Chillin' out till it needs to be funded
India and China may not be generating the golden sparrow era kind of wealth when each independently controlled 30% of the World’s markets, bu tthe world could do well to follow the fortunes of the two mega-crowded No2 and No 5 Economies of the world as 2012 begins on a good note for both.
While inflation is ticking down to 4% and 7% respectively in China and India, China has been decreasing bank reserve requirements and India risking fiscal paranoia with government sponsored liquidity to follow the others who started early in 2011. The easier conditions in these two cases have immediate results as China’s official PMI came above 50.3 today, moving to the expanding zone, even as Private PMI measures from HSBC MarkIt also came in better by 1 full point at 48.7.
The Indian market has been growing credit at 18%, even at its slowdown heavy breakpoint of Q4 2011, with NBFC an d property cerdit still showing banks loving the risk taking opportunity left with them as their global colleagues shut down business with Europeans out of cash and withdrawing more with sales of Middle Eastern assets to even the equation with their regulators in the face of contraction in Europe. While Europe’s contraction has affected trade for China and Japan, Korea and Singapore have maintained some Export growth and all Asian economies qiuietly maintain their surplus not having to buy metals or oil to the extent they need in the growth period.
India’s October contraction in Industrial Production was a high 5.1% even as US started coming out of recession scares and Europe settled down to a bloodbath, some questioning the survival of The Eruo that remained a stable currency under pressure from those defending the Dollar. For most in Asia, both currencies remain critical and are not being replaced in a hurry by the Yuan, the Australian Dollar or the singapore Dollar. However, even Japan has struck at the erstwhile Asia excl Japan classification and tried to restore domestic growth with trade swaps with India, Korea and China while Singapore is still a critical peg in Pharmaceutical trade and trade to the Pacific ports of Los Angeles (LongBeach) still among the Top 5 port destinations in the USA
With the good response to primary inflation following China into India, and production ticking up..most who recognise growth as the basic lever of investment see Asia as a secular destination first and within Asia they see India and China ahead of the other value destinations they have experimented in 20100 and 2011 from Vietnam and Mongolia to rich Middle East and striffe drivaen North and Central Africa.
While China and India do not sponsor the growing Islamic Bonds banking as much as their success in the Middle East engenders, both will not ignore that funding opportuniy for thei banks as their specific regulatory structure has underlined it s success for the economies with state sponsored support being key yet not being required almost every week. Korea and Singapore may have had a more volatile November and December bu tthey are also on the cusp of breaking back into a stable growht chart with strong surplus and thus available investment to fund GDP growth. With Asian markets having lost 17% in Shanghai, 24% in India and 11% in Korea, FIIs and global banks are today in a position to defend paper values in their markets and the need for investment all evident to the governments as GDP growth falls orf fthe cliff led by a virtually secular negative capital formation.
Fiscal Deficits have funded most growth in the 20th and 21st centuries and this year will be no different. That will ensure that US is close behind Asia in growth numbers and its debt would likely not matter anymore as th e US currency maintains its safe haven status.
Meanwhile Krugman defends the defiicit and the debt: It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.
It may however mean some new economics for India as borrowing in Foreign currency on a weaker rupee makes that growth an impossible burden to bear without a currency to call its own and unwilling to take a new direction for its currency with hardly $300 bln in reserves. That puts China at a distinct advantage with ita $3 tln surplus and Yuan trade arrangements with its partners.