Weekly Ounce of Markets, Macros & Everything Else ­ Edition 3 

Asian Current A/Cs and their impact on FX 

Came across this interesting table and wanted to share it with you’ll. India, despite a higher                               

trade deficit has been supported by stronger FII flows due to its better fundamentals and                             

lower current account deficit.  

 

 

 

 

 

 

 

 

 

 

The Asian region is facing a downtrend due to slowdown in global economy, though the                             

trend is divergent across countries. India, Indonesia have seen their CAD being negative                         

because of high imports while others like Thailand, Taiwan and Singapore are seeing their                           

surplus widening. Will the divergent trend continue? It remains to be seen.  

Debt Funds – What’s to be done next? 

With yields falling by 100­200bps across the curve               

since Feb, debt funds across categories have seen               

impressive returns. For someone whowants to invest               

now, they are faced with a dilemma of where to                   

invest? I have taken July end YTMs(Portfolio Yields)               

as August portfolios of all AMC’s are not updated yet.                   

In the shorter end space like Liquid and UST the YTMs                     

have fallen further by 15­25bps as liquidity remained               

comfortable in August. So investors who want to               

invest in Liquid for 1day to 3months may see further diminished returns, so it is advisable to                                   

switch 20­30% into UST funds as they still maintain a little higher YTMs. For investors who                               

want to stay invested for 3 years as post FD returns now stand at 5.5­6%, it is advisable to                                     

switch into Aggressive short term funds and Accrual funds. It is more suited that investors                             

stick to big AMC funds in the accrual space (Keep a mix of accrual, short term funds,                                 

preference shares and perpetual bonds), further rate cuts and liquidity easing will benefit                         

the short end more. While investors who have invested in Income, DBF and Gilt funds                             

should continue to stay invested and should not make any fresh investments currently.  

US Treasuries – Who holds the most now? 

 

 

 

 

 

US 

treasury yields are at historic lows since the Great Depression and one of themajor themes                               

has been Fed’s holding of US treasuries which has played an important role. As of Aug, US                                 

Fed holds USD 2.5trn of US treasuries, the highest ever. If Fed continues to hold a high                                 

share, then it would limit supply available to private investors and keep the yields low. Feds                               

holding of Treasuries rose mainly due to QE3 rather than QE 1 & 2which wasmore focused                                   

on Mortgage Backed Securities (MBS). This means as they keep maturing, FED won’t be                           

buying them anymore but its holding will be the highest in absolute terms. 

Bond Markets – Will see some reversal sometime in the future 

Global bond markets are now at a unique state                 

due to low growth and inflation. Investors have               

seen good returns currently in the past few               

decades, but going ahead, once GDP starts             

improving then investors would take a hit on               

their bond holdings as interest rates inch up. If                 

there is a break up of EU after Brexit                 

(referendums in Netherlands, Italy and         

Hungary is due) then there may be a hard                 

landing for bond investors as there won’t be an                 

ECB backstop. These may take a decade or two                 

to pan out but the current status quo can’t                 

continue forever.  

Under Everything Else 

➢ 01st June to 07th Sept, has seen a               

4% deficient rainfall for India as a             

whole. South has seen 11% deficiency while East & North eastern parts of India has                             

seen 14% deficiency from its long period average. 

➢ Currently Reading ­ Mafia Queens of Mumbai by S Hussain Zaidi, it’s a quick and                             

interesting read. Talks about the unknown women mafia dons and the mafia molls.  

➢ Keep an eye on EMCO Ltd. (CMP 31 levels), as the company is manufacturing                           

transformers which is a microcap idea, I find it interesting and would add it to the                               

portfolio for next 3­5 years. The sector is seeing an improvement and the order book                             

should improve. With the State Electricity boards implementing digital meters and                     

beginning to use smart technology to reduce losses, it may be a big beneficiary.  

➢ Oil rose after Saudi Arabia and Russia discussed on production cuts, to keep prices 

high as their economies suffer. 

➢ Good quality IPOs hitting the market soon with companies such as: a) Dmart is hitting the IPO markets soon and is the first retail sector IPO in a 

decade. b) BSE files for an IPO, takes an edge over its rival NSE. c)  ICICI Prudential Insurance files for IPO from a first ever Insurance company. 

  

The 1% range has been broken finally after two months on 8th Sept.