The sharp equity rally in developed markets, though not
completely surprising has surpassed the expectations of many. Indian markets
have also shown resilience, despite serious political and economic concerns.
The following top 10 global trends in particular have
implications for Indian markets in next few months:
1.
The central bankers’ “Put” is proving to be more
effective than most thought previously. It passed the Cyprus test with
commendable grades. As things stand today, we are likely to see more “easing”
than “tightening” in next 12months.
2.
Contrary to some forecast, the deluge of
liquidity caused by unprecedented monetary easing in past five years has failed
to create inflation in the global commodity. To the contrary, the decade old
bull market in commodities, including energy, seems have ended. Most industrial
metals have already slipped into bear market with sharp price corrections in past
4months.
3.
The decade old bull market in precious metals
has also ended. Though jury is still out on whether the gold has slipped into a
secular bear market, the chances of a sharp up move beyond YTD 2013 highs
appear slim.
4.
The developed equity markets have run up led
from front by the big two - US and Japan. Many emerging markets have also
followed into their footsteps. At the same time bond markets also continue to
remains strong. The appetite for gilt has not diminished despite all the fiscal
and credit concerns. The “Great Rotation” appears to have terminated
prematurely – much like the way “Decoupling” did in 2008-09.
5.
Audacious “Abenomics” in Japan seems to be the
defining trend for currency market for the year. A successful achievement of 2%
inflation target may bring the global growth back to its pre Lehman trajectory.
6.
Chinese economy is likely stabilizing in lower
orbit of 7-8% growth for the moment. The surplus manufacturing capacities
created in past decade would continue to feed the additional demand emanating
from emerging world for next decade or so.
7.
The argument against “Austerity” appears
prevailing and all those anti-Keynesian voices appear to be fading.
8.
Political stability is gradually returning to
Europe, with a working Italian government in place.
9.
Middle East continues to be the hot spot. Weaker
oil economies may further frustrate the extremists. Complete US withdrawal from
Afghanistan would be the first real test.
10.
Pakistan elections are critical. Failure of
democratic process at this stage may plunge the state and the region into deep
trouble. Though the early omen are good.
On Monday, 6th May we shall outline our views about
the key trends in Indian markets with special reference to the aforesaid global
trends.
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