We could make big gains, only if we are clever.

Apparently the world economy is not doing as well as it should, given that interest rates in the US, the UK, Japan and Europe are at 0% and oil prices are almost half of what they were this time last year. Low inflation rates and lower fuel prices should stimulate consumer demand which should lead to increased investment, facilitated by low interest rates. But the IMF has reduced its forecast for global growth from 3.9% to 3.5% this year. It is not as if people are not borrowing. The global debt has risen to a whopping $199 trillion from just $87 trillion in 2000, which is $27,777 for every person in the world. China has a total debt of 282% of its GDP, greater than that of the US or Germany. Much of the debt in China is linked to its property sector. A Chinese property developer, Kaisa has defaulted on its dollar debt and more are to follow. China's GDP grew by 7% in the first quarter of this year, which is slower than what it needs. Using different yardsticks the Chinese Prime Minister puts the growth rate between 1.6% and 3%. The Chinese stock market is booming, with a producer of health goods from deer antlers at 70 times the price/earnings ratio, a seamless underwear manufacturer at 90 times and school uniforms and ketchup makers at 330 times the PE ratio. Exports fell 15% in March, due to low global demand, while imports fell by 12.7%, showing low consumer demand inside the country. No one is commenting on its defence spending which is rising by over 10% every year. Apparently it has learnt from history that " those who fall behind will get bullied ". True. We Indians know that best, having suffered butchery at the hands of Moguls and the British for over 600 years. What China has not learnt is that strength alone is not enough. The US has many allies in Europe, Australia, the UK and others. It has NATO to back it up. China is hated and feared by all its neighbors. Its friends are the Khmer Rouge, North Korea, Pakistan and other such lowest dregs of the world. Despite falling exports China is not allowing the yuan to fall against the dollar because that may increase the flight of money abroad. Last year it recorded a negative balance in foreign currency of $91.2 billion. The strength of the dollar is causing all sorts of problems in developing economies. A strong dollar means we have to pay more in rupees for oil imports, partly canceling the fall in oil prices. Loans taken in dollars will need much more rupees to repay. The IMF is warning about dangers of a strong dollar to developing economies. The dollar is forecast to rise even higher as there are outstanding loans of $9 trillion to be repaid. The Federal Reserve Chair, Janet Yellen has been cooing softly to calm the nerves of investors about rise in US interest rate which will push the dollar even higher. There are lots of calculations about what is going to happen but no one really knows. If we are clever we could cash in from the confusion. After all if there are losers there must be some winners.