| The ‘Vaso-Pressing’ effects constricting the | | | | Malaysia, Singapore, and Indonesia depend heavily on |
| life channel of the capital markets-the | | | | Chinese imports of their raw processed goods. The |
| ‘Liquidity’, due to credit market squeeze in | | | | components for electronic industry has seen a huge |
| response to the US sub prime mortgage crisis, has | | | | demand both from domestic and international |
| eased since the Fed cut interest rates. The rate cut | | | | markets, as parts like servomotors, laser |
| by 50 bps, has been something more than expected | | | | components, DVD heads, piezo-electric devices are |
| by the analysts and market participants alike. Global | | | | the building blocks of CD/DVD players, MP3/MP4 |
| equity markets reacted sharply to this effect as they | | | | players, etc. China has boosted its component |
| saw bulls running all the way with Dow Jones and | | | | business activity in the coastal Guangdong regions, |
| other emerging markets reaching new highs. | | | | like Shenzhen, and Guangzhou, the reason behind |
| Well, it may sound something like this. It’s | | | | drop in China’s component import. According to |
| edifying, though remarkable sustained growth in the | | | | industry analysts, there might be two reasons : |
| emerging economies coupled with liquidity support | | | | Firstly, to develop its own component and |
| from the OECD countries has removed domestic | | | | intermediary industry, secondly, meet the growing |
| barriers of trade and businesses. Globalization has, in | | | | domestic and international demand, thirdly, cheaper |
| fact brought our world ever closer with both human | | | | alternatives to its imports, and lastly, buffering the |
| and capital resources crossing barriers like never | | | | emerging markets currency appreciation against the |
| before. It has also brought around increased | | | | Yuan/$. |
| competitiveness among the emerging economies with | | | | Indian Frontier—Sustained Growth |
| each mastering in its own track. With an average | | | | What India may not be having some well planned |
| World GDP growth rate of around 4.5% and of | | | | central business districts with towering skyscrapers , |
| countries like China (11.9%) ,last quarter and India | | | | but it does not seems to be stopping the business |
| (9.3%), developing in their fastest pace ever since | | | | growth and enthusiasm in India. Well, India is on its |
| their economic liberalizations, with other emerging | | | | way for categorized and well planned much needed |
| nations already having been joined this economic | | | | infrastructure ventures and real estate investments, |
| growth bandwagon. | | | | as did exactly what took place in China in the early |
| Abundance of liquidity is lush in the capital markets, | | | | eighties-1980. Truly, the need of this hour is better |
| fuelling asset price bubbles in one way, and helping | | | | infrastructure, road and town planning and a few |
| mobilize untapped resources in every nook and | | | | highly centralized business districts. And it is this |
| corner of this world the other way. The emerging | | | | promising growth opportunities that investors put |
| markets like Vietnam, BRICS, Thailand, Indonesia, | | | | money into and see those spiraling into profitable |
| Malaysia, Ukraine, Eastern Europe and Africa, all have | | | | returns. |
| been the breeding ground for emerging business | | | | The market susceptibility to the US sub prime has |
| opportunities, with PE(Private Equity), Venture Capital | | | | turned the focus on the Indian subcontinent, with |
| funds and other investors migrating like microbes to | | | | India playing a major role in growth economics and |
| seek wealth. It’s not about host and parasite | | | | corporate fundamentals. India, with its second largest |
| relationship, but it’s about true collateral, mutual | | | | consumer market in Asia (ex-Japan), boasts the |
| and cultural benefits that businesses are emigrating | | | | breeding ground for SME and entrepreneurship |
| from their source of origin to these new found | | | | activities. The pace of economic growth has been |
| lands—the once ignored economies have turned | | | | quite outstanding, with above 9% real GDP growth |
| out to be the land of opportunities. Truly, some | | | | and strong economic fundamentals driving the |
| economies have already become the investor’s | | | | services and the manufacturing sectors. Recent FII |
| paradise and a global manufacturing powerhouse. | | | | dynamics (outflow and inflow) and a large domestic |
| Opportunistic business ventures with broad vision | | | | capital market fuelled by liquidity from domestic |
| have emulated the markets. | | | | institution investments have seen increased liquidity |
| This has been possible due to ‘Trading | | | | poured into mutual funds and insurance companies, |
| Resources’, from across the world, with once | | | | thus buffering somewhat from the international |
| liquidity crunched countries like China and India seeking | | | | market volatility. Though it is difficult to decouple |
| immobilized minerals in African nations, where they | | | | India’s economy from the US, there has been no |
| have been investing vigorously with their newfound | | | | such direct effect seen in response to the US Sub |
| liquidity (money). Well, back in the 80’s when | | | | prime mortgage market collapse. FII s have pulled out |
| China and India had only minor share of global GDP, | | | | around $2billion from the markets in July-August |
| that’s around 3% each, it has rocketed to 15.3% | | | | ’07, but thanks to the domestic ‘capex |
| (China) and 6.3% (India). The projected share of | | | | ‘growth and the shock absorbing effects by |
| China and India is likely to grow by 2030, according to | | | | mutual funds and equity investments, India did |
| some analysts’ when they will constitute nearly | | | | actually decoupled itself somewhat from the global |
| 22% of the world GDP. China will probably rein the SE | | | | effects. It’s also the reason that caused record |
| Asian economy as the largest manufacturing hub in | | | | appreciation of rupee, which have seen to be trading |
| the region. | | | | at below rupee 40.00 levels (39.75) against the dollar |
| Global Equity Markets | | | | due to sustained demand and increased appetite for |
| The total value of emerging market equity in 1986 | | | | Indian currency, and assets – a big pie to foreign |
| was around $ 238 billion, among 33 countries | | | | investment funds and venture investors. |
| compared to $ 1.8 trillion in 1995, as per IFC and is | | | | India, thus have recently been going through rapid |
| likely to touch $ 22 trillion dollar by 2010. The global | | | | investment phase in businesses, and real estate |
| equity market capitalization, according to recent | | | | sector have seen real surge in activities, with the |
| published data in June2007, is being lead by North | | | | cities and towns in Indian horizons in verge of |
| America and Europe, with a combined share of 76% | | | | transforming themselves into dazzling skylines to |
| of the total share, the US having a substantial share | | | | reckon with in the coming years. |
| of 44% and the BRICS comprising only 4-6%. This | | | | Trading Global Resources--Go where the markets are! |
| may change dramatically once the policy makers of | | | | Though the bounty of nature is immense, but with |
| the emerging economies open their windows to the | | | | an unending demand for materials, resources have |
| winds of the foreign equity players for investing | | | | become scarce, in comparison to mankind’s ever |
| substantially in these emerging equity markets. | | | | increasing demand. This demand is for food, energy, |
| Though there has been much concern in emerging | | | | oil, precious minerals and everything that has |
| economies where increased domestic liquidity fuelling | | | | economic value (commodities). Global finance is, in |
| inflation and asset price bubble, the notion that too | | | | fact, trading resources, or commodities and these |
| much money chasing too few goods are likely to | | | | resources are scattered in different parts of the |
| change once these countries ride the consumer | | | | world, thus mobilizing them demands both capital and |
| evolution boom. | | | | human migrations. The human capital, the best known |
| Investors have seen stellar gains from equity | | | | capital resource that mobilizes the world, just as the |
| investments in the emerging ,markets (EMs), and the | | | | muscles move the bones and tuned by the nerves |
| reason that more and more private equity players | | | | moving those muscles, need energy to perform |
| are turning toward soft growth scenario in Latin | | | | tasks. This energy for the financial world is |
| America, Eastern Europe and the Asia-Pacific region | | | | ‘capital’, more so liquidity- or money that |
| that have been experiencing equity bubbles in recent | | | | literally mobilizes the resources. The demand-supply |
| times. China has been one such example, where each | | | | imbalance has created some scanty resources |
| day, about 3, 00,000 people have been opening | | | | priceless and some others soaring sky-high. Oil is one |
| trading accounts for stock trading, that’s about | | | | such, as demand for oil is here to grow since having |
| 36% comapared to India’s 4.5%. This has | | | | limited capacity as reserves. This has caused crude oil |
| created a bubble that has been much concern for | | | | price shock, as crude oil is trading above $80 /bbl |
| the policy makers as enormous liquidity is chasing the | | | | (per barrel) which were trading at $ 74.15 in June 07. |
| stock markets. The other instances being India and | | | | Rightly, it can be assumed that oil is moving this |
| Brazil, which have seen substantial FII foraying into | | | | world, as much of the markets are being affected by |
| the equity market investments. | | | | rise in crude oil prices. These factors have also |
| The comparative analysis of the segmented equity | | | | resulted in commodities price volatility. There has |
| market returns of China, India, Brazil, Ukraine, Hong | | | | been considerable rise in global market risk factors |
| Kong, Russia and other countries has revealed | | | | along with the trade and investment boom , and risk |
| remarkable similarities among themselves. All these | | | | management of investment portfolios have taken |
| economies are racing past each other; all are having | | | | the prime seat of analysis amongst the |
| stock market bubbles with promising economic | | | | investors’ classes. |
| growth and rapid business development environment. | | | | It’s the concept behind the story that |
| From beneath this entire story, the US sub prime | | | | ‘grows where the market is, sought where the |
| problem stepped up wiping out substantial wealth | | | | opportunity lies’. The emerging equity markets |
| values from the global equity markets. The recent | | | | are the next hot bed for the geeky investors as |
| turmoil changed the dynamics of the market return | | | | they diversify their portfolios through global managed |
| trends as a three year has experienced some jitters. | | | | equity funds investing in stock markets over a wider |
| Sub Prime Effect | | | | platform, rather that the US alone. |
| The effect of the sub prime crisis has been quite far | | | | Beyond Liquidity—Global Warming |
| reaching and dramatic. The resulting credit squeeze | | | | The Bigger threats to global economy, the natural |
| and debt markets crisis has towed down the market | | | | disasters, Tsunami and the melting icebergs! |
| sentiments across the platform leaving some | | | | Some things cannot be ignored and need sincere |
| investors losing some of their wealth invested in the | | | | thoughts on the matter of global trade, business and |
| equities, due to correlated stock market down turn. | | | | our society. And that is global warming. With manifold |
| Asia-wide, markets tumbled and hedge funds | | | | increased CO2 emission rates polluting our mother |
| reported losses from their mortgage-backed bonds | | | | planet, the audiences, policymakers, environmentalists, |
| (MBS) bond exposures that are trading in various | | | | scientists and the general people to speak, all have |
| markets. The risk appetites of the investors have | | | | turned to this ever threatening human created |
| come down as more of them have turned towards | | | | mayhem. Industrial frontrunners like the US and major |
| government securities and bonds as safer havens. | | | | developed economies have sounded alert on a big |
| Bonds prices are seen to be rising with tight liquidity | | | | scale to tackle the problem of global warming. China |
| condition and market volatility remaining high. | | | | has been blamed much to dismay about contributing |
| Central banks across the world are trying to cushion | | | | significantly to the green house gases, but considering |
| the market jitters by providing liquidity in this hour of | | | | the rapid pace of industrial production creating |
| crisis, while the US Fed has cut its bank rate in late | | | | byproducts as industrial wastes, which has been both |
| august. There has been an overall fear of an US and | | | | polluting the air and water. The rising sea levels pose |
| global economic slowdown as investors is wary about | | | | a major emoting threat to islanders and coastal areas |
| their burses. Nevertheless, with the economic | | | | of major economies. The Kyoto protocol drawn up |
| fundamentals strong in the emerging markets, much | | | | did significant in cutting down carbon emissions by |
| of this shock would be absorbed by the growth | | | | providing carbon credits to those countries emitting |
| appetite of bigger emerging markets like China and | | | | lower greenhouse gases. Things beyond the liquidity |
| India. It’s to be seen how the corporate sectors | | | | are as important to the financial markets as the |
| reacts to this crisis, as some mega deals by private | | | | world economy have become intrinsically complex, |
| equities are in the stake. The debt market outlook is | | | | highly integrated and more regulated . Political |
| not satisfactory, as investors are cautious about | | | | uncertainties on the Mid-East gulf frontier and the |
| debt market portfolios, particularly the Asset Backed | | | | Iran nuclear crisis as well as the Latin American |
| Securities (ABS) markets and the Leveraged Buyouts | | | | bureaucracy have had considerable effects on the |
| (LBO) deals. | | | | global financial markets. The North Korean nuclear |
| The recent turmoil in the sub prime markets has | | | | program issue has been a lot of concern for the |
| brought in many queries, after which the Fed and the | | | | Asia-Pacific political stability as though the crisis seems |
| Bush administration has taken over the tasks of | | | | too have weaned down somewhat now as due to |
| mortgage reform policy to safe-guard the borrowers | | | | the historic summit between the North and the South |
| from their woes. Financial markets can never be | | | | Korean counterparts after seven long years. Overall, |
| immune to undesired events, and one needs better | | | | the financial markets are in search of the so called; |
| information transparency to foresee any such events | | | | ‘Financial Stability’. |
| in the near future. | | | | As one of the bigger financial downturns the markets |
| Global capital flow analysis toward the emerging | | | | experienced after the 1997 Asian financial crisis and |
| markets shows a perennial Increasing trend in the last | | | | the 1998 Russian debt crisis when the LTCM went |
| couple of decades. The data shows the total | | | | bankrupt on bad currency arbitrage bettings,the |
| port-folio of equity capital as well as FII inflow to | | | | current US sub prime mortgage market failure have |
| major emerging nations. Of the major economies, | | | | affected the financial markets substantially. Though |
| Europe seems to have taken the lead in attracting | | | | the market still does not have clear account of the |
| the largest share of capital, followed by U.K. and the | | | | defaults and exposure to the sub prime, according to |
| emerging markets. | | | | some, around $650 billion or more of ARM loans to |
| Emerging Asia -- China | | | | be reset next year, time will convey the routing of |
| In purview of China’s emergence as a | | | | financial risks into the global markets. For the |
| manufacturing hub in Asia, her export has increased | | | | investors and the invested alike, they have to remain |
| many folds in recent years. Recently published data | | | | cautious yet active since the developed and the |
| from Bloomberg indicates that China’s imports of | | | | emerging markets have coupled themselves due to |
| intermediate goods from Asian region have marginally | | | | globalizing trade investments. And with all of these in |
| dropped as China is self supplying her intermediate | | | | the background, we have to accept and act |
| goods due to import substitution. This could mean | | | | accordingly to the unforeseen events looming across |
| unfavorable reactions from Asian suppliers of these | | | | the horizon, both natural and man-made, |
| intermediate goods as countries like Thailand, | | | | something’s 'beyond liquidity'. |