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04/08/16
Asia
India GST – Great Societal Transformation

India’s reform credentials have been questionable at best. The administration of PM Modi has fallen into the traditional trap of…

26/07/16
Global
Central Banks – the monopoly board of illusions

The slow economic normalisation under way since the global financial crisis has been running hand in hand with another process.…

22/07/16
Asia
No enthusiasm for the Asia bounce

There are signs of life in DM demand after the spring soft patch. That provides some positive news for Asian…

Asia: India GST – Great Societal Transformation

India’s reform credentials have been questionable at best. The administration of PM Modi has fallen into the traditional trap of over-promising and under-delivering. While the introduction of the Goods and Service Tax (GST) doesn’t void all of those arguments, it does mark a significant structural improvement for India’s economy. We are shifting to a core long in Indian equities and moving to a long Indian rupee position versus the US dollar.

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Global: Central Banks – the monopoly board of illusions

The slow economic normalisation under way since the global financial crisis has been running hand in hand with another process. The travestying of orthodox monetary policy. Each stage of economic disappointment is met with calls for more action. Extraordinary monetary policy has consequently become ever more extraordinary. Mispricing asset prices has become central bankers’ primary conduit. That has transformed low interest rates into negative ones and stock market bubbles into attractive yield plays. But one monetary taboo remains: helicopter money. In reality, this is more of the same, QE without the commercial bank intermediary and false notion that balance sheet expansion was temporary. But the investment implications are more serious. It demotes central banks back to government department level and undermines the last vestiges of fiat money credibility.

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Asia: No enthusiasm for the Asia bounce

There are signs of life in DM demand after the spring soft patch. That provides some positive news for Asian exporters and is supporting renewed portfolio flows into EM Asia. But this is a momentum trade. It is still being driven principally by central bank liquidity and the hunt for yield. The logic of buying on expectations, rather than a real recovery in demand, is conflicted given that this would also imply an upward shift in US rate expectations, which undermines the carry story. We would avoid chasing it. Furthermore, China is still managing its currency weaker. This not only compounds existing overcapacity problems but, overtime, will pressure Asian currencies weaker. We remain short.

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