What happens when you stay invested for the long term ignore short-term market movements
Investing Safely, Investment News

What Happens When You Stay Invested For The Long-term & Ignore Short-term Market Movements

Hi everyone, I'm back for this week's video and I hope you all of you are staying at home and practicing social distancing. It's a really scary time with what's happening in the country, in the markets and in the economy as a whole. And so I thought of shooting this video from home instead of from the office for these very reasons.

The main purpose of shooting this video is - I want to take away the fear of investing, the fear that most investors get when we watch the media and what's playing in the news channels all the time of all doom and gloom and how markets are collapsing and all the next recession is happening and how we are all basically doomed.

All we have to do is take a deep breath, stay calm, and know that the good principles of investing work as long as we let them
work for us.  

The topic of this video is 'What happens when you stay invested for the long term and ignore short-term market moments'.

  1. The first thing that happens is your money gets time to work for you,
  2. The second is the risk of loss reduces, and
  3. The third, you have less financial stress

Now I'm going to talk about these three points by showing you some actual numbers with a file that I have created and that file shows you the performance of markets over the last 20 years.

The first example I'm looking at for this is, the performance of stocks over the last twenty years and this file is having 10 stocks - names that you know and you have grown up with. Most of these names would be very familiar to you.

Companies such as:

  1. Apple
  2. Caterpillar Inc.
  3. Vertex pharmaceuticals.
  4. Boeing
  5. Pepsi
  6. Walt Disney,
  7. Marriott International
  8. McDonald's
  9. Tractor Supply Company, and
  10. Northrop Grumman.

These are some of the top companies from each of these industries that we have chosen, and as you can see this is a very diverse portfolio with one top company from each industry. 

Now I want you to imagine this scenario where you have invested $10,000 in each of these stocks and just let the money sleep for various periods of time. Then in this file what we are going to see is how the markets perform given various amounts of time for the stock to grow. 

So let's assume that you invested one year ago, $10,000 in ten stocks that equals $100,00. Now as you have seen what's happening in the last one year, the turmoil in the markets, everything that's played out. In this example, if you had invested one year ago, you would have lost 11% of your portfolio value over the last one year. That's scary and many people think that's the reason why I'm not in the stock market. 

But let's imagine what would happen if you had invested three years ago. Now in the same example if you invested three years ago you and decided to that you just leave the money in there and how would your money have grown. So if you had invested three years ago, your money would have gone from $100,000 to $123,000, and you would have netted 8% per annum as a growth. 

Now considering inflation is 3% per annum, 8% per annum is a pretty decent number.

Now take that to the five year mark, and imagine you invested in 2015,  the $100,000 has grown to $134,000 which is 7% per annum. It's more or less similar to the three year performance. By this time you're saying - Amit what's so special about this video you're making because 8 or 7% is nothing to write home about. I agree with you - it's not anything to write home about, but still it's a decent growth that you get, if you just leave your portfolio alone, and let the money work for you without fiddling too much.  

Now let's look at the 10-year number. In ten years, that is if you had invested in 2010 instead of 2015, the same $100,000 would have grown to $160,734, which means you have got an annualized growth of 26% per annum. Now this is decent by anyone's standards in a portfolio which has not been fiddled with, there has been no buying or selling, and there has been no timing the market at all. We just followed Warren Buffett's principle of staying invested for a long term. 

There's still one more column, and I'm sure its going to blow your socks off. The last column is the 20-year growth column, and as you can see if you had invested $100,000 not in 2010, but in the year 2000 itself that $100,000 which was invested 20 years ago and forgotten about completely, would have grown to $1.6 million, with an annualized growth of 72% per annum. Now that's something to write home about.  

What I want you to take away from this particular file is - 'Markets and money need only one thing to grow and that is time.'

As long as you allow enough time for your money to grow there is no way your money would be lost, or you would get less than what you invested, unless something like a big global war happened.

As you can see a period of 7 to 8 years, or even a 5-year period is a decent period where the chances of you getting less than what you invested reduce, and the chances of you getting way more than what you invested increase dramatically.

In summary, the three things that happen when you leave your money invested for the long term and when you ignore short term market moments is -

  1. Your money gets time to work for you,
  2. The risk of loss reduces, and
  3. The third and the most important thing that happens is you have less financial stress.

I'm sure you got much more better things to do like spending time with your family, following the hobby that you like, or even doing the work that you like, without having to worry about how markets perform, and whether your future is protected or not. Those things are not relevant in the short-term, they are relevant in the long-term. 

I wish you good luck with your financial goals and as usual, if you have some questions feel free to leave them in the comments section below.

Thank you stay at home, and

God bless

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3 Reasons Why The Markets Are Volatile Today and What You Can Do About It
Investing Safely, Investment News

3 Reasons Why The Markets Are Volatile Today, and What You Can Do About It

For the last 7 days I have been getting calls and emails from clients who are concerned about their investment portfolios and what they can do to mitigate the effects of the current market volatility.

Reason 1 - COVID19 Effect on Stock Markets

There are many companies globally that depend on Chinese manufacturers and suppliers for their business. One of the examples is Apple Inc. The main product that Apple manufactures is the iPhone. The turnover of iPhone alone is more than the annual turnovers of many companies. This year the delivers of the latest iPhone models are going to be delayed because of the stoppage of manufacturing in China.

The Chinese government has rightly been trying to contain the spread of the virus by stopping manufacturing and activities that require many people to be in the same area together. So this has obviously affected the deliveries of the iPhone, and when deliveries are affected, turnover is affected. When turnover is affected, profitability of the company for that year reduces. When profitability reduces, the stock price drops.

When investors globally see different manufacturers and companies get affected by COVID19, obviously the stock values of those companies and markets as a general drop. Now how is this going to play out. Hopefully with the rising temperatures, COVID19 might die down in the next 3-6 months, because of the all the measures that different companies are putting in place to make sure that it does not spread and also because of the rising temperatures in summer. So COVID19 is hopefully not going to be an issue after the next 5-6 months.

Reason 2 - Upcoming US Elections

The second reason is the US elections. Now as you know Donald Trump is trying his best to get elected for the second term and all the measures that he has been putting in place such as the tariffs and the sanctions on different companies is a bid to get reelected.

Again, that’s a temporary situation, and one or the other if Donald Trump gets elected or not, or if some other president replaces him, the market fluctuations that are happening will subside and the portfolios will stabilize again.

Reason 3 - Oil Price War between Saudi Arabia and Russia

The third reason which should take longer to subside is the oil price war between Saudi Arabia and Russia. The Saudis are content to keep the oil price at 25-30 dollars per barrel, and so is Russia as well.

Having said that, these prices aren’t sustainable for more than 5-6 months at the most, because this will reduce the turnovers and foreign exchange buffers that these countries have been building through the revenues from oil production and this definitely cannot last long. Russia will eventually reach an agreement with Saudi and the OPEC on oil prices.

In summary, the three reasons that are disrupting the markets today are temporary.

What can investors do about this situation?

Firstly, try and remember that unless you need the money from your investment portfolio in the next  5-6 months, you don’t need to be overly worried about what’s happening.

Remember our financial goals and milestones are long-term, whether we are planning for our own retirement or we are planning for our children’s college education fees, or buying or home, what have you. Unless we need the money in the next 6 months, we should not be worried.

Now I have one client whose savings plan is maturing in May and I know for a fact that he does not need the money even though his savings plan is maturing in May, and what he can do about it is leave the money invested, wait for the markets to recover and then take the money and use it for his son’s education.

If you have specific types of investments, this is what you can do about it.

If you have a Savings Plan:

The savings plan is built in such a way that you contribute a monthly, quarterly, or a yearly amount regularly, and keep buying units. That’s how dollar cost averaging works. If you have a savings plan, my suggestion is to prepay the contributions for the next 3, 6 or even 12 months if you can afford it.

What will happen in this case is, all the money that you are pre-paying in advance will buy more units at way lower prices. You will get the biggest bang for the pre-payments that you make today and over time when the markets recover, your savings plan will perform well.

If you have a Lump sum Investment:

The recommendation for a lump sum investment is simple. If you have Stocks, ETFs or Mutual Funds that are positive in value, my suggestions is to book the profits and get into a physical gold fund. There are many ways to buy physical gold online. My favourite physical gold ETF is the iShares Physical Gold ETF or the iShares Physical Gold Trust ETF which is slightly cheaper.

Gold performs inversely as compared to the broader market. When markets are up, gold goes down, and when markets are down, gold does well. If you have gold in your portfolio great, if you don’t this is the time to switch the funds that are up into physical gold. If your stocks or funds are down, my suggestions is to not panic and hold on till the time the funds recover to at least the value at which you bought them, and then book the profits into physical gold.

Either ways, if you have a savings plan or a lump sum investment you don’t need to worry about this temporary fluctuation in the market, keeping in mind that your goals or long-term.

Please feel free to leave your comments, questions or suggestion in the comments section below.

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Old Mutual International - ERB Wins Best Portfolio Bond Award 2019
Investment News

Old Mutual International ERB Wins Best Portfolio Bond Award 2019

Old Mutual International ERB Wins Best Portfolio Bond Award 2019

International Adviser hosted its annual Fund Links Forum event in London’s JW Marriott Grosvenor House Hotel on 17 October and recognised excellence across the industry with two sets of awards.

Old Mutual International won the award for the best international portfolio bond with their product the 'Executive Redemption Bond (ERB)'.

The Old Mutual International Executive Redemption Bond is one of the best open architecture investment platforms out there.

The link to the original post on international-adviser.com is here.

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Have a question? Feel free to ask me. Click the button below and Ask your question.

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Investors Trust Assurance S&P500 Wins Best Savings Plan Award 2019
Investing Safely, Investment News

Investors Trust Assurance S&P500 Wins Best Savings Plan Award 2019

Investors Trust Assurance S&P500 Wins Best Savings Plan Award 2019

Who triumphed in the Global Financial Services Awards and Best Practice Adviser Awards UK?

International Adviser hosted its annual Fund Links Forum event in London’s JW Marriott Grosvenor House Hotel on 17 October and recognised excellence across the industry with two sets of awards.

Investors Trust Assurance won the award for the best savings plan with their product the 'S&P500 Index'.

Investors Trust Wins Best Savings Plan Award For 2019

I am very happy about this achievement by Investors Trust because of the following reasons:

  1. I use the S&P500 index savings plan myself to save for my daughter's college education.
  2. A lot of my clients have put their trust in this savings plan, and
  3. Because Investors Trust puts their client's interests first, by being very responsive to their feedback and suggestions, and innovating continuously over time.

Ask A Question

Have a question? Feel free to ask me. Click the button below and Ask your question.

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Markets are falling - Should you exit your investment portfolio now
Invest Smart, Investing Safely, Investment News

Markets are falling – Should you exit your investment portfolio now?

Yield curves have inverted, recession is expected soon, this recession will be worse than the last !!!

It's all doom and gloom, or is it?

Sharp falls in market prices generally make headlines across all media. And no sooner when the index falls, predictions of more doom start pouring in from all corners. Clearly, the mood is that of panic and fear.

And we don't blame investors if they are unwilling to invest or stay invested at this point in time. Simply because our brains are hardwired to make us run from danger at the first sign of it.

And when it comes to investing, nothing can be more scary than seeing your investment portfolio down by 30-40%. The truth is that investment decisions of the average investor are governed by fear

Average investors tend to exit their investment position when they start seeing drops of 20-25% or more. That’s one angle to it. However, the actual fear is of higher losses we may incur by not selling.

Now let us see how fear rules our buying decisions. Head back straight to 2008 when the credit crisis was at its peak. Most stocks were trading at dirt cheap valuations then. Yet there were very few people who stuck their neck out to buy. Why? The answer is again fear. And this happened because their thinking was based on the perceived situation in the market place.

Outside environment created a sense of panic which restricted individuals to buy. But those who overcame fear made a pot of gold out of their investments.

Thus, it can be seen that FEAR makes us take decisions which are not favourable over the long term. However, overcoming fear does not mean you have to be contrarian. It means executing the decision if you feel the process you followed to arrive at any decision (buy or sell) is right.

Stay invested without fear when risks are known. In the long-term prices always reflect fundamentals, and markets always rise in value given an investment term of 5-8 years or more.

Our investment portfolios carry different types of risk, and some of the risks have a lot to do with your behaviour and of others around you, such as:

  1. The risk of selling or exiting at the wrong time (out of fear), especially when markets are down.
  2. The risk of investing in a stock just because others in your office or friend circle (out of greed) are buying the same.
  3. Investing too much in one particular investment because it looks the best on paper.
Risk comes from not knowing what you are doing

In summary, the best thing to do is to stay true to the financial plan you have set for yourself with the help of your financial advisor, and not worry too much about what the markets are doing.

There are better things to think about in life than just your investment portfolio performance. Focus on your investment goals, not market returns.

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Why Investing To Achieve Financial Goals Is Better Than Investing For Returns
Invest Smart, Investing Safely, Investment News

Why Investing To Achieve Financial Goals Is Better Than Investing For Returns

The two basic approaches to get your money working for you are:

  1. Investing for returns, &
  2. Investing to achieve financial goals

Investing For Returns

This is a common way of investing for short-term investors who look at returns over and above inflation to justify the risk of investing. There is no clearly defined financial goals apart from getting 'X' percentage of returns based on their expectations and knowledge.

Pros and Cons

  1. Those who use this approach are happy in some years when the returns are as expected, and unhappy when investment portfolios are down, because no one can control or predict returns consistently.
  2. There is no clear exit strategy when this approach is used. Every year the expectations for returns go up, especially after the portfolio has done well in the current year.
  3. Those who take this approach expect to beat inflation year-on-year, which is unrealistic.
  4. They exit the investment at the wrong times when markets and portfolios are down in value and enter the markets when they are at the top or on the way up.
  5. This approach only works if the investment term is relatively short i.e. 3 to 5 years, that too with fixed income portfolios only.

Investing To Achieve Financial Goals

This is the best way of investing for investors who look at achieving clearly defined financial goals over a set number of years. There is a clearly defined exit strategy for each investment, and the investors knows more or less when and how these financial goals can be achieved.

Pros and Cons

  1. For example if the financial goal is to say accumulate USD 250,000 over 10 years to fund a child's higher education,
    1. the investor can exit the investment, if the portfolio hits this number earlier than expected.
    2. the investor can increase the regular contributions if the portfolio is not performing as expected.
  2. The exit strategy is clearly defined.
  3. Year-on-year investment returns are almost secondary, as long as the portfolio is on target to achieve the financial goal.
  4. The right time to exit the investment is when the goal is achieved, regardless of whether the market is up or down.
  5. This investment approach works for all investment terms, and these type of investors don't exit the markets at the wrong time.
  6. It takes a certain amount of discipline to stay invested, and generally this approach is best taken with the help of a financial advisor who will help you stay invested through thick and thin till the financial goal is achieved.
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DIY Investing Vs Good Financial Advice
Invest Smart, Investing Safely, Investment News

Do-It-Yourself Investing Vs Using A Financial Advisor

My rant about 'The Investment Guru from Canada'

This article is going to generate a lot of 'controversy', so here I go...

Just the other day, a long-time client of mine and a good friend called me up and said 'He wanted to meet me, and discuss a few things'.

I thought this was a normal request, so we met and started talking. He had just been to a 'Free Investment Seminar' organised by a "well-known investment guru" from Canada, who's apparently a big promoter of 'DIY (Do -it-yourself) Investing'.

There were three other speakers in this seminar, including one from a robo-advisory investment firm. Robo advisors are the new craze globally, where artificial intelligence and machine learning  "supposedly negate the need for a financial advisor".

This Canadian "investment guru" then started bashing all the 'expensive savings and investment options in Dubai', and started talking about the benefits and virtues of 'DIY investing', and 'ETFs (Exchanged traded funds that track global indices').

He also showed the effect of the costs involved when a financial advisor is used, and the savings when 'You do it yourself'.

The client was ready to stop / surrender all his existing savings plans, investments (at a loss), and put all his money into low-cost ETFs after listening to this investment guru, and I said (in my mind of course) - 'Here we go again'...

I had heard this same thing many times from various people I met, including clients who had attended his seminars, or visited his website.

Don't get me wrong. There is nothing wrong in using low-cost ETFs, index funds and what have you. In fact I promote the same in many of my website articles, my meetings with clients, and my email newsletters as well.

What pissed me off was, this 'Canadian Investment guru', was against employing the services of a financial advisor'. I honestly consider this investment guru to be a well-meaning idiot, because he cannot differentiate between DIY investing and 'What a financial advisor does for his clients'.

Six Reasons To Have A Financial Advisor Manage Your Investment For You

Some people are confident that they can manage their investments themselves, DIY (Do-it-Yourself) platforms are for these people. But if you need help in making the right investment decisions, a 'Managed investment platform' managed by a qualified financial advisor (who represents you), is right for you.

While, the right charging structure and investing without lock-in structures are important, a good financial advisor provides you the following services:

  1. Getting you started on the path to achieving your goals, by developing a proper financial plan of action for you. I cannot stress this enough. Statistically it has been proven that most people left to their own devices, will never 'Invest money' or 'Invest money consistently' unless pushed by a financial advisor, who makes them understand the importance of 'Starting to invest, early enough in life'.
  2. Making sure, with regular reviews that you continue on the path, till you achieve your goals. (This has very little to do with investment returns). Starting an investment is easy. You don't need a financial advisor for this. However, the difficulty lies in 'staying invested', and 'not exiting at the wrong time', for various reasons.
  3. Optimizes The Returns Of An Investment - Now any adviser who sells himself, that he can get a better return is a cheat, because nobody can guarantee better returns, but a good financial advisor can:
    1. Reduce the risk in your investment portfolio, by only suggesting you investments that you understand and you are comfortable with.
    2. Reduce the volatility in the overall portfolio, giving you a slightly easy ride along the way, making things more predictable. Not all types of investments are fit for the average investor, even if they take the shape of an ETF. ETFs can be based on many different types of investments.
    3. Match investment risk and returns to your risk tolerance - how you feel about your investment value going up or down. Each investor has a different attitude towards investment risk. This is very personality driven. Your financial adviser has to choose an investment that suits your investment personality.
    4. Match investment risk and returns to your time scale - The volatility (risk of investment value going up or down) should be the lowest when you need your money back for your important life goal. You cannot take risks with your money, when you need it the most.
  4. Reduce Costs, including tax - They can help you with kinds of investments that you may not normally think about, which give you tax relief or other kinds of tax benefits.
  5. Save you time - They can save you a lot of time, in which you can spend doing the things you like to do, instead of learning how to invest, and manage your money yourself.
  6. Control your investment behaviour - If you are on your own accountable only to yourself, it can be very tempting, and very easy to make bad decisions on your money, in the heat of the moment. When markets are not performing well, you may make a decision without fully thinking it through, and you would have been better off, not doing that. A good advisor can act as a check and a balance against that kind of stuff, and save you a lot of money through costly mistakes ...because no one can control the markets, but what can be controlled is the choice of investment and the level of risk you are exposed to.

I could go on and on, but a good financial advisor who represents you will also give you advice on 'other investments', that you may do outside of his services, e.g. real estate investments, etc...

His main gripe was on charges

I agree with him on the point of avoiding expensive savings plans (especially ones with longer terms), and heavy surrender penalties, but most investors don't have 50 to 75 thousand US Dollars to start a lump sum investment, which is required on good investment platforms as a minimum starting amount.

Currently the cheapest way to accumulate that initial USD 50 - 70 thousand dollars is to start a 5-year savings plan with Investors Trust - Evolution. Read my review of this savings plan here.

Short of asking you for an explicit fee for the above-mentioned services, the financial advisor can only charge you the assets under management fee of 1% per annum or take a commission on the savings plan. What's wrong with that?

This fee has got very little to do just with investment advice (especially in Dubai, where no expat want's to pay an explicit fee to financial advisors for their financial planning advice). 

Good financial advisors will generally charge you 1% per annum of the amount they manage for you in an investment, ideally with no lock-in structure or surrender penalties, as long as they manage the portfolio for you. ...and this portfolio can still be in low-cost ETFs.

The alternative he preached was to buy low-cost ETFs on DIY platforms, and pay very low transaction fees or annual charges (typically upto 0.35% p.a.) only to the platform, not the advisor.

This is the dumbest thing I have heard. It's like saying to a patient that he can google his medical condition, symptoms, and treatment, and get the medicine from the pharmacy himself. This is why I call these kind of investment gurus well-meaning idiots.

To apply an analogy, why does anyone need a doctor at all? Just eat Vegan food, exercise 2 hours a day, quit smoking, drinking, and you will live till a 100 years of age. Right?.

How many people actually do that to stay healthy? They still need the advice and consultation of a doctor to get well. Why don't they just google the symptoms and go to the pharmacy to solve their medical problems themselves?

Summary

All I have to say is 'Quality of Advice' counts as well. Choose your financial advisor carefully. Go through referrals from your friends, colleagues and relatives.

If all else fails, research your choice of financial advisor, see what he/she has to say on their website. Look for client testimonials, reviews from existing / past clients, Linkedin profile, experience, qualifications, etc...

But for your own sake, don't listen to 'Investment Gurus' and make decisions that affect your money in the heat of the moment'.

The guy is obviously there to get paid for his talk, not for charity.

Rant over - LOL !!!

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Have a bank account in India? You need to read about FRDI
Investment News

Have a bank account in India? You need to read about FRDI

The Situation

Seven years before the global financial crisis and collapse of Lehman, India’s Reserve Bank of India (RBI) had followed the ‘too big to fail’ principle. It force-merged Global Trust Bank with Oriental Bank of Commerce to prevent widespread losses to depositors, doesn’t matter that the decision may have been motivated by a need to avoid a close scrutiny of how it was sleeping on its job.

In fact, over the past several decades, the only payments made out of deposit insurance is on account of failed cooperative banks, which are under dual regulation (RBI and registrar of cooperatives) and completely controlled and manipulated by politicians across the spectrum. Hence, as consumer activists, we had argued that deposit insurance must remain at Rs1 lakh, because a higher insurance will be an incentive for crooked politicians to use public money to make good their loot of cooperative bank funds.

Suddenly, all this is set to change. 

The government has introduced the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) in parliament this June which has evoked strong opposition by all trade unions. The FRDI Bill aims to limit the use of public money to bail out distressed organisations in the event of a financial crisis, by providing a resolution framework to handle the failure of banks, insurance companies and financial sector entities. Bank unions, however, believe that it will give the government sweeping powers to wind up public sector banks.

A WhatsApp message (provocatively titled “This Tsunami will wipe out your money lying in the Banks” and ostensibly written by a chartered accountant) is going viral with a link to an article in The Hindu, which suggests that our bank deposits are no longer safe; they can be appropriated by the government and converted into equity to bail out banks.

The culprit is, apparently, a ‘bail-in’ clause in the FRDI Bill that allows the government to convert your deposits into equity in order to recapitalise and bail out banks that are facing bankruptcy.

Depositors, who have gone through enormous hardships to access their own savings during the currency demonetisation of 2016, find it is easy to believe that the government may appropriate their hard-earned savings to bailout banks.

Most Indians hold the bulk of their savings in property or bank deposits and there is already a gnawing worry over the government’s inability to deal with the mammoth bad loans of banks, which are in excess of Rs10 lakh crore. So, let’s examine whether we really need to panic.

The FRDI Bill is based on a 2014 working paper of RBI. It is in line with a global move to create statutory structures to contain the contagion effect of the kind that shook the world in 2008 by the failure of large financial institutions. In November 2014, India, as part of the G20 nations, had agreed to create a legal structure which includes a ‘bail-in provision’ to recapitalise banks.

But such a contingency is a matter of last resort. In fact, most global banks, including those in India (State Bank of India, ICICI Bank and Bank of Baroda had done this), have been asked to work on the concept of a ‘living will’, where they put in place a disaster management plan, if you will, on what is to be done in the event of a massive melt down.

The FRDI Bill’s bail-in provisions that are a source of panic, will kick-in only if the organisation is facing bankruptcy.

What is a bail-in?

It is the opposite of a bailout, where governments use taxpayers’ money to save large institutions. A bail-in gives statutory powers to a resolution authority to convert existing creditors (including depositors) into shareholders in order to recapitalise the bank.

The FRDI Bill creates the statutory basis for such action by replacing the current deposit insurance guarantee corporation (or converting it) with a Resolution Corporation that will cover banks, financial institutions and insurance companies.

The FRDI Bill also envisages a ‘Corporation Insurance Fund’ that will insure a part of the deposits. The extent of deposits insured is likely to be substantially higher than Rs1 lakh insured today. These insured deposits will be out of the purview of appropriation for a ‘bail-in’.

We understand that, in the US, 100% of the deposits are insured; hence, the bail-in, if it happens, will primarily affect bondholders and other unsecured creditors.

While it is important to remember that a bail-in is envisaged only as a last resort, it is also a fact that Cyprus has already invoked this clause to bailout banks.

Bank unions are correctly worried about sweeping powers in the hands of a government that rushes statutory changes through parliament as money bills, without proper discussion or explanation.

On the other hand, those who were part of the RBI working group are less worried, because any hasty action that takes away the implicit safety and guarantee of deposits associated with public sector banks would only cause a run on deposits and no government in its right mind would dare do this.

Indian banks are also more tightly regulated and do not have the same exposure to derivative products as those in the US and other countries. The flip side to this is that we have a massive bad loan problem that remains unresolved. Bad loans of banks spiralled from Rs39,030 crore in 2008 to Rs2,16,739 crore in 2014—all under the incredibly corrupt coalition called the United Progressive Alliance (UPA). Consequently, even Opposition leaders have been reluctant to question government policies too closely, probably fearing it would boomerang on them.

I believe that the government ought to be speaking to the people to allay their fears, instead of orchestrating discussions on business channels to counter the meeting of bank unions. The finance ministry must realise that people want to be assured that 100% of their deposits would be safe and bankers will be made accountable for their loans. Merely raising deposit insurance under the FRDI Bill is cold comfort to millions of retirees whose entire savings are in low yield, taxable, bank fixed deposits, only because they safe.

Secondly, the FRDI Bill intends to keep out cooperative banks, which go belly-up with monotonous regularity. Then, again, this government has been very soft of cooperative banks, whether it is re-capitalising them in 2014 or giving up its tough initial stance against allowing them to exchange demonetised currency. If political compulsions will bring cooperative banks under FRDI Bill it will be a cause for concern.

Thirdly, we need clarity on where non-banking finance companies, micro-finance companies and payment banks fit into this equation. While none of these are yet in a position to create systemic issues if they go bankrupt, we do have the example of the Ponzi-like deposit collection companies (Sahara, PACL and Saradha) destroying the savings of ordinary, disempowered people.

It appears that FRDI Bill is part of a piecemeal response to a problem that afflicts countries that are either heavily indebted or have allowed banks to make risky bets. We don’t have that problem. We have other problems. If we have to put this law in action, we need a holistic thinking about the entire financial sector.

Summary & Recommendation

In summary, keeping your money in the bank does not guarantee it’s return. The Federal Deposit Insurance Scheme only guarantees INR 1 LAC per account.

The real safety is to keep your money out of the banks by investing it. With a properly diversified investment portfolio, three things happen –

  1. All investments cannot fail at the same time, so your money is safer.
  2. Your money is in the hands of people who have your (shareholder)’s interests as their priority. This is a win-win situation, because when you make money, they make money.
  3. No single organisation can hold your money hostage and it grows faster than inflation.

Have a questions or comments? Please feel free to comment below.

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Trump effect on stock markets
Investment News

Trump effect on stock markets

21st November 2016

In the News: The ‘Trump effect’ on the stock markets - or Not !!!

Just last week, ‘financial gurus’ were predicting doom and gloom if Trump got elected. They said there would be a classic panic reaction: a drop in stocks and other risky assets, and a rally in bonds and other safe-haven assets like gold.

A lot of people bet big money on the stock market falling, and as you know, you can make money by shorting the stock market (assuming it falls).

Oops !!!

The opposite has happened since Trump was elected president. The US Stock market - the S&P500 is up nearly 4% this week. The bond market has sold off, sending interest rates higher and the measure of volatility have fallen.

Those who shorted the market, lost a lot of money.

Moral of the story is a quote from Warren Buffet - ‘Time in the market, is more important than Timing the market’.

Nobody can time the market and consistently win. That’s gambling. All you have to do (according to Warren Buffett’ is to stay invested in the market) better yet an index fund, and reap the rewards of long-term investment.

Yes, there will be an effect of Trump’s policies on the stock market in the long-term, but ultimately he is a businessman first and a politician later. He will lookout for the interests of his businessmen friends and have pro-business policies.

This will ultimately boost the stock market.

However the interest rate hike due this December will have a greater effect than Trump being president in my humble opinion. An interest rate hike mostly results in the stock markets dropping and the 7-8 year cycle of the stock market dictates that the next major recession is due in 2017, according to Tony James the President of Blackstone Asset Management.

Buy - Aerospace & Defence

Since Donald Trump has clearly voiced his support for staying true to the mantra of the Republican Party - ‘Military Might’, aerospace and defence stocks will be long-term winners.

Defense spending will increase as fighting terrorism is centre-stage in his campaign. While the defense budget would not have necessarily shrunk under Hillary Clinton, the consensus suggests that it will certainly grow now that Trump is elected President.

Buy Gold

Stock market hates uncertainty, which means that a win for Trump is seen as a “grey swan” event by the majority of money managers. In this case, volatility is ticking higher, and this boosts safe haven investments such as gold.

Buy Infrastructure

Trump’s “Make America Great Again” slogan is synonymous with bringing jobs back to the U.S. and putting more people to work. He has also made reasonable assertions related to increased spending on infrastructure. More specifically, Trump has voiced that the U.S. could greatly benefit from expending billions on fixing everything from roads to bridges to upgrading airports.

Given Trump’s real estate background and connection with massive construction projects, many anticipate that the win for the Republicans in this election bodes well for stocks of contracting companies.

Sell Emerging Markets

Trump’s surprise victory will likely cast new clouds of uncertainty and lead investors to de-risk their portfolios as expectations get reshuffled.

In this case, the investments bound to be on the chopping block is Emerging Markets. Why? Because Emerging Market equities traditionally fall on the “risky” end of the spectrum, they are more likely to get hit as compared to U.S. large-cap consumer staples in the event of a market wide sell-off.

Adding to that, Trump’s aggressive attitude on “flexing military muscle” could lead to heightened geopolitical tensions and further contribute to a global sell-off across financial markets of emerging market assets.

Short U.S. dollar

With the U.S federal deficit expected to exceed $600 billion by year end, there is likely to be mounting speculation about what could happen if Trump keeps adding to the already-sizeable bill.

Such uncertainty is bound to resonate negatively for the U.S. dollar in the currency exchange market, as investors prepare for political gridlock in the event the deficit spirals wildly out of control.

Sell Alternative Energy

Donald Trump is a big fan of traditional fossil fuels, like coal and natural gas. With that in mind, on several campaign stops, Trump expressed his displeasure of alternative forms of energy, like solar and wind. He called them “expensive” and dependent on substantial subsidies to work.

He will basically eliminate all forms of tax breaks and subsidies that these energy sources have enjoyed. If he is successful in convincing Congress and the American people that wind energy is "killing all the eagles,” the renewable energy sector could see a big decline in both adoption and share prices.

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Impact of Demonetisation in India on Equity Markets
Investment News

Impact of Demonetisation in India on Equity Markets

9th November, 2016

Need for demonetisation

As of 8th November 2016, currency notes of denominations Rs500 and Rs1000 has ceased to be a legal tender, approx. 25% by volume and 86% by value of currency in circulation. The stated objective of the Govt. is to curb black money, curtailing prevalence of fake currency, and countering terrorism financing.

The RBI will issue new currency notes of denominations Rs500 and Rs2,000, which will be made available for exchange starting 10 Nov until 31 Dec 2016. Electronic model of transfers have no restrictions. Restriction on cash withdrawals will slowly be eased over the next fortnight.

Transitory impact is huge

  • In the near-term, this move will hurt economic activity with pronounced slowdown across sectors irrespective of the extent of usage of cash. Risk aversion is likely to inch up manifold.
  • Over the next 1-3 months, we think all sectors barring IT & Pharma will face growth challenges, and in particular hurt discretionary spends, gold and real estate purchases. We are particularly worried about businesses that still need to operate in cash with little access to valid legal tender.
  • We think banks will benefit from higher savings account accretion.

Medium term (4-6 months) implication will still be negative

  • While the black- economy will certainly shrink, the second-derivative impact of the wealth-destruction on the real-economy will still be meaningful, in our view.
  • Financial sector could face higher stress levels in the small & mid-corporate segment which currently is challenged by an extended working capital cycle.
  • Even where cash is accounted for, we expect risk-aversion will remain high for conspicuous consumption items e.g. expensive watches, jewellery, upper end of alcoholic beverages, higher end cars etc.

Long term (12 months) looks positive for few sectors

  • The biggest benefit will be on the fiscal & monetary side. Assuming 25% of CIC amounting to US$ 53bn (83% of net market borrowing) remain untraced (possibly the unaccounted money) and does not get exchanged could have a dual impact of lowering market borrowings or increased fiscal spending.
  • We believe Private sector banks along with Payment and Small Finance Banks will benefit from the increased transparency and from a shift of cash transactions to online channels.
  • We expect Staples sector to recover from the slower demand conditions. From an overall perspective, we remain neutral on discretionary consumption, Car/2W, CV, Cement and EPC/construction.
  • We remain negative on gold and real estate.

An eye on election funding

  • Demonetisation is also likely to impact upcoming state elections in India, with elections in UP, the largest state accounting for nearly 15% of Lok Sabha seats, expected in February, 2017.
  • A significant part of election financing and spending in India is believed to happen in cash and would to be impacted by the move. As per data available with the Election Commission, 63% of even the declared funding for political parties ahead of assembly elections over the last decade was in cash.

What investments to stay away from (in short term)

  • Gold
  • Real Estate
  • Automobiles / two wheelers
  • Banks
  • Cement
  • FMCG
  • Metals & Mining
  • Tractors

What stocks to buy for the long-term

  • EPC / Construction
  • Private Banks
  • Staples

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Why Tesla’s Next Big Thing Should Matter To You
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Why Tesla’s Next Big Thing Should Matter To You

Tesla’s Next Big Thing Could Flip the Auto Industry Upside Down

Every major car manufacturer is now working hard on their versions of fully electric cars after seeing Tesla’s success.

  1. Tesla, led by Elon Musk started out with their first all-electric sports car the ‘Tesla Roadster’.
  2. They then launched the ‘Model S’ which is an all-electric family sedan which does Zero to 60 mph in as little as 2.8 seconds. That’s as fast as a Lamborghini !!!
  3. The success of these electric cars was followed by the launch of the ‘Model X' which is the safest, fastest and most capable sport utility vehicle in history. With all-wheel drive and a 90 kWh battery providing 257 miles of range, Model X has ample seating for seven adults and all of their gear. And it’s ludicrously fast, accelerating from zero to 60 miles per hour in as quick as 3.2 seconds.

But, all these cars are very expensive, at least for the common man. What made me excited was the launch of the affordable $35,000 ‘Model 3’. Tesla’s ‘Model 3' preorders equaled $7.5 billion worth of sales on day 1. That’s the same day they launched the all-electric mass market car, even before any customer could test-drive it.

The initial success of the Model 3 has demonstrated the consumers affinity towards electric cars. Now everybody wants one. Moreover, as I am writing this article, Tesla’s Model 3 orders have already crossed $10 billion.

To add to the success of the Model 3, the company has already built a ‘Giga Factory’ to produce the lithium ion batteries needed for all these cars. The electric-car maker estimates that the $5 billion factory will boast lithium-ion battery production that by 2020 will exceed the entire world’s 2013 lithium-ion battery production.

The factory, Tesla says, is necessary for the company to bring the economies of scale to batteries that will enable Tesla to launch an electric vehicle at half the price of its Model S by 2017, one that will be disruptively aimed at the mass market.

Citing the Gigafactory among the key reasons, Morgan Stanley analyst Adam Jonas is calling Tesla “the most important car company in the world."

What do you think this will do for Tesla Stocks? Tesla stock has jumped to a six-month high with 1-year returns at 29.92%

Here’s how you can benefit from this trend

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Modi Rebuts Analysts Who Doubt India’s World-Beating Growth
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Modi Rebuts Analysts Who Doubt India’s World-Beating Growth

Week 14, 2016

Indian Prime Minister Narendra Modi offered a wide-ranging rebuttal to critics who say he's gotten lucky with low oil prices.

Loan growth has picked up, corporate rating upgrades are now outpacing downgrades, foreign direct investment hit a record last year and some key manufacturing sectors such as carmakers are growing rapidly, Modi said at an event organized by Bloomberg LP in New Delhi on Monday. The focus is now on clean energy, farm incomes and creating jobs, he said.

"Obviously there are some who find that difficult to digest and come up with imaginative and fanciful ideas to belittle that achievement," Modi said. "The fact is that India's economic success is the hard-won result of prudence, sound policy and effective management."

Nearly two years since a landslide election win, Modi is battling criticism that India's 7.6 percent annual expansion is thanks to crashing global oil costs, which help shrink deficits and curb inflation in the $2 trillion economy. He's also trying to strike a balance between pleasing investors who want faster economic reforms and winning rural votes before this year's state elections.

What's Happening in the Markets this week

  • Sustainability of Emerging-Market Rally Eyed in U.S., China Data. Emerging-market currencies headed for the best quarterly gain in four years and stocks are set for the biggest three-month advance since June 2014 as inflows return amid a more conservative Federal Reserve.
  • U.S. Stocks Little Changed as Investors Sift for Clues on Rates. U.S. stocks were little changed in light trading, following their first weekly decline in six, as investors assessed economic data for clues on the course for interest rates. The Standard & Poor's 500 Index increased for the first time in four days.

Commodities in Review

  • Oil Drops a 4th Day as U.S. Crude Stockpiles Seen Expanding Glut. Oil declined for a fourth day before weekly U.S. government data forecast to show increasing crude stockpiles kept supplies at the highest level in more than eight decades.
  • Barclays Warns Commodities May Slump on a `Rush for the Exits'. Commodities including oil and copper are at risk of steep declines as recent advances aren't fully grounded in improved fundamentals, according to Barclays Plc, which warned that prices may tumble as investors rush for the exits.

USA

  • Dollar Advances Before Yellen's Speech and Confidence Report. A gauge of the dollar advanced, paring its biggest one-day decline in more than a week, as the market awaits Federal Reserve Chair Janet Yellen's speech that may provide further clarity about her assessment of the economy.
  • The U.S currency gained versus most of its 16 major peers before a report on Tuesday which economists forecast will show consumer confidence improved in March.

UK

  • Easyjet Leads Britain's Stock Advances After Week of Declines. U.K. shares are rebounding after posting their biggest weekly loss in more than a month. EasyJet Plc rose 3% after Bank of America Corp. recommended buying the shares, citing an attractive valuation.
  • Financial firms RSA Insurance Group Plc, Prudential Plc and Barclays Plc gained more than 2%. The moves pushed the FTSE 100 Index up 0.7% at 8:19 a.m. in London.

Europe

  • Europe Stocks Rise for First Time in Five Days as Markets Reopen. European stocks advanced, snapping their longest losing streak in a month, as markets reopened after the Easter holiday. The Stoxx Europe 600 Index climbed 0.8% at 8:12 a.m. in London, as all industry groups rose.
  • The benchmark fell for four days through Thursday amid slides in banks and resource-related shares, signaling a loss of momentum in the rebound that more than halved its 2016 decline.

Asia

  • Asia Stocks Fall as Japan Goes Ex-Dividend, China Shares Slide. Asian stocks fell on low volumes as health-care companies led losses and more than two-thirds of the companies in Japan's Topix index traded without the right to the next dividend. The MSCI Asia Pacific Index slipped 0.5 percent to 127.49 as of 5:01 p.m. in Tokyo.

Emerging Markets

  • Emerging-Market Assets Advance as Brazilian Stocks Rally. Gains in Brazilian stocks and currencies led emerging markets higher as investors' optimism on a possible change in the nation's government outweighed concern that the U.S. is inching closer to an interest-rate hike.
  • The MSCI Emerging Markets Index rose 0.1 percent to close at 813.04, the best month in four years with a 9.9 percent increase since Feb. 29.

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If Oil Prices Have Hit Bottom, the Top May Not Be Too Far Away
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If Oil Prices Have Hit Bottom, the Top May Not Be Too Far Away

Week 12, 2016

Here's something interesting from the Bloomberg website - The top of the oil market may be closer than you think.

With Brent futures having bounced back to $40 a barrel, the International Energy Agency sees “light at the end of the tunnel,” and Goldman Sachs Group Inc. is spotting “green shoots.” Even so, many analysts warn that, like the failed rally last year, this recovery will sputter once prices go high enough to keep U.S. crude flowing.

What’s Happening in the Markets this week

  • Stocks Rally Before BOJ, Fed Meetings; Aussie Declines With Oil. Stocks rose in Asia and Europe, extending a global rally before central banks in two of the world’s three biggest economies review policy this week. Australia’s dollar led declines among commodity currencies as oil fell.
  • Japan's Biggest Gold Retailer Says Negative Rates Boost Demand. Japan’s negative interest rates are boosting demand for gold, according to the nation’s biggest bullion retailer. International prices have rallied 18 percent this year as investors seek a haven from financial market turmoil.

Commodities in Review

  • Shale Patch Pain Sees Speculators Boost Bets on Oil Price Rise. Hedge funds are the most bullish on oil in almost a year as the U.S. shale boom unravels and demand for gasoline strengthens.
  • Gold is heading for a third straight monthly gain. There seems to be almost nothing that will deter this year’s newfound gold enthusiasm. Even with a turnaround in global equities and signs of a more robust U.S. economy, investors are still piling into the metal. Money managers are holding the biggest net-wager on a rally in more than a year.

USA

  • There's Only One Buyer Keeping the S&P 500's Bull Market Alive. Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007.

UK

  • U.K. Stocks Jump as Rebound in Banks, Miners Lift FTSE 100 Index. U.K. stocks rallied on Friday, trimming the week’s decline, after the FTSE 100 slipped the most in a month on Thursday. The FTSE 100 Index climbed 1.7% to 6,139.79, rebounding from a Feb. 25 low. The benchmark’s 1% drop last week was its first weekly decline in four. The gauge has lost 1.6% this year, less than its regional peers.

Europe

  • European Stocks Rise a Second Day, Heading Toward Two-Month High. The Stoxx Europe 600 Index rose 0.9% at 8:09 a.m. in London, with more than 560 of its companies climbing. Germany’s DAX Index was among the biggest gainers in western Europe, up 1.7% thanks to a jump in carmakers. European stocks have rebounded 13% from last month’s low through Friday, with commodity producers and banks leading the gains.
  • After a mixed initial response to the European Central Bank’s increased stimulus, the Stoxx 600 erased weekly losses on Friday to post its longest streak of weekly advances in a year.

Asia

  • Asian Stocks Rise to Two-Month High Before Central Banks Meet. Asian stocks rose for a third day, with the regional benchmark index heading for a two-month high, led by Shanghai and Tokyo shares ahead of policy reviews by the Bank of Japan and the U.S. Federal Reserve.
  • The MSCI Asia Pacific Index climbed 0.9% to 127.92 as of 5:08 p.m. in Tokyo, poised for the highest close since Jan. 5.

Emerging Markets

  • Emerging Assets Gain With Brent as China Pledges Market Support. Emerging markets extended a two-week rally as Brent crude held gains and Chinese officials reaffirmed support for the nation’s equities and said there’s no basis for the yuan to weaken.
  • The MSCI Emerging Markets Index was poised for its first monthly advance since October, with energy stocks leading gains in its 10 constituent industry groups.
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Gold Becomes the Biggest Winner of 2016
Investment News

Gold Becomes the Biggest Winner of 2016 as US Stocks Rise & Crude Rallies

Week 10, 2016

U.S. stocks pared gains in light afternoon trading, with the Standard & Poor’s 500 Index poised to halt two months of losses, as higher crude and a falling dollar lifted commodities shares. The yen strengthened with gold.

The S&P 500 headed for its first monthly gain since November, with the gauge holding at a seven-week high amid trading volume 32 percent below the 30-day average at this time of day. Global equities were little changed, set for a fourth monthly loss amid continued concern about the worldwide economy.

What’s Happening in the Markets this week

  • Gold Becomes the Biggest Winner of 2016. Gold’s come back is dominating 2016. The precious metal is the year’s best-performing major asset. Its 15 percent gain is topping gauges of high-yield and investment grade bonds, Treasuries, all currencies and major stock indexes in developing and emerging countries.
  • Stocks Drop With U.S. Futures as G-20 Underwhelms;  Yen Advances. Asian and European stocks fell with U.S. equity futures after Group of 20 finance chiefs made only vague commitments to spur growth at a Shanghai meeting. Japan’s yen rose with gold as haven assets were favored.

Commodities in Review

  • Bullish Oil Bets Rise as Hedge Funds See Crude Supply Tightening. Talk of an output freeze by OPEC and Russia along with falling U.S. production spurred money managers to bet oil is ready for a rebound.
  • Gold Heads for Biggest Monthly Gain in Four Years as ETFs Expand. Gold is headed for the biggest monthly advance in four years as a darkening global outlook spurs demand for haven assets. As bullion advanced and analysts boosted price targets, holdings in exchange-traded funds have risen to the highest level in almost 17 months.
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U.S. Stocks Rise With Oil After Best Weekly Gain Since November
Investment News

U.S. Stocks Rise With Oil After Best Weekly Gain Since November

Week 9, 2016

U.S. stocks advanced, with the Standard & Poor’s 500 Index headed toward a six-week high, amid gains in banks and commodity shares as oil surged.

The S&P 500 rose 1.3 percent to 1,941.75 at 11:50 a.m. in New York, after increasing 2.8 percent last week, the most since November. The Dow Jones Industrial Average climbed 201.98 points, or 1.2 percent, to 16,593.97. The Nasdaq Composite Index gained 1.3 percent. Trading in S&P 500 shares was about 3 percent below the 30-day average for this time of day.

What’s Happening in the Markets this week

  • Pound Slides Most Since 2009 as Johnson Backs ‘Brexit’ Campaign - The pound fell the most since March 2009 after London Mayor Boris Johnson, one of the U.K.’s most popular politicians, said he’ll campaign for Britain to leave the European Union in a June referendum.
  • Saudi-Russia Oil Deal Can't Stop Biggest Bull Exodus in 7 Months- A deal between Saudi Arabia and Russia to freeze oil output failed to stem the biggest drop in bullish bets since July. The agreement reached Feb. 16 isn’t going to revive crude prices, according to Goldman Sachs Group Inc.

Commodities in Review

  • Oil Glut Will Persist Into 2017 as IEA Sees Prices Capped- The global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated.
  • Gold Posts Third Straight Gain on Slumping Equities, Crude Oil - Gold futures had a third straight gain and a gauge of mining shares advanced to a seven-month high as declines in global equities and crude oil boosted demand for the metal as an alternative asset.

USA

  • U.S. Index Futures Point to Gain After Stocks' Best Week in 2016 - U.S. index futures advanced amid higher oil prices, indicating equities will extend gains after posting their strongest week since November. Contracts on the Standard & Poor’s 500 Index expiring in March rose 1.1 percent to 1,934.75 at 7.23 a.m. in New York. The index gained 2.8 percent last week, helping cut its 2016 decline nearly in half.

UK

  • U.K. Stocks Climb as Pound Declines; JPMorgan Turns Overweight - U.K. stocks advanced for the first time in three days, helped by mining shares, while the pound tumbled after the mayor of London said he’ll back an exit from the European Union.

Europe

  • Europe’s Economy Strains as Global Slowdown Takes its Toll- Weaker growth and deeper price cuts by companies, as captured in a monthly report by Markit Economics published Monday, will raise concerns about the health of the economy. They may also increase pressure on European Central Bank policy makers to add to stimulus at their next meeting in March.

Asia

  • Bank of East Asia Jumps Most in Six Years as Li Raises Stake- Bank of East Asia Ltd., the Hong Kong lender targeted by billionaire Paul Singer’s Elliott Management Corp., jumped the most in six years after a major stockholder increased his stake in the company.

Emerging Markets

  • Emerging-Market Stocks Reduce Weekly Gain as Crude Rally Fades - Emerging-market equities pared their first weekly gain this month as oil prices dropped and Africa’s biggest wireless phone company reported a 20 percent decline in earnings. A gauge of developing-nation energy stocks dropped from six-week high as Brent crude fell 3.7 percent on signs a global supply glut is persisting.
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