Wednesday, September 17, 2008

We're easily the most resilient amongst BRIC

Are we the best amongst BRIC?

Here is the update on the stock markets of Brazil, Russia and China. I think comparatively India is far better.

In Brazil, yield spreads of Brazil's government overseas bonds over comparable U.S. Treasuries, as measured by JPMorgan's EMBI+ index, widened sharply, reflecting an increase in investors' risk aversion toward Brazilian assets. The index 11EMJ showed the country's bond spread widened by 39 points to 349, the highest since November 2005.

In Russia, Government and central bank officials were locked in talks with the chief executives of Russia’s biggest investment banks throughout most of the day on ways to halt the market collapse, which has wiped nearly $800bn off the country’s stock exchanges in a matter of months and sent stocks spinning down to levels last seen in 2005. The two main bourses, the MICEX and RTS, had suspended stock trading until further notice from the state’s main financial regulator.

China? Please don’t ask. Here is a report from Epoch Times I had linked above -

“The truth about China’s stock market is actually not a secret, and most investors probably already knew it. That is, China’s stock market is a tool used by the government to re-distribute and re-organize social wealth on a grand scale, which means that it is a tool to clean out Chinese people’s savings accounts. The biggest winners in this process are, of course, government officials and their relatives who are the most well-informed about the actual value and re-organizing plans of those that control state wealth; as well as institutional investors who collaborate with them and who rely on insider tips to control the stock market. Those people have already made huge fortunes in the process. This is the truth about China’s stock market….

Actually, the goal of China’s stock market was not purely an economic one when it as originally established. When former Premier Zhu Rongji set up stock market in Shenzhen, he said that China’s stock market was meant to get money--to get money in the market and give it to companies that were unable to get money, and because these companies were unable to make money, they needed monetary support.

China’s stock market has been established to operate like an ATM for the listed companies. For the majority of the listed companies, economic reform is nothing but a mechanism to trap money. Many heavily indebted State-owned companies have been listed in the stock market after re-packaging. All of a sudden, they become the new stars in the market with easy loans and finance. The foundation of a stock market is the listed companies. With a weak foundation, how can any high stock price be affordable? The deflation in stock prices is therefore predictable.”

So, India - is far better any day. We just have 12% plus inflation and some high interest rates. There is no sham in the system, the companies are real and investors are long term. Stay invested if it is your personal savings and not borrowed funds. We're in for some not so quick turnaround - to allow the dust to settle around the world. As for savvy global investors, it seems to be their only emerging market bastion that's left...


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