Citizens' Issues
Investing locally

For successful investing it is necessary to realise, that any country where the government protections are so bad that their own citizens are leaving, there is no place for foreigners to be going the other way

To pick a good restaurant the expression goes, find a place with a full parking lot or a line out the door. This is also true of investing. The proven concept of momentum is always a good way to make money. Finding a hot stock that everyone wants and then going with the flow for a short time is an excellent strategy. It is also wise to ask the locals. They invariably know the best places. This is true for investing in countries as well. Sadly no one does it.

 Most investors believe the BRIC (Brazil, Russia, India and China) countries are great places to invest. There are no less than 340 BRIC investment funds sold in different markets around the world. Although in the past six months these funds have fallen about 15%, in the two years prior to April 2011, these funds have increased over 100%. This is supposed to be evidence of the vibrant growth of emerging markets until you contrast it to the US market which increased 75%.

 Still if we look at the turbulence in Europe, the BRIC countries do seem to be an attractive place to invest in the long-term. Economists and analysts have other good reasons. Certainly the European sovereign debt crisis is an excellent example that the developed world has too much debt. The second reason is that the developed world is too old. There are too many retirees for each worker. Third, the developed world has too few natural resources. These are all good reasons, but they miss the most important ingredient of economic growth. It is not important that economists believe in it. For the forecasts to be accurate, the local people have to believe in them. In places like Russia and China the locals don’t.

 In Russia many people just want to leave. According to a recent survey the number of people, mostly young people, thinking of leaving has risen to 44%.The well-educated readers of the Novaya Gazeta, a newspaper famous for its investigative coverage, were even more adamant about getting out, 62% wanted to go. For good reason, it takes 10 to 20 years to buy a flat and five years to buy a car. There are no chances for promotion. It's very hard to set up your own business and loans cost 20% to 30% a year. A half a million Russian citizens have moved to China including businessmen, students and even pensioners.

 It is not just the young. The rich want out too. The price for high-end London real estate in September of 2011 was 4.5% higher than the last price peak reached in March 2008 due to purchases by wealthy Russians. Cypriot banks have a tonnes of off shore Russian money which they sadly invested in Greek debt. So much so that Moscow is negotiating a 2.5 billion euro loan to Cyprus to shore up its banking system.

 But it is not just the Russians. The Chinese and their money are leaving too. According to a real estate agent of expensive international real estate, “The primary motivation for Chinese buyers is to export wealth out of the country… They prefer luxury properties because they can transfer large amounts in one go.”  According to a survey taken by the Bank of China about 60% of rich Chinese people, wealth in excess of $1 million, have already begun the process of emigrating or are considering doing so. They cannot even keep the corrupt officials. They have exported an astonishing $123 billion over the last 10 years.

The reason is simple, poor governance. China is plagued with institutionalised corruption that infects every part of society. The food is often poisoned. Doctors have to be bribed to get good treatment. According to one mom, “Nine out of ten of my friends complain that they have to bribe their children’s teachers or schools in order to get proper or better education”. The real problem is the lack of any protections for rights, both human and property. In China there is no security for wealth or possessions. They can be taken away at any time.  

The leaders of Russia and China have powerful security services. They routinely spy on all aspects of their citizen’s lives. One would think that equipped with this power they could crack down on corruption. They can’t, for the simple reason that they would be arresting themselves.

What these leaders along with western economists, investors, and commentators do not understand is the economic cost. If your best and brightest are heading toward the exits in droves, they will take with them capital and expertise necessary for economic growth. For successful investing it is necessary to realise, that any country where the government protections are so bad that their own citizens are leaving, there is no place for foreigners to be going the other way.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).



‘Put Pressure on builders informally for the society’s interest’

Advocate and property expert Mr Vinod C Sampat sorts out issues related to conveyance and redevelopment of cooperative housing societies

“Not a single case of deemed conveyance has happened successfully in Maharashtra, so don’t go for it,”Said Mr Vinod C Sampat, advocate and expert on property matters, speaking at a seminar organized by Moneylife Foundation on cooperative housing societies.

Not many people are familiar with the workings of the cooperative housing societies, and are left confused while dealing with a variety of civic and legal compliances. Mr Sampat spoke on several issues like conveyance and re-development. He said, “Unfortunately, the real estate sector is unregulated, and few people have knowledge about its various laws. And even fewer can stand up to the powerful builders’ lobby.”

 He pointed out that most cooperative housing society members do not check the several financial aspects related to cooperative housing societies; and end up paying extra charges for several things, and at times, defaulting on necessary payments. He said, “It is important to know what and how much to pay, and to submit audits and necessary statements to the authorities concerned,” So, the best thing to do is to insist on documentation for every step, and make the builders list every laws/conditions/liabilities  involved and complies with laws. He said that a statute will always prevail over contracts, and consumers must approach consumer courts if any unfair conditions are imposed on him.

 He later talked about many landmark judgments related to cooperative societies and explained new rules which have been framed and laws which have been struck down. He said, “However, in many cases, court rulings have little bearing. Once, it was ruled that permission of registrar is not required~ but we all know registrar will insist on the same for redevelopment projects.” He also talked about several laws by virtue of which officers concerned can be made accountable for delays and even be penalized.

Mr Sampat also offered tips to the audience on selecting developers for redevelopment  projects. He insisted that the process should be transparent, and advised that members should have legal and technical consultants to interact with the builder. Also, it is important to check the builder’s credentials and financial conditions.

“You should be alert about what is going on, and must visit other projects that the builder has undertaken, and interact with the residents to get a fair idea. Include people who can ask hard-hitting questions, and who can negotiate with them about repayment/penalties in case of delays or other complaints. Also, there is nothing wrong with informally pressurizing the builder for the society’s interests; and don’t allow the builders to take loan on these properties. Involve women who can put forward their demands about height of ceilings, storage space of washrooms. Some say it is emotional blackmailing; I would call it smart bargaining,” he said.

He said, “The best tip I can offer is that don’t allow the builder to sell a part of the property before he has complied with laws and have provided necessary clearances for those who have booked the property.” About management committees and responsibilities and rights of residents, he said, “Use video recording for each meetings. Take advantage of technology to put a cap on the powers of the managing committee. Also, societies can’t make you shut down your shop or beauty parlour you are running in your flat. Lastly, make a will about your property; so that your heir and relatives can get their due.”



Stock markets headed nowhere: Weekly Report

Friday’s high a benchmark for uptrend to resume

The market was weighed down in the truncated week by negative domestic triggers and European debt concerns. A downgrade of the Indian banking sector by Moody’s and industrial output for September coming in at a two-year low and issues related to Italian bond yields were the main reasons for the market settling 2% lower in the week.
Finally, the Sensex closed the week at 17,193, down 370 points and the Nifty finished 115 points lower at 5,169. The Nifty will have to sustain itself above Friday’s high for the uptrend to resume.

Opening higher after an extended weekend on Tuesday, the market pared most of its gains in early trade itself and closed flat. Moody’s downgrade of the Indian banking sector to ‘negative’ from ‘stable’ and a 2.04% increase in State Bank of India’s non-performing assets for the September quarter exerted pressure on the banking sector, resulting in the market closing with a deep cut on Wednesday. The market closed at its 11-day closing low on Friday on the dismal showing the industrial sector in September.

The BSE Fast Moving Consumer Goods index gained 1% while the BSE IT index settled flat. On the losers’ side, the BSE Realty index tumbled 6% and the BSE Bankex declined 5%.

The top Sensex gainers in the week were Hindustan Unilever (up 5%), TCS, Wipro, Hero MotoCorp (up 3% each) and ITC (up 1%). The major losers were State Bank of India, Tata Steel (down 8%) each, DLF, Hindalco Industries and ICICI Bank (down 7% each).

Among Nifty stocks, HUL (up 4%), TCS, Hero MotoCorp, Wipro and Cairn India (up 3% each) were the top performers. Bharat Petroleum Corporation (down 11%), SBI (down 11%), DLF, Tata Steel and IDFC (down 8% each) settled at the bottom of the index.

While downgrading the Indian banking sector, Moody’s said that given the tightening environment, asset quality will deteriorate over the next 12-18 months, thereby increasing provisioning needs for banks in FY11-12 and FY12-13.

Differing with the downgrade accorded by Moody’s, leading ratings agency Standard & Poor's (S&P) has upgraded the Indian banking sector saying its domestic regulations are in line with international standards. “In our view, banking regulations in India are in line with international standards and the regulator Reserve Bank of India (RBI) has a moderately successful track record,” S&P said while upgrading the risk profile (BICRA) a notch higher to ‘Group 5’.

Continuing its dismal performance, industrial output sank to 1.9% in September compared to 6.1% in September last year and 4.1% in August this year. The government attributed the decline to the poor showing of the manufacturing sector, which grew at 2.1% for the month versus 6.9% same period last year. The data confirmed the fears of a slowdown in the Indian economy as the fall was visible across sectors.

Food inflation declined marginally to 11.81 % in the week ended 29th October from 12.21% in the previous week. Despite the marginal moderation in the rate of price rise provided consumers were burdened by high prices of essential kitchen staples like vegetables and pulses.

In international news, bad news from Europe reached a climax mid-week when yields on Italian 10-year bonds shot up over 7%, however, the news of the resignation of Italian and Greek prime minister provided some solace to the global markets.


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