Skip to main content

Financial Events: Some global milestones of 2010

   The year 2010 has been a year of continuity. It signified a continuation of the decline of economic superpower status of the US, and shrinking of economic activity in Europe due to the debt crisis. This year also signified a seamless movement towards eastern nations assuming more economic power due to sheer economic growth in their countries. A process that started in 2008 after the subprime crisis could be considered a dawn of a new era, somewhat similar to US assuming superpower status after the second world war. Before the world war, UK was considered to be a superpower, a kingdom where the sun never sets.


   Some of the major financial events of 2010 are:

Euro debt crisis    

In early 2010, fears of sovereign debt defaults concerning the PIIGS States (Portugal, Italy, Ireland, Greece and Spain) and Belgium arose. This led to a series of downgrades on government paper, and created a crisis of confidence in European nations. The debt crisis had been mostly centered in Greece. Greece's national debt, then put at USD 413.6 billion, was bigger than the country's economy.


   The IMF lent 110 billion Euros to Greece to save it from bankruptcy and Euro nations set up a trillion dollar rescue package under the European Financial Facility. Many countries have adopted austerity measures and are trying to avoid defaults.


   However, the debt overhang is so high that it is expected to linger on for a few years.

Quantitative easing    

Even though the US faces problems similar to Europe, its approach to solving them has been different. The US Fed is willing to expand the economy by printing money - quantitative easing (QE). Through QE, the US Fed is trying to push the US citizens to spend, and to move away from safe government treasuries to more risky assets such as stocks and corporate bonds. This migration is necessary to boost confidence in the US economy. The Fed may have achieved much of that goal as the US markets posted strong gains and were on course to finish 2010 with strong gains.


   However, this second QE has increased the wariness in Asian markets, including India. Asian markets have under-performed since then. The dollar deluge has increased the threat of inflation. Both India and China have a serious battle with inflation on their hands.

Emerging markets more powerful    

Emerging Market Economies (EMEs) is a loose term for a world that is diverse and evolving. Currently, it represents China, India, Brazil, Russia and Indonesia. Due to their increasing economic growth, the EMEs are getting a greater say on the global stage. For example, many developed nations are now recommending India for a permanent seat in the UN Security Council. The voting power of EMEs at international financial institutions has increased by 3-7 percent in 2010. Given their continued economic growth, EMEs in 2011 will claim more influence in various UN bodies such as the G-20 and APEC.

China is world's second-largest economy    

China surpassed Japan as the world's second-largest economy in August 2010. China's surpassing of Japan is an indicator of its increasingly dominant role in the global economy. China overtook the US as the biggest automobile market and Germany as the largest exporter. China is also the world's biggest buyer of iron ore and copper, and the second-biggest importer of crude oil.


   China may even overtake US in the next 20 years or so. This is because in 2010 China is at the peak of its 'generational dividend'. China's dependence ratio is expected to bottom out in 2010 at 0.4 and start to increase due to the one-child policy. China's increasing dominance may not be favourable for India politically.


   However, its impact on Indian investments is expected to be neutral.

 

Popular posts from this blog

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...

Gold: It is safe & secure

RETURNS ON GOLD & ITS ETF’s RISE WHILE most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds ( ETFs ) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme ( BeES ) and Kotak Gold ETF have given more than 25% returns each in the last three months. Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average, most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet. The appreciation in the gold prices is mainly due to its safe haven status. The key reason for gold to go up is lack of other investment opportunity. There is also a risk in...

Alpha - The relative performance

Alpha, the net performance of a component against the benchmark is an overlooked tool   Absolutely speaking, any bounce back now on markets should be the last for the year. We offcourse can be wrong and prefer to be judged on alpha (relative performance) as relative accountability is fine with us. According to Alpha India, the top outperformers in the weeks ahead should be Reliance Communications, Reliance Infrastructure, SBI, HDFC, ONGC, Larsen, Jaiprakash Associates, Maruti, Bharti and DLF. On the short side (reduce side), we have Ranbaxy, ACC, Sail, Tata Steel, Wipro, Tata Motors, Sun Pharma, TCS, M&M and Infosys.   Performance like everything follows the 80-20 rule, 80 per cent of your gains are going to come from 20 per cent of your portfolio. So why not give it a thought? The importance of alpha If alpha was so important, then why don ' t newspapers and websites publish it? Why alpha gets featured annually but not as intraday or daily event? Why don ' t we c...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now