The Banking and Strategy Initiative

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Global moves: Oil revives global economics, India leads, Asia follows (Draft)

Brent below $90 brings with it a despondent stock market globally on abysmal production and services data for June across China, Europe and even USA. However, with OPEC keeping up high production levels and Oil likely to go below $75, WTI even lower, the transfer of the benefits of Oil prices will start transmitting in a month or two and start working into higher production and in the case of the US, higher consumption that is 2/3rds the Economy.

The buck stops with India. At the fag end of a depreciation primed cuycle in June, India will likely be the first to bounce back and because it is from a monetary priming even with RBI rates at 8% and a high fiscal deficit, that growth momentum will revive Asia from the oil prices next and perhaps before the rest of Asia, US will recover based on the consumption of Oil at retail and how fast retail pump prices convert into consumption.

Asia will follow as the economies outside India are either China centric or US centric ( Singapore and Shanghai are the biggest ports for Ongoing traffic to LA) However, commodities are still waiting for China, their biggest customer to start buying so the other commodities may not fall further as much as Precious metals and Oil take the fall.

US consumption is of course then driven by imports and caught up by US domestic production stimulus as jobs remain slow. Europe remains outside the peripheral vision of most unless there is more direct investment into Europe, which continues to cut Exports and thence cut bigger on imports, waiting for the recession to grow growth shoots from new overseas investment which will unlikely pick up in 2012

Those seeking inward investment in Asia however are unlikely to get much more choice than India, Indonesia, Thailand and Malaysia apart from the smaller emergent economies which got the first bites. While JP Morgan has recommended a buy on India ( Overweight) Goldman Sachs has followed with a pledge to restart recovery in the BRICs for its own next fe years of consolidation

China remains the largest investor in the region however, and the rest of Asia will continue to power on a interactive relationship with the Big Brother and growing Asian trade. A $1T trade volume from India  in the next 3 years and Indonesia in the next 4-5 years also signals the region’s challenge to growing shoots in Middle East and North Africa where banks have found traction on a small base of existing business.

 

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