China known devil, but US may turn out to be joker in the pack
According to GREED & fear newsletter, seven years of zero
rates in the US dollar have created the incentive for a massive carry trade
(investors borrowing in cheap dollars and deploying the money in better
yielding assets). This will come under pressure once the dollar starts
strengthening
A slowing China is widely expected to spell trouble for
world markets, and now there seems to be a growing view that the US economy too
could be a drag on global growth in 2016.
So much so that CLSA’s ‘GREED & fear’ newsletter feels the US Federal Reserve may not hike rates as markets are betting, and in fact may start loosening its monetary policy.
“The American economy is simply not that strong at the onset of a presumed Fed tightening cycle. In GREED & fear’s view there continues to be a greater risk that US real GDP growth decelerates,” the newsletter says.
According G & f, seven years of zero rates in the US dollar have created the incentive for a massive carry trade (investors borrowing in cheap dollars and deploying the money in better yielding assets). This will come under pressure once the dollar starts strengthening.
Worse still, the carry trade is not restricted to overseas markets, according to G & f. Had that been the case, it would have been less of a headache for US policy makers
“A lot of risky debt has also been sold within the American domestic market since the global financial crisis. There is more than enough dodgy dollar-funded debt out there, both onshore and offshore, to trigger renewed credit concerns, with refinancing risk the obvious catalyst,” says the newsletter.
Market guru Marc Faber is the other big bear on US equities, citing weakness in the economy as reason.
"The U.S. economy is weakening and weakening much more than is perceived," he said in an interview to CNBC earlier today, pointing to slackness in many sectors.
At the same time, both Faber and G & f are bullish on US government bonds.
G & f has termed the US stock market as being ‘increasingly vulnerable’ and is positive on long term treasury bonds, predicting yields to fall below 2 percent. This could result in investors seeking out safer havens when things get a bit hot.
From India’s perspective, problems in emerging markets like China, Russia, Brazil and even US may make it look more attractive on a relative basis. As the events of 2015 have shown, it will not be easy for India to outperform in a scenario of weak global growth and turbulent financial markets. Also, while the rupee is on a much better footing now, it still remains vulnerable to any sudden outflow of capital.
So much so that CLSA’s ‘GREED & fear’ newsletter feels the US Federal Reserve may not hike rates as markets are betting, and in fact may start loosening its monetary policy.
“The American economy is simply not that strong at the onset of a presumed Fed tightening cycle. In GREED & fear’s view there continues to be a greater risk that US real GDP growth decelerates,” the newsletter says.
According G & f, seven years of zero rates in the US dollar have created the incentive for a massive carry trade (investors borrowing in cheap dollars and deploying the money in better yielding assets). This will come under pressure once the dollar starts strengthening.
Worse still, the carry trade is not restricted to overseas markets, according to G & f. Had that been the case, it would have been less of a headache for US policy makers
“A lot of risky debt has also been sold within the American domestic market since the global financial crisis. There is more than enough dodgy dollar-funded debt out there, both onshore and offshore, to trigger renewed credit concerns, with refinancing risk the obvious catalyst,” says the newsletter.
Market guru Marc Faber is the other big bear on US equities, citing weakness in the economy as reason.
"The U.S. economy is weakening and weakening much more than is perceived," he said in an interview to CNBC earlier today, pointing to slackness in many sectors.
At the same time, both Faber and G & f are bullish on US government bonds.
G & f has termed the US stock market as being ‘increasingly vulnerable’ and is positive on long term treasury bonds, predicting yields to fall below 2 percent. This could result in investors seeking out safer havens when things get a bit hot.
From India’s perspective, problems in emerging markets like China, Russia, Brazil and even US may make it look more attractive on a relative basis. As the events of 2015 have shown, it will not be easy for India to outperform in a scenario of weak global growth and turbulent financial markets. Also, while the rupee is on a much better footing now, it still remains vulnerable to any sudden outflow of capital.
Happy Investing
Source:Moneycontrol.com
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