Chillin' out till it needs to be funded
It is not Political Risk, It is not lack of reforms and it is definitely not lack of friendliness to foreign investors. But whence in the last one year EM bond yields have fallen 10% or 60 bp to 5.48% due to an unabated rise in demand for Emerging Markets Bonds, Indian Debt continues to languish, we first in the queue to super inflation and yields at 8.5% soon without many buyers except the banks and holding companies being asked to become Holding Companies and banks. Emerging Market CDS indices have dropped to 206 bp, way ahead of the peripherals even as fundraising by Indonesia now matches and betters bond offers from Italy and Spain Amazingly, Western European CDS is still just 190, despite the high debt ratio of all the WE countries incl France and the counting of all the peripherals
Though the Holding companies reform was on expected lines, it actually means a lot of divestment and establishment of likely cross holding structures as existing banks wanted to own the holding companies and not vice versa. And the foreign banks not being sold down by Moody’s and running Treasuries here, never wanted to set up independent banking companies for their troubles here. Bad timing, I know but that is the opposite side of the same slate where the reforms are leading to benefits and Emerging Market Funds have become a constant source of funds for , well, Emerging Markets
And again even in foreign policy we continue to like holding minority interest and unequivocally stay unheard and unrequited. Our PMI is a good 55-58 still and the China latest quarter PMI has dropped to 51.1 but still China gets the chequebooks,w we get the checks sand balances. And though the London Realty is looking at more Chinese owners than ever before, China remains invested in Lat Am and Africa and not in Europe and India.
Still, things are rosy from here if only for the fact that China is looking to go to even double digit inflation ahead of us and well into next year. GS has already upped estimates. Also smart commodity trades from China have now a surplus of Tin and Copper while they are trying to palm off their surplus in Zinc, but rest assured, if you think Copper is going to rise, they probably force-fed their godowns all year and stocked up on Copper, and having done this with a half a dozen already, they may get a hot break in their wallet if not in Tin and Nickel this month in something else down the line, esp as neighbours start imposing anti dumping duties and Glencore gets back to commodities. There still, the China story remains that of almost faultless reform execution despite the traffic pile ups outside Beijing and the congestion of the First 200 cities continuing unabated. India’s however remains that of utter confusion in the ranks and hence the markets as we keep looking for the rare investor who is glad to say he is investing in India.