The more anemic that the Western recovery turns out to be, the longer it will take for Western interest rates to normalise, increasing the likelihood of Asia entering an asset bubble, says Christopher Wood of CLSA
Christopher Wood says that neither US consumption nor US employment recovery will be healthy and that this should become apparent by the first half of 2011. "This also seems to be the message from the US government-bond market, which has remained relatively well bid, despite the ongoing rally in the S&P500 amid rising optimism. The US bond market continues to send an entirely different message from the US stock market," Mr Wood writes in a global strategy piece in CLSA's Asia Themes 2011 report.
US bond prices have been falling from early November while yields have been rising. According to a Bloomberg News survey of the Fed's 18 primary dealers, investors buying benchmark 10-year notes will gain about 1% in 2011 once interest payments are re-invested, as the yield rises to 3.65% after averaging 3.2% in 2010. US treasuries have given a positive return in 2010 versus negative returns in 2009. But the best year was 2008, when US government debt was in great demand, as investors sought it as a refuge from the financial crisis.
Wood predicts that Western policy will remain 'super easy' due to the lackluster outlook for consumption and employment in the American economy and Europe's sovereign debt crisis. This will create an asset bubble in Asia, where China will be the epicenter. Asian governments are likely to progressively tighten their monetary policies, but this will be mainly to curb inflation. Over the longer term, this asset bubble will eventually give way to a deflationary bust says Wood.
In this same report CLSA's Eric Fishwick says, "QE2 will drive down the cost of capital globally and thus Asia is likely to see credit growth and accelerating domestic consumption and construction activity in 2011."
About India, the report says that "while the market looks vulnerable to a tactical correction on a continued commodity rally, the fragile state of some of the largest global economies raises question on the sustainability of high commodity prices. We would thus be less worried about the likelihood of a lasting impact on the market or economy."
Even so, the report warns of inflation fears, the hardening price of crude (India being particularly vulnerable), and the rising fiscal deficit raising the risk perception of the country. Also, higher commodity prices will put margins of Indian companies under pressure.
Despite these warnings, the broker expects investment upturn to further strengthen in 2011-12 due to the combined effect of higher infrastructure spending and an increase in private-sector capex. The firm urges investors to put their money in "best-managed Indian firms that leverage rising commodity prices" such as Hindalco, Tata Steel and Cairn India. One of CLSA's top long-term picks is Maruti Suzuki, but it is hesitant about it near-term, mainly because of the price wars with Toyota. The firm is overweight on the Indian banking sector.
Consumer plays are also big on its list-China, India and Indonesia's consumer sectors should exhibit J-curve hyper-growth over the next 5-10 years on rising incomes and propensity to consume and take risks. Even in the face of slower global growth, their consumers remain upbeat and will benefit from strong liquidity inflows and wage inflation in 2011.
The report also says that Australia presents a good investment opportunity, since it provides Asian exposure without the emerging market risk. "China and other emerging markets are driving demand for energy and materials, of which Australian companies are among the leading providers. A range of secondary beneficiaries will also see topline growth. The key risk is labour- cost inflation."
Stockguru.India and its group companies are self-styled investment advisors, offering Rs22,000 on an investment of Rs10,000 in one year
As if there were not enough potholes on the stock market route, here is a multi-level marketing (MLM) company that is promising 20% returns per month! The company Stockguru.India describes itself as the country's 'Premier Financial Consultancy', offering trading solutions in equity, derivatives, currency futures, commodities trading, initial public offerings (IPOs), insurance (life/non-life), general insurance, mutual funds, portfolio management services, terminal handling all under one roof.
Stockguruindia.com (the company's portal) has only one standard line of advice in all market situations-whether it is a bull market or a bear market, range-bound market or volatile market. It says, "We advise our clients to buy shares at a low price and sell them at a higher price. Selecting the right share at the right price and entering the capital market at the right time is an art. We help all our clients to make huge profits by investing in good shares for very short/short/medium/long term depending upon the client's requirements. Trading/investment for minimum intraday to T+5 days may give you a handsome return of 5% to 25% on your capital investment."
This MLM company's investment (!) plan is simple. You pay a minimum Rs10,000 as investment and Rs1,000 as registration fees. There is no limit on the maximum amount one can invest. Stockguruindia.com offers a return of 20% per month for up to six months and the principal amount invested is returned in the next six months. It also gives post-dated cheques of the principal and a promissory note as security. In short, on an investment of Rs11,000, the company offers to pay you Rs12,000 in six months and the rest Rs10,000 over the next six months, a total of Rs22,000 or a 120% return in a year.
So how does Stockguruindia.com offer such a high return where even leading investors like Rakesh Jhunjhunwala found it very hard to earn even 20% return from the stock markets? Here is the company's logic..."If you have gained Rs1,000 somebody has lost Rs1,000. If you have lost Rs1,000 somebody has gained Rs1,000. Most of the people you meet say (around 90%) that we have lost a lot of money in the financial markets. But that means around 90% people you do not know have made huge profits. For every seller there is a buyer."
If this sounds to be too good to be true, it lures investors with an additional 3% per month income through a binary plan of 27 levels. Binary plans of MLM companies are the new clients you bring in, who are placed below you in rank in a right and left combination. It's nothing but a trap. All MLM companies promise say you rewards if you complete the left leg-right leg cycle. But in practice this does not happen. There are very few people who manage to do this in a proper way. A majority of those participating fall in the category where they lack a single member in one leg, or a member becomes inactive thus freezing the spread of that leg and the business.
How do MLM companies operate without a trading license from the regulators, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI)? Why has there been no action against Stockguru.India, Stockguruindia.com and its subsidiaries? Market regulator SEBI had, on its part, issued SEBI (Investment Advisers) Regulations, 2007 (the 'Draft Regulations') to regulate the advisory activities of investment advisers in India. But till date it has remained a draft only.
According to R Balakrishnan, a columnist for Moneylife, India probably is the only market in the world where a distributor needs to pass an exam, but absolutely no qualifications are required for someone to become a fund manager. The same is applicable for investment advisors as well. As a result, there are a number of 'self-styled investment advisors', including wealth managers, private bankers, chartered accountants and even some MLM companies like Stockguru.India.
According to the SEBI Act 1992, "No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with the securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act."
In addition, the Act says, "No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment scheme (CIS) including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations."
Stockguru.India and all its group companies are openly flouting the norms and rules. It is not registered with SEBI as investment adviser and still offers to trade on behalf of its clients. According to information available over the internet, Stockguru.India and its chairman and managing director Lokeshwar Dev, will help anyone to open a demat account with Sharekhan so that they can manage the investor's money. We checked with Sharekhan and the brokerage said, neither Stockguru.India nor Lokeshwar Dev have any relations with or any demat account with them.
In addition, neither Stockguru.India nor any of its group companies possess a certificate of registration from SEBI for CIS, but they are still collecting huge amounts from clients under the pretext of stock market investment. Are the regulators sleeping on this one?
Drug firm Venus Remedies Ltd said it has received patent grants for its antibiotic drug Sulbactomax from Russian and Ukrainian authorities.
The patent has been granted by Federal Service on Intellectual Property, Patents and Trademarks, Russia and State Enterprise Ukrainian Institute of Industrial Property, Ukraine, Venus Remedies said in a filing to the Bombay Stock Exchange (BSE).
With this patent grant the company can now enter the $780 million anti-biotic market in Russia and also strengthen its presence in Ukrainian market, it added.
Sulbactomax is used in treating bacterial infections, including respiratory tract and urinary tract infections.
The world antibiotic market is presently estimated to be around $37.14 billion and is expected to be $55.18 billion by 2013, it said.
On Monday, Venus ended 1.55% up at Rs265.40 on the BSE, while the benchmark Sensex gained 0.22% to 20,028 points.