Monthly Archives: February 2017

Indian Stock Market Is Being Driven By Global Factors

The Indian stock market has rebounded in Jan-Feb from its late Dec lows. A comparison with its global peers suggests that both the downturn in Nov-Dec and the rebound in 2017 were driven by global factors and not by the note ban and other domestic factors.

The chart of the Nifty 50 Index above shows that it reached a high of about 8900 in Sep, weakened in Oct, and saw a sharp downturn in Nov and Dec. However, the market has rebounded in Jan and Feb, and seems to show no worries about either the lingering effects of the note ban or the impending Trump trade wars.

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The Coming Hard Landing of the Chinese Yuan

The Chinese economy is in a bad way and it is unlikely that China is going to be able to continue its current exchange rate policy for much longer in the face of weak economic growth, massive capital flight, and the threat of a trade war. The Chinese yuan and the Chinese economy is due for a hard landing some time soon.

Chinese economic growth has been slowing for several years from the highs attained during the recovery from the 2008 crash. It now stands below 7%, near its 2008 low.

(from Bloomberg)

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Effects of U.S. Protectionism on India

President Donald Trump and his supporters have advocated the use of protectionist strategies to stimulate the U.S. economy and increase U.S. employment. One proposal that has receivedĀ serious consideration is a “border tax”, or a Destination-Based Cash Flow Tax (DBCFT). As pointed out by trade theorist Paul Krugman here, this will essentially act as a subsidy on the employment of domestic factors of production. In addition to such trade protection measures, Mr. Trump also wants to implement incentives that will lead to the repatriation of dollars heldĀ outside the US, especially by US domiciled multinationals.

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