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

To: Haim R. Branisteanu who wrote (70075)	12/30/2010 6:43:33 PM
From: TobagoJack	Respond to of 220150

just in in-tray per greed n fear · The major news over the past week has been the Chinese decision to raise interest rates on Christmas Day. This to GREED & fear is not a big deal since such a rate hike has been expected by domestic investors. Still this latest move, combined with a speech by Premier Wen Jiabao on Sunday, has confirmed that China remains in a tightening cycle. · Inflation is clearly the major risk for Asian and emerging market equities in 2011. For GREED & fear the key fundamental point is whether food price-driven inflation leads to a wider pick up in inflation expectations and a resulting generalised rise in CPI. This is what will have to be watched closely since such a development would mean more aggressive tightening than GREED & fear is currently expecting which would be negative for Asian equities. · There is more evidence of inflationary pressures ex-food rising in India then there is in China. And in the case of India food prices have been falling in recent months which is clearly not the case in China. · There is also the continuing potential for QE2-driven financial speculation in commodities to trigger more of an oil and food driven inflation scare than is really warranted by the fundamentals. Still GREED & fear continues to believe that any such commodity spike will be of limited duration because the impact will be deflationary in the West given the continuing lack of income growth. · The more Western economies recover in a healthy fashion the bigger the risk that Asian monetary authorities are behind the curve in monetary tightening and the bigger the risk that Asian equities underperform in 2011. But GREED & fear continues to believe that Western economies are not healthy. · GREED & fear also continues to believe that 2011 will not see a rise in the federal funds rate. Still there is a plausible case that consumption can pick up in the US more than GREED & fear expects should the pace of private sector deleveraging slows. The best argument here is that much of the private deleveraging thus far has been involuntary in the sense of debt write offs. · In GREED & fear’s view, once debt write offs have peaked, there will still be the long-term issue of increased consumer caution in a world of ultra low interest rates and low income growth. GREED & fear continues to expect a long-term increase in the US savings rate and a long-term decline in consumer indebtedness back to historic trend levels. · GREED & fear will reduce the current 5ppt underweight in Australian energy/resources sectors by 3ppts to hedge in part the risk of a further QE2 driven commodity spike, while the longstanding zero weighting in Australian financials will be maintained. This will be done by reducing the overweights in China and India by 1ppt and 2ppts respectively. · While the resumption of quanto easing creates the risk of a speculative commodity-driven inflation spike, it is also a powerful driver of the asset reflation story in Asia. GREED & fear continues to believe that there is more long-term upside in Asian asset prices than in broad-based CPI measures. Please consider the 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.