The NIKKI Stock Average fell for the third time this week and the yen extended gains versus the dollar after reaching a post-World War II high amid growing risks of radiation leaks from JAPAN'scrippled nuclear plants.
YEN Rise ......
The yen in intraday rose to as high as 76.36 per dollar, taking its gains to a fifth day. The currency yesterday breached the previous post-World War II high of 79.75 reached in April 1995. Japan’s currency gained to 109.26 per euro from 110.62
What to Do Now..???????
Read This.................
In Last Five Months..... emerging market (EM) equities have underperformed their developed market (DM) counterparts by 7.4%, after outperforming (+64%) over the last two years (2009-10), due to rising inflation, concomitant policy tightening in many EMs, uncertain political climate in north Africa and west Asia leading to rising crude oil prices .....
Interestingly, however, in the context of the long secular bull market in EM, this underperformance is similar in percentage terms to periods of underperformance in 2004 (10.5%) and 2006 (8.0%).......
Currently, the inflationary pressures are getting magnified due to rising food and crude oil prices along with supply constraints that EMs typically face at this stage of their economic cycle.
As growth gathers pace, capital investment picks up, resulting in falling inflation. Further, given the fact that DMs have slack capacity and low demand in an environment of strong demand-and-supply constraints in EMs, the world is likely to witness a global rebalancing of capacities through merger and acquisition activities.
The price of Brent crude has jumped by 14.5% since the beginning of February 2011 despite the fact that, so far, only Libya has seen a reduction in crude oil production, that too by merely 1.1% of daily global output.
Thus, while we cannot deny the risk of geo-political tensions spilling over to other countries such as Algeria, Angola and Venezuela - comprising 12% of daily global output - the market has moved relatively swiftly and has already priced in quite a bit of expected contingencies.
The prospects of inevitable end of quantitative easing (QE) in the DMs and the resultant slowdown in their growth and shrinkage in easy global liquidity and its impact on EM asset prices are also beginning to get priced in.
EM equity valuation is no longer a major impediment to buying EM equities. While we continue to be cautious in the near term, value in EMs has truly appeared. The valuation premium vis-A -vis the US equities have disappeared with EMs trading at a discount of approximately 10% to DMs. The superior economic fundamentals and growth prospects of the EM economies call for a valuation premium.
With growth in DMs likely to remain depressed as a result of the legacies of the crisis, EM economies are likely to remain the main drivers of global growth for the foreseeable future, with GDP growth in EMs being over 2.5x that of DMs.
Government debt-to-GDP ratio in EMs stands at average 40% against 70% in DMs (2010), which is expected to rise further (see chart). EM fiscal balances stood at 3.7% of GDP in comparison to 8% in DMs (2010). The severe need to rein in their fiscal deficits and stabilize their public debt ratios coupled with the low share of private spending in GDP will take an enduring toll on DM growth prospects.
Apart from the above positives, longer-term structural stories are at play in EMs: urbanization and industrialization, rising incomes and favorable demography. The two Asian giants, China and India, are undergoing multi-decade transformational booms. These trends inevitably are starting to reshape global world and institutions.
With rising wealth in EMs, the size of financial markets in EMs is also likely to rise substantially.
China has recently announced 12th Five-Year Plan targeting GDP growth of 7% (2011-15) against 10% growth in 2010. India is well poised to deliver 9-10% expansion, thereby outpacing China's growth. This coupled with structural strengths emanating from an attractive demographic profile, low debt-to-GDP ratio, high savings rate and domestic consumption-driven growth will further enhance the attractiveness of India and increase global allocation towards it.
Going forward, two key factors can trigger a revival in EM flows and end their equity underperformance, namely easing geo-political tensions and weakness in Dollar Index that will moderate the sanguine US economic outlook. These coupled with slowing growth momentum in China will lead to softening of commodity prices.
The soft commodities like wheat and rubber have already corrected by over 17% in the last month. As it is, markets are known to return to normalcy after reacting to events like the turmoil in the Arab world. These will get EMs back on the investor's radar.
It is important to note that there are 700 million consumers at the end of a secular credit cycle with poor balance-sheets in US, Europe and Japan against 2,900 million consumers in Bric countries with good balance-sheets and at the start of a secular credit cycle that will boost consumption and investments.
This will drive not just the economy but also the equity markets to newer heights. Overall, it seems hard to imagine that the ascendancy of the EMs can be stopped. EMs are not just going to display a superior growth rate but, interestingly, as per IMF forecast, their very economic size is well poised to surpass DMs by 2013!
As growth gathers pace, capital investment picks up, resulting in falling inflation. Further, given the fact that DMs have slack capacity and low demand in an environment of strong demand-and-supply constraints in EMs, the world is likely to witness a global rebalancing of capacities through merger and acquisition activities.
The price of Brent crude has jumped by 14.5% since the beginning of February 2011 despite the fact that, so far, only Libya has seen a reduction in crude oil production, that too by merely 1.1% of daily global output.
Thus, while we cannot deny the risk of geo-political tensions spilling over to other countries such as Algeria, Angola and Venezuela - comprising 12% of daily global output - the market has moved relatively swiftly and has already priced in quite a bit of expected contingencies.
The prospects of inevitable end of quantitative easing (QE) in the DMs and the resultant slowdown in their growth and shrinkage in easy global liquidity and its impact on EM asset prices are also beginning to get priced in.
EM equity valuation is no longer a major impediment to buying EM equities. While we continue to be cautious in the near term, value in EMs has truly appeared. The valuation premium vis-A -vis the US equities have disappeared with EMs trading at a discount of approximately 10% to DMs. The superior economic fundamentals and growth prospects of the EM economies call for a valuation premium.
With growth in DMs likely to remain depressed as a result of the legacies of the crisis, EM economies are likely to remain the main drivers of global growth for the foreseeable future, with GDP growth in EMs being over 2.5x that of DMs.
Government debt-to-GDP ratio in EMs stands at average 40% against 70% in DMs (2010), which is expected to rise further (see chart). EM fiscal balances stood at 3.7% of GDP in comparison to 8% in DMs (2010). The severe need to rein in their fiscal deficits and stabilize their public debt ratios coupled with the low share of private spending in GDP will take an enduring toll on DM growth prospects.
Apart from the above positives, longer-term structural stories are at play in EMs: urbanization and industrialization, rising incomes and favorable demography. The two Asian giants, China and India, are undergoing multi-decade transformational booms. These trends inevitably are starting to reshape global world and institutions.
With rising wealth in EMs, the size of financial markets in EMs is also likely to rise substantially.
China has recently announced 12th Five-Year Plan targeting GDP growth of 7% (2011-15) against 10% growth in 2010. India is well poised to deliver 9-10% expansion, thereby outpacing China's growth. This coupled with structural strengths emanating from an attractive demographic profile, low debt-to-GDP ratio, high savings rate and domestic consumption-driven growth will further enhance the attractiveness of India and increase global allocation towards it.
Going forward, two key factors can trigger a revival in EM flows and end their equity underperformance, namely easing geo-political tensions and weakness in Dollar Index that will moderate the sanguine US economic outlook. These coupled with slowing growth momentum in China will lead to softening of commodity prices.
The soft commodities like wheat and rubber have already corrected by over 17% in the last month. As it is, markets are known to return to normalcy after reacting to events like the turmoil in the Arab world. These will get EMs back on the investor's radar.
It is important to note that there are 700 million consumers at the end of a secular credit cycle with poor balance-sheets in US, Europe and Japan against 2,900 million consumers in Bric countries with good balance-sheets and at the start of a secular credit cycle that will boost consumption and investments.
This will drive not just the economy but also the equity markets to newer heights. Overall, it seems hard to imagine that the ascendancy of the EMs can be stopped. EMs are not just going to display a superior growth rate but, interestingly, as per IMF forecast, their very economic size is well poised to surpass DMs by 2013!
As Per Our Advance Prediction.....
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