indices recorded massive gains of 38% and 28% respectively. On the other hand, stocks from the IT, FMCG and healthcare spaces missed out on the party. While stocks forming part of the IT index were hit due to the strong appreciation of the rupee against the dollar, stocks forming part of the FMCG and healthcare sectors were not in favour as investors chose to pour in money in sectors that had been badly hit over the past year. The BSE-Small cap and BSE-Midcap indices also recorded strong gains during the week, ending higher by 29% and 25% respectively.

Source: Yahoo FinanceSource: Yahoo Finance

Other Asian markets ended the week on a mixed note with Singapore (up 5%) and Hong Kong (up 2%) ending higher, while Japan (down 0.4%) and China (down 2%) ending the week on a negative note. As for other global markets, Germany (up 4%), Brazil (up 3%), France (up 2%), UK (up 0.4%) and US (0.1 %) ended the week on a firm note.

 Weekend investing mantra
"Human beings are subject to wild swings in their levels of fear, risk tolerance and greed. That won't change. I base my whole approach on buying when others are fearful and selling when others are greedy. The reason Shakespeare is so relevant still today is that his plays were all about human nature, and human nature never changes " - Mark Sellers

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