Only 18 million Indians invest in shares. Shares are the cheapest way to raise money because investors get paid dividends only when the company makes profits whereas it has to pay interest on loans even when it is losing money. Thus we are being constantly enticed with tales of huge returns over the longer term. The Congress even started a Rajiv Gandhi Equity Savings Scheme to trap poorer segments of society into stocks, by labeling it ' savings ' and not a ' risky venture '. We are told to invest through mutual funds, supposedly run by experts, to reduce the element of risk but fund managers are more interested in increasing their own earnings rather than those of investors. Why discuss about shares? Because yesterday share markets across the world fell after the People's Bank of China devalued the yuan by 2%. Apparently this took markets by surprise. Guess what? The PBOC has devalued the yuan by another 1.6% this morning. But surely if these fund managers are such experts they should have seen this coming and factored it in much earlier. How is one to know what the PBOC is going to do, given that China is so secretive about its finances? One person predicted it way back in April. In his article, Anantha Nageswaran wrote that China's growth rate was not 7%, as officially published, but between 1.6% and 3%. Despite its brave talk about shifting the economy towards domestic consumption China was more dependent on exports because falling imports showed that domestic demand was weak. There was a huge bubble in the stock market, created by margin trading and China had been practicing quantitative easing by buying US bonds which released vast amounts of yuan into the market. The rich have been taking their money out of China and a currency depreciation will increase the outflow. How prescient! In May he wrote that China wanted to enter the Special Drawing Rights of the International Monetary Fund because that would make it a reserve currency. All central banks would buy yuan which would support its value. When this did not happen China resorted to more debt which has made bubbles in real estate and the stock market even worse. In July he wrote that despite its brutish behavior towards its neighbors China is deeply insecure. It tried to reduce debt by enticing people to buy shares and is now desperately trying to shore up the stock market. New graduates at a university were ordered to shout the slogan," Revive the A shares, benefit the people." How does the double devaluation affect India? The rupee will become stronger relative to the yuan, hurting exports. The RBI could cut the repo rate to weaken the rupee but that would make imports, especially oil, more expensive, adding to retail inflation. We hope that China collapses but are we prepared to meet the headwinds?
2 comments:
The effort by US to pull down China works evidently, i guess. Since last year, many of reputed economists suggested that China is likely to fall despite the long term growth they have been through. How come some people can foresee the future of somewhat closed economy like china's? Have they foreseen that China's productivity gonna fall? Why did they boast India and its economy growth? Though we are much open, I believe, India will also have to get same kinda treatment when our economy crosses 6-7 trillion from US. But it's distant reality. But, are we, developing nations like India, likely to give away our rights to big Bs like America?
Aren't we selling our future to make our present more luxurious? If we've to suffer today, why should we have to defer it for tomorrow? At least we must taste the minimum of it.
Imports and exports are happening on the basis of compulsion, not on the basis of demand. India exports many products on the condition of buying some shit from developed nations. We demand the same from the countries below our level.
China's mischievous play over currency likely to affect the global proceedings of economy.
First Russia and then now China. let's see who gets the shit next. America still persist to be a untrustworthy. good night.
Right to be angry. I have written before that Europe got rich by looting colonies while the US developed its own vast resources with cheap slave labor. Blacks are still being shot by the police. Human beings are super predators. So will fight. We, Indians are totally limp. That may be the only thing that saves us when the turd hits the fan. The 4 horsemen cometh.
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