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

To: SouthFloridaGuy who wrote (50930)	6/4/2009 10:09:01 PM
From: TobagoJack	1 Recommendation Read Replies (1) \| Respond to of 219920

just in in-tray, per GREED & fear The current psychology in world stock markets is that a growing number of markets have returned to their pre-Lehman levels in mid September 2008, and those that have not have room for more “catch up”. Such a psychology is what can continue to drive the S&P500 higher in the short term towards GREED & fear’s 1,000-1,050 bear market rally target, just as it can also drive stocks in Asia higher which are still below pre-Lehman levels. The US dollar index is now around the same level where it found support in December last year. If the index breaks this key technical level convincingly and its decline proceeds to accelerate, then a collapsing dollar could become a major negative for equities in stark contrast to the gently declining US dollar which has been a bullish driver for equities in recent months. GREED & fear still does not expect this full-scale dollar collapse to happen now. Rather the view here remains that the collapse comes later and that the recent dollar decline reflects renewed risk appetite causing the dollar to become the funding currency of choice for a new carry trade. This also suggests that the dollar will be due a decent rally when equities correct. GREED & fear’s view remains that a structural bullish position towards the Indian stock market should be maintained by global investors. The fundamental reason to stay structurally overweight India in an Asian portfolio remains that it is the only Asian economy primarily driven by domestic demand. India has surprised the sceptics with its first quarter 2009 GDP data. Such a performance at a time when the US economy is not growing at all is clear evidence of “incremental decoupling” even if it is true that India’s capital market remains heavily influenced by foreign flows. If the foreign money is returning to India, domestic institutional investors have kept buying throughout reflecting an increasing dynamic domestic asset management industry. The locals have continued buying because they have a basic faith in the Indian growth story even if they have all sorts of complaints about the quality of government. The Reserve Bank of India has a clear claim to be viewed as the most effective central bank in the world during the past decade. GREED & fear refers not only to their practical decision to control securitisation and similar gimmicky financial techniques before they could threaten the credit cycle, but also the macro decision to monitor asset prices and credit growth in the conduct of monetary policy. NPLs in India will likely peak at worst at 5% of total system loans in this cycle, with the problem loans confined primarily to unsecured consumer loans and problem sectors such as textiles and real estate. This would constitute an impressive achievement given the scale of the credit boom in recent years. The resilience of the Indian banking system means that the aggressive monetary easing implemented by the RBI since October 2008 is likely to get traction precisely because the Indian banking system does not have the structural problems that many dysfunctional Western banking systems still do. The election result has further enhanced the investment story in India. For Congress’ surprisingly large margin of victory has not only raised hopes of more effective policies. It has also served as a reminder that rural India has been doing much better in recent years. It is reasonable to assume that Prime Minister Manmohan Singh would want to achieve some lasting reforms now that he no longer has the disruptive presence of Communist coalition parties. One such possibility is the abolition of the petrol and diesel transport subsidies. The view here is that some cuts in these subsidies will occur if not the more politically sensitive subsidies relating to fertiliser and kerosene. Two areas where progress seems probable as a result of the Indian election are infrastructure and the fiscal deficit via “disinvestment”. On infrastructure, the government will be anxious to make up for the slowdown in activity that occurred in its previous term. It is reasonable to project forward a trend growth rate of at least 7-7.5% per annum in India even in a world where Indian export growth remains only single digit. This growth rate assumes consumption grows at a steady 6% and investment, which remains the key component, grows at 10-12%. As for valuations, the Indian stock market is certainly no longer cheap on a prospective multiple basis, though in GREED & fear’s view it merits its premium rating in an Asian context. GREED & fear finds it hard to believe tactically that the world is on the brink of a full-scale dollar collapse right now. The view here remains that that dramatic climax comes later after more purchases of more dodgy assets by a Bernanke-led Fed and after yet more bailouts and guarantees by the US Treasury. CLSA CLEAN & GREEN: Please consider our environment before printing this email. The content of this communication is subject to CLSA Legal and Regulatory Notices These can be viewed at clsa.com or sent to you upon request.