 "Protect your capital as global economy sputters")
We could see individual stocks plummeting to their lower circuits. We could have the Nifty breaching the 8000 mark in the next few days. The immediate reason for the sell off is going to be the hammering of the U.S. Indices on Friday.
The Dow had plunged 3.12%, the S&P 500 3.18% and the Nasdaq 3.52%. More importantly this is a trend in global indices where the 200 DMAs have been breached.
In Europe, the DAX and the FTSE are cruising below their 200 DMA. In the Orient, The Shanghai Composite, The Seoul Composite and the Hang Seng are in the same boat. Broadly speaking all the key global indices, barring the Nikkei, are in a bearish territory.
But these are not the real reasons of worry. The real raison d'être is that the global economies are slowing and the Central Banks, which saved the world last time in 2008, are themselves in trouble.
China, which has used all the arrows in its quiver & even applied draconian and unheard of laws, is still struggling to keep stocks from falling. The Chinese PMI is also in a continuous contraction mode since March 15.
In 2008, fearing that export led strategy will not work in a slowing global demand scenario; China decided to kick start domestic consumption and build bridges to nowhere and created ghost cities.
Japan, which spent 25% of its GDP in QE is in a soup.
Korean Export figures, a data the world believes, are also in a declining mode.
Europe has not been able to induce inflation even now after Draghi’s ‘whatever it takes’ QE. Inflation which was -0.6% in January 2015 increased to 0.3% in March but has started falling again.
The U.S Fed, the strongest of them all, has seen its balance sheet size balloon to over $4.4 trillion from the under $1 trillion that it was before the QE began in 2008-09.
The Fed is thinking of raising rates in September. I have held this view that the Fed can’t raise rates any more but if it does hike rates it will be just to create an elbow room to cut rate again when the economy stumbles. The recent turmoil snatches away even that small window of an opportunity.
The second reading of the U.S. GDP this week will show that in Q2 the GDP grew better than the 2.3% recorded in the first reading. But this higher reading will be because of the rise in business inventories and not because of the improvement in the economy.
The question the world will be asking ask later in the year is not when the U.S. will hike rates, but what is the Fed strategy to reignite growth?
Seven years after 2008, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2008. That poses new risks to financial stability and may undermine global economic growth as the Central Banks merely kicked the can down the road in 2008 and did not allow more banks to go belly up. As a result the tumour has only grown and turned malignant.
The crux of the problem is that the debt has ballooned and the ability of the global central banks to tackle this new problem is much weaker than what it was in 2008.
No doubt that the falling crude oil prices will help India reduce its twin deficit, it is also an indicator of a slowing global economy. We have better demographics, a stronger domestic consumption, better and a predictable environment for the FIIs as compared to China. But that does not mean our markets will be an exception to the rule.
Expect trade wars to follow the currency devaluation bout and further muddy the global trade waters.
At a time when the global economic engines have begun to sputter, capital protection should be objective number one.
V K Sharma is head, private broking and wealth management, HDFC Securities
The Dow had plunged 3.12%, the S&P 500 3.18% and the Nasdaq 3.52%. More importantly this is a trend in global indices where the 200 DMAs have been breached.
In Europe, the DAX and the FTSE are cruising below their 200 DMA. In the Orient, The Shanghai Composite, The Seoul Composite and the Hang Seng are in the same boat. Broadly speaking all the key global indices, barring the Nikkei, are in a bearish territory.
But these are not the real reasons of worry. The real raison d'être is that the global economies are slowing and the Central Banks, which saved the world last time in 2008, are themselves in trouble.
China, which has used all the arrows in its quiver & even applied draconian and unheard of laws, is still struggling to keep stocks from falling. The Chinese PMI is also in a continuous contraction mode since March 15.
In 2008, fearing that export led strategy will not work in a slowing global demand scenario; China decided to kick start domestic consumption and build bridges to nowhere and created ghost cities.
Japan, which spent 25% of its GDP in QE is in a soup.
Korean Export figures, a data the world believes, are also in a declining mode.
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Europe has not been able to induce inflation even now after Draghi’s ‘whatever it takes’ QE. Inflation which was -0.6% in January 2015 increased to 0.3% in March but has started falling again.
The U.S Fed, the strongest of them all, has seen its balance sheet size balloon to over $4.4 trillion from the under $1 trillion that it was before the QE began in 2008-09.
The Fed is thinking of raising rates in September. I have held this view that the Fed can’t raise rates any more but if it does hike rates it will be just to create an elbow room to cut rate again when the economy stumbles. The recent turmoil snatches away even that small window of an opportunity.
The second reading of the U.S. GDP this week will show that in Q2 the GDP grew better than the 2.3% recorded in the first reading. But this higher reading will be because of the rise in business inventories and not because of the improvement in the economy.
The question the world will be asking ask later in the year is not when the U.S. will hike rates, but what is the Fed strategy to reignite growth?
Seven years after 2008, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2008. That poses new risks to financial stability and may undermine global economic growth as the Central Banks merely kicked the can down the road in 2008 and did not allow more banks to go belly up. As a result the tumour has only grown and turned malignant.
The crux of the problem is that the debt has ballooned and the ability of the global central banks to tackle this new problem is much weaker than what it was in 2008.
No doubt that the falling crude oil prices will help India reduce its twin deficit, it is also an indicator of a slowing global economy. We have better demographics, a stronger domestic consumption, better and a predictable environment for the FIIs as compared to China. But that does not mean our markets will be an exception to the rule.
Expect trade wars to follow the currency devaluation bout and further muddy the global trade waters.
At a time when the global economic engines have begun to sputter, capital protection should be objective number one.
V K Sharma is head, private broking and wealth management, HDFC Securities