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New Emerging Market discovered! - Views on News from Equitymaster
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  • Apr 5, 2000

    New Emerging Market discovered!

    Just as the world of investing was getting boring what with every technology stock being pounded to a new all-time record every day, and just as the pioneers of global investment management as we know it today were all set to hang up their shoes and say, “We have discovered all the risky markets of the world.” suddenly, out of the blue, comes the discovery of the mother of all emerging markets: the United States of America.

    We analysts should have seen the writing on the wall a few months ago. Here was an economy growing at 7.5% per annum GDP growth rates and no sign of slowing down, here was an economy talking about perpetual growth rates and the birth of a new era…all the symptoms of misguided grandness that emerging economic giants have had in the past. Remember the heady days when all the clothes in the world would be made in China, or all the cement in the world made in Indonesia, or all the steel in the world made in India. Or those grand statements about how, if only every Indian would brush their teeth with Colgate toothpaste once a day, Colgate’s sales would double on a worldwide basis. Or Coke, or Gillette…Well, in this new emerging country called USA, every person in the world was going to have a PC, a mobile phone, a Palm Pilot.

    But, the true test of an emerging market is the behaviour of its stock markets. In emerging markets, the prices of shares are known to swing wildly. Up 5% for the first one hour, only to end the day down 3%. This sort of volatility scares all the sophisticated investors in Wall Street. That is why they have limits on how much they can invest in emerging markets like India, Korea, Brazil…That is why they have this elaborate network of custodians and compliance officers who police all these limits for these sophisticated investors. Well, in case the well-heeled folks on Wall Street have not noticed, the United States has become an emerging market. And just as in every other field the US of A attempts, it attains leadership in it.

    On April 4, 2000 the NASDAQ plunged to an intra-day low of 3,649 a loss of 13.5% (that 13.5% loss was probably equivalent to all of India’s GDP for the year!) but staged a smart recovery to close down “only” 75 points – down 1.8% for the day. That puts any emerging market to shame. The US of A has attained global leadership.

    So where does all this volatility put Dalal Street? Well, Infy closed at US$ 160 on April 3rd on the NASDAQ and opened on April 4th at US$183 (+14%), collapsed to US$ 131 (down 18%), and finally recovered to close at US$ 168 (+5%). If the BSE-30 Index was to mirror what Infy did on the NASDAQ, then, when the market opens on April 5th expect the BSE-30 Index to open at 5,345 points (+656 points), then plummet to 3,845 (down 844 points), but then close the day at 4,932 points (+234 points). Come on, Dalal Street, let’s show the folks on Wall Street that irrationality and volatility is not an American monopoly! Jai Hind!



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