Credit Pumps and Economic Growth

Credit Pumps and Economic Growth By: Amit Bhushan Date: 12th Jan 2016 Most large Central Banks in the world are liberalizing money. Europe and Japan are having their own version of quantitative easing, China is bringing down reserve requirements and bank rates, India is bringing down bank rate and repo rates. Some other emerging markets are facing volatile currencies where their domestic currency are losing value vis-à-vis USD and other hard currencies. Commodities are down and so is stock markets as well as Real estate asset prices. So where is all this liquidity travelling. Is it to prop up dollars and build-up of US asset prices as well as to ensure that toxic bonds remain afloat, so that the companies issuing the same remain in business? What we know that the valuation of unlisted companies haven’t been hit as of yet. This is even as we have a plethora of copy cats on the rise. However the market still feels that valuations of these companies are sustainable and competition will not have much impact on potential future earnings of such unlisted corporates primarily in IT domain..
We are in fact witness to the new start-ups in same IT domain with copycat business models facing challenges to raise capital even at rock bottom valuations even though their solution as well as business models might be on similar lines as some of the highly valued unlisted company; addressing the same needs of potential customers with niche differentiators. The media which generates hefty revenues from the well capitalized highly valued companies is almost silent on the plight of these struggling start-ups with their immensely valued services and accessibility to new customer segments, innovative service offerings. This is even as it continues to sing peans for the favoured highly valued counterpart. It also continues to pour tonnes of ink to report falling merchandise sales and exports of major emerging economies eroding commodity and asset prices as well as affecting stock of the listed corporates in these economies. This is allowing some to belief that such companies have a hugely sustainable model, while manufactures of goods, commodities are passe’. .
This is even as we have a plethora of copy cats on the rise. However the market still feels that valuations of these companies are sustainable and competition will not have much impact of future potential earning of corporates.We are in fact witness to the start-ups facing challenges even at rock bottom valuations even though their solution as well as business models might be on similar lines as some of the highly valued unlisted company and address the same need.
Much ink is being poured to report, the effect of a slowing China of other emerging economies and interdependence of commodity exporters who have been badly hurt. However, a valuation rejig of the so called FANGs basis strong competition from local entities in emerging economies is highly underplayed since such local competition might not appear to be sustainable due to lack of capital to sustain. This is even as cost of coding such service sites is falling, and people armed with mobiles may be now wanting access in their own language and have their own service standards and preferences. Of course, the impact of rising local competition in manufacturing sector in emerging countries on China also remains under reported. Though this is another area where activity is being seen as well as crucial investment positions being built. The success of Chinese or US/European corporate can be in handholding and grooming such entities so that they can push/maintain their business interest in conjunction with the local economic interests. The plunge in crude prices and rising deficit in oil economies is likely to have a pullback effect from dollars/other hard currencies to local oil currencies pretty soon. Also the future flow of investments is likely to contested much more strongly by emerging economies competing fiercely with developed ones. It is these trends which will continue to shape global economy. There has been rise in European language sites and services with quite a few being copycat of their US counterpart. This trend is pretty soon going to rise in most emerging economies. Also the local brands and companies would continue to scale up for rising domestic manufacturing and other services..
The gains may be in form of infra contracts be it for standalone financing of local operating agencies or basis PPP through BOT, BOO or BOOT (Build own transfer, build own operate or build own operate transfer) basis. The corporates which show inclination to cooperate may have greater say in fixing standards as well as formulation of rules and regulations in these emerging countries. On the flip side, the, such countries are hotbeds of corruption with their wayward political lords as well as willy businessmen. Egging such people for short term gains may help develop short-sighted profits with attendant consequences. The challenge on the other hand for investors would be to continue to support toxic bonds of corporates who have otherwise little chance to return to sustainable growth or justify valuations of unlisted companies who may no longer have the ability to generate super-profits in the face of emerging competition.
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[Dhruv Bindhani]

Credit Pumps and Economic Growth By: Amit Bhushan Date: 12th Jan 2016 Most large Central Banks in the world are liberalizing money. Europe and Japan are having their own version of quantitative easing, China is bringing down reserve requirements and bank rates, India is bringing down bank rate and repo rates. Some other emerging markets are facing volatile currencies where their domestic currency are losing value vis-à-vis USD and other hard currencies. Commodities are down and so is stock markets as well as Real estate asset prices. So where is all this liquidity travelling. Is it to prop up dollars and build-up of US asset prices as well as to ensure that toxic bonds remain afloat, so that the companies issuing the same remain in business? What we know that the valuation of unlisted companies haven’t been hit as of yet. This is even as we have a plethora of copy cats on the rise. However the market still feels that valuations of these companies are sustainable and competition will not have much impact on potential future earnings of such unlisted corporates primarily in IT domain..
We are in fact witness to the new start-ups in same IT domain with copycat business models facing challenges to raise capital even at rock bottom valuations even though their solution as well as business models might be on similar lines as some of the highly valued unlisted company; addressing the same needs of potential customers with niche differentiators. The media which generates hefty revenues from the well capitalized highly valued companies is almost silent on the plight of these struggling start-ups with their immensely valued services and accessibility to new customer segments, innovative service offerings. This is even as it continues to sing peans for the favoured highly valued counterpart. It also continues to pour tonnes of ink to report falling merchandise sales and exports of major emerging economies eroding commodity and asset prices as well as affecting stock of the listed corporates in these economies. This is allowing some to belief that such companies have a hugely sustainable model, while manufactures of goods, commodities are passe’. .
This is even as we have a plethora of copy cats on the rise. However the market still feels that valuations of these companies are sustainable and competition will not have much impact of future potential earning of corporates.We are in fact witness to the start-ups facing challenges even at rock bottom valuations even though their solution as well as business models might be on similar lines as some of the highly valued unlisted company and address the same need.
Much ink is being poured to report, the effect of a slowing China of other emerging economies and interdependence of commodity exporters who have been badly hurt. However, a valuation rejig of the so called FANGs basis strong competition from local entities in emerging economies is highly underplayed since such local competition might not appear to be sustainable due to lack of capital to sustain. This is even as cost of coding such service sites is falling, and people armed with mobiles may be now wanting access in their own language and have their own service standards and preferences. Of course, the impact of rising local competition in manufacturing sector in emerging countries on China also remains under reported. Though this is another area where activity is being seen as well as crucial investment positions being built. The success of Chinese or US/European corporate can be in handholding and grooming such entities so that they can push/maintain their business interest in conjunction with the local economic interests. The plunge in crude prices and rising deficit in oil economies is likely to have a pullback effect from dollars/other hard currencies to local oil currencies pretty soon. Also the future flow of investments is likely to contested much more strongly by emerging economies competing fiercely with developed ones. It is these trends which will continue to shape global economy. There has been rise in European language sites and services with quite a few being copycat of their US counterpart. This trend is pretty soon going to rise in most emerging economies. Also the local brands and companies would continue to scale up for rising domestic manufacturing and other services..
The gains may be in form of infra contracts be it for standalone financing of local operating agencies or basis PPP through BOT, BOO or BOOT (Build own transfer, build own operate or build own operate transfer) basis. The corporates which show inclination to cooperate may have greater say in fixing standards as well as formulation of rules and regulations in these emerging countries. On the flip side, the, such countries are hotbeds of corruption with their wayward political lords as well as willy businessmen. Egging such people for short term gains may help develop short-sighted profits with attendant consequences. The challenge on the other hand for investors would be to continue to support toxic bonds of corporates who have otherwise little chance to return to sustainable growth or justify valuations of unlisted companies who may no longer have the ability to generate super-profits in the face of emerging competition.
~ END ~

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[Priyani Gupta]

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