A lot of people around had given up the hope that world is going down with recession after US was downgraded in last week from AAA to AA+. Yes, the stock markets have responded strongly as they have plummeted back to 2008 trends. But if you look around, you will soon understand that this is NOT beginning of Recession.
Before to the increase in the debt-ceiling and the associated austerity measures, US was the only country that was actively trying to stimulate its economy.
On the other hand European fiscal policy has been focused on hawkish policies as the solution for the various sovereign debt problems.
The emerging markets now seem to be in a war between tight monetary and loose fiscal policy, If tight monetary policies win then it is likely that unemployment will increase as the economy slows. If loose fiscal policies win, then it is likely that inflation will increase.
So how is this not weak fundamentals?
US corporations are now the key!
US has strongest corporate fundamentals with highest percentage of positive earnings and revenue surprises in the world.
Although one might argue that it is simply global growth that is causing such strong profitability in the US, one should note that those with little or no foreign exposure (US Small) are producing abundant surprises as well!
It is well known that the monetary and fiscal policy of United States is driving the markets. Globally markets are reacting to fiscal policy changes in US.
Although we see so much volatility in global market due to changes in central bank policies or currency intervention, it appears that US corporations and their strong balance sheets will determine the fundamentals of global financial markets.
One quick check on this can be Dollar has not yet depreciated in spite of this mayhem (in fact it peaked at INR 45.40 today)
I think India has, over last few years, doubled the Current Account Deficit from pre recession era (from 1.2% to 2.5%), inflation hovering around at 8.5%.
One could observe that Gross Domestic Investment (35% of GDP) has remained intact even after huge blow in 2008.
India’s actually been a big outperformer over the last 6 months (if you strip January from the average). This does suggest India’s ‘more domestic, less global demand’ positioning does work.
So if you remain worried with the developed world, India isn’t a bad place to be…
Would love to hear your views?