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.

9th November, 2016

Need for demonetisation

As of 8^th 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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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%

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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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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.

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.