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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (39144)	8/21/2008 11:23:07 PM
From: TobagoJack	Respond to of 217802

just in in-tray per greed and FEAR · World financial markets continue to deliver a deflationary message to investors as growth concerns continue to replace inflation concerns. The collapse in Fannie Mae and Freddie Mac's share prices this week and the surge in the spreads on their subordinated debt clearly suggest that Hank the hunk's fudge may not last until the November election. The reason is the agencies' inability to raise further equity capital. · Optimists continue to hope for the end of the "credit crunch". But the harsh reality is that the credit crunch in the Western world is nowhere near ending. · GREED & fear's view remains that investors with Asia Pacific mandates should continue to have a zero weighting in Australian financials. Meanwhile, the easiest macro trade in the world remains to bet on falling interest rates in Britain, Australia and New Zealand. Equities will rally on these coming rate cuts, which will provide renewed shorting opportunities given the sheer scale of leverage in the relevant banking systems. · Oil has technically broken down. This has come as a huge relief to the Indian stock market since a move above US$150/bbl and significantly higher would raise the likelihood of a break below 12,000 on the Sensex and even significantly lower. This is because out of all emerging markets India is, at present, as negatively exposed as any to a higher oil price given the current account and fiscal vulnerabilities. But the vulnerability is not going to last for ever. · GREED & fear is now of the view that oil and the commodity complex in general have commenced a medium-term correction. This is a major positive for India from a relative-return perspective in the context of Asian and global emerging market portfolios. For oil and commodities are correcting because of slowing global growth and India's economy is much less externally driven than most emerging market economies, including Asian economies. · India's weighting in the relative-return portfolio will be raised by 3ppts to an overweight, with the money taken from China, Korea and Taiwan. Still, the increased bet on India is not dramatic because the Indian equity story is not yet completely straightforward in a bullish sense. Indeed, from an absolute-return point of view, GREED & fear is far from clear that the market has yet bottomed despite the anticipated further decline in the oil price. · The inflation rate in India remains unacceptably high in the political context, with general elections due to be held by the end of May 2009. This is why the risk of further monetary tightening cannot be dismissed out of hand. · Still, GREED & fear's personal view would be that further interest rate hikes in India at this juncture are unlikely. And if they do happen it will be purely driven by government pressure on the central bank. This is because the case for further monetary tightening has lost all merits. The Reserve Bank of India has already more than done its job in altering borrowers' risk perceptions and, importantly, changing expectations of asset reflation to the anticipation of asset deflation. · GREED & fear is convinced that inflationary pressure will collapse in India in the coming months, just as they will in the rest of the world. The best buy in India right now is probably the government bond market. GREED & fear would be a buyer today and would buy more bonds if yields rise higher. · The picture for the Indian stock market should be much clearer by the middle of next year. By then, the elections will be over and reported inflation should be dramatically lower and the RBI should have commenced monetary easing. India is then becoming a buy in absolute terms. But the intervening period is likely to be a story of reporting slower earnings growth and rising NPLs in the banking system. · The view here remains firmly that there is no systemic risk in the Indian banking system. Rather, the country's banking system is very well capitalised in the sense of having real equity. GREED & fear still prefers Indian financials to all others in the context of the Asia ex-Japan absolute-return portfolio. · GREED & fear is going to initiate a 4% weighting in HDFC Bank in the absolute-return portfolio this week. The investment will be paid for by removing Wharf. The investments in ACC and Ambuja will be replaced with a 3% investment in Grasim, while the other 3ppts will be added to Indocement. The investment in Taiwan's First Financial will be increased by 3ppts by removing Cathay Financial. · The short-term case for India is better from a relative-return than an absolute-return point of view, most particularly as the overall market has now seen its valuation premium relative to the rest of the Asian equity universe ramatically reduced. Still, if and when Asia reaches its maximum downside target of 400 on the MSCI AC Asia ex-Japan Index, there will be a massive long-term buying opportunity in India. India remains the best long-term story in Asian equities, both from a top-down and bottom-up perspective. · GREED & fear continues to believe that the slice-and-dice-and-distribute model is dead and that a modern version of Glass-Steagall act is the inevitable consequence of the current and continuing debacle. But the next episode in this drama is likely to be centred on Fannie and Freddie.