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Mortgage crisis, healthcare and more - Views on News from Equitymaster
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  • Aug 5, 2008

    Mortgage crisis, healthcare and more

    Asians down as oil falls further
    Key Asian stockmarkets are trading weak this morning, led by energy and commodity stocks as oil and metal prices continue to drop. Currently, while stocks in Hong Kong are down 1.7%, those in Singapore are down 0.7%. The US markets closed in the red yesterday, following heightened pessimism among investors regarding a sharp slowdown in economic activity. Weakness in the US indices was also on the back of a sharp rise in inflation, which surged by 0.8%, the highest in almost 30 years. Oil prices are reflecting signs of economic slowdown. These declined almost US$ 4 per barrel yesterday, to touch US$ 120 on their way down. Among metals, copper is down to its lowest in six months.

    Even the better ones are feeling the heat
    We are talking about the US mortgage defaults here. While the limelight has been on bad loans made to borrowers with poor credit profile triggering the subprime crisis, it seems that those with a better credit profiles are now having problems paying their dues. With the US economy showing increasing signs of sinking into severe slowdown, the International Herald Tribune states that the percentage of mortgages in arrears in the category of loans a level above subprime have risen to 12% in April 2008 from a year earlier. As the prices of houses are heading southwards, the monthly bills are increasing rapidly and with the banks now adopting a much stricter stance with respect to lending, it is becoming tough to either sell or refinance their homes. The problems for the financial sector seem to be never ending too.

    After Citigroup, Freddie Mac, Fannie Mae, Bear Stearns and Merrill Lynch, the latest financial institution in this lineup is HSBC. The bank has reported a 29% decline in profits for the first half of this year. It has stated that the business environment continues to remain challenging and growth in emerging markets was expected to slow down. This just goes to show that the problems related to subprime are far from over and when this crisis is going to end is anybody's guess.

    Healthcare yet to touch the poor
    India's spending on healthcare is set to increase fivefold from US$ 27 bn in 2007 to US$ 126 bn in 2015. Yet as per reports in one of India's leading financial dailies, over 800 m of the country's poor will struggle to pay medical costs. In addition to this, as has been the case in the past, around 80% of the medical costs will be borne by individuals. This percentage stands at around 10% to 30% in the developed markets. Given that the government has stressed on the provision of adequate healthcare, investments in this field have been woefully inadequate. To compound problems further, the state of the public healthcare systems leaves a lot to be desired and the onus of providing quality healthcare now rests on private healthcare players. Amongst a myriad of problems lack of the requisite IT infrastructure is one of them. While private hospitals have been investing in IT systems, most progress has been in areas such as billing, accounting and administrative systems rather than clinical information systems. While the government is planning to increase public spending on health to at least 2% to 3% of GDP over the next five years from the current 0.9%, which is a positive sign, execution of the same remains an issue. At the end of the day, the government needs to lay increased emphasis on ensuring that medicines and healthcare services are 'accessible' to the country's population at large in the longer term.

  • Also read - India: Towards a healthy future?



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