|»5 Minute Wrap Up by Equitymaster|
On This Day - 18 FEBRUARY 2010
"Don't ignore India," warns this noted analyst
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Faber however does not see the Indian story without some big challenges. Notable among them is the significant pressure that India's huge population will exert on limited resources like water. Then there are the ongoing geopolitical issues between the country and its neighbour China.
But Faber concludes, "I should stress that I am far from certain about current stock prices providing an ideal entry point; however, given the country's size and economic potential, investors who either have no exposure to India's economy and vibrant corporate sector or are massively underweight Indian stocks should gradually become more involved in this promising country."
While we agree to most of what Faber believes, we see poor governance and corruption as key issues that can delay India's rise as an economic superpower. International investors generally have these things on the top of their minds before looking at any country.
Overall, while India has all that it takes to reach the pinnacle of economic leadership, the time taken can be longer than what most expect.
But there's a huge problem if those hidden assets are valued to the sky, like it happened during the peak of the last bull market. Because when a bear market sets in, the apparent hollowness of the sum of the parts method gets exposed and investors in these stories could suffer huge losses. As one brokerage house rightly pointed out that the contraction in valuation of embedded assets contributed meaningfully to the previous market meltdown.
So, please be careful of a research report that justifies a very high price for a stock from the current levels based on sum of the parts valuation. It may have a hidden asset that could actually turn out to be a huge liability during a market sell-off!
Amongst other key Asian markets, while Japan was the lone gainer (up 0.3%), selling was seen in Hong Kong (down 0.3%) and Singapore (down 0.6%). Gold is also trading weak in the international markets. The price of an ounce currently stands at US$ 1,099, down almost US$ 8 from its previous close.
Yes, you read that right! George Soros, the man who 'broke the Bank of England' by betting against the Pound in 1992, has in fact more than doubled his holding in the world's biggest gold exchange-traded fund (ETF) - SPDR Gold Trust. His fund now is the fourth-largest investor in this ETF. And these holdings were at around US$ 660 m at the end of 2009.
Ironically, while these latest figures are as on December 31 2009, Soros had proclaimed publicly last month that the yellow metal is an 'ultimate asset bubble'! His act of adding gold to his fund's portfolio thus leaves a few tongues wagging. However, this makes it amply clear that even he treats gold as a hedge against the future crisis that central banks are setting up for us.
Concerns over the fate of the US dollar now seem to be at its peak. Its biggest lender China has dumped billions of dollars of US Treasuries (government bonds). As per reports, China, which is the biggest holder of US Treasuries, has recently offloaded US$ 34 bn worth of the debt papers.
Predictions that the US fiscal deficit would rise to US$ 1.6 trillion in 2010 and stay above US$ 1 trillion for three years seems to have sparked the selloff. What is more, Japan, which now holds the maximum value of US Treasuries, is contemplating a similar move. The impact of the selloff may range from gold being touted as a safer hedge, to the US losing its AAA rating. Difficult times indeed for a nation that has so far been used to living lavishly on borrowed money!
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