Economy Analysis_ Asia

8/9/2019 Economy Analysis_ Asia

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CIJIL DICLAUSE

HARSHDEEP

SAMARTH

SHEFALI

SHWETA


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AGENDA FOR THE PRESENTATION

World investment outlook.Analysis of the Japanese Securities market.

Analysis of the Indian Securities market.Analysis of the Chinese securities market.External factors for Investment.

Conclusion.


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WORLD

Agriculture, 6

Industry, 30.6

services, 63.4

Contribution to GDP

Agriculture

Industry

services


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PUBLIC DEBT

India58% of

GDP

China17% of

GDP

Japan189%GDP


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Investment as % of GDP

China 45.2 %of GDP

Japan

20.6 % of GDP

World

22.3% of GDP

India32.3 % of

GDP


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FOREX RESERVES IN BN $

0

500

1000

1500

2000

2500

2006 2007 2008 2009 2010

151 199309 252 277

852 9091015 1018 1050

875

1202

1682

1952

2447

India

Japan

China


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DISADVANTAGE OF HUGE FOREXRESERVES

The world's leading holders of foreign exchange reserves areChina, with $2.4 trillion worth, and Japan, with $1 trillion

worth.

Such funds are invested over-conservatively, resulting inopportunity costs on the order of 6%.-(ByIMF)

About 70% of such funds are held in US dollars, mostly in theform of low-yielding US Treasury securities


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COUNTRY RISK RATING


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WHAT MAKES INDIA WORST?

EXTERNAL SECURITY RISK TERRORIST THREAT

STATE LEVEL DISPUTES THE POOR QUALITY OF PHYSICAL INFRASTRUCTURE

SUFFOCATING LEVELS OF BUREAUCRACY,FRAGMENTED MULTI-PARTY COALITION


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JAPAN( SERVICE DRIVEN ECONOMY)

Agriculture, 1.6

Industry, 21.9

Services, 76.5

Contribution to GDP

Agriculture

Industry

Services


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GDP GROWTH RATE-JAPAN


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CURRENT ACCOUNT VARIATION


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INDUSTRIAL PRODUCTION % CHANGE


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EXCHANGE RATE OVER THE YEARS


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INTEREST RATE VARIATION


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JAPANESE STOCK MARKET


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DIVIDEND YIELD OF DIFFERENT SECTORS OF JAPAN


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INFLATION RATE VARIATION


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REASONS FOR DEFLATION

The return of deflation for the first time since August 2006 hadbeen expected but there is a fear that flat consumption and astagnant job market will strengthen the possibility of a double-dip

recession.In the 1990s, consumers stopped spending in the expectationthat prices would fall further.Faced with falling profits, companies were forced to squeezewages, shed jobs and cut production.This situation is again expected to come.


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BALANCE OF TRADE VARIATION


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Confidence survey measures the level of optimism thatpeople who run companies have about the performanceof the economy and how they feel about theirorganizations prospects.

Business confidence surveys can provide useful signs

about the current condition of the economy, becausecompanies often have information about consumerdemand sooner than government statisticians do.

BUSINESS CONFIDENCE VARIATION


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FII INDIA

FII in India are regulated by SEBI and RBI, highlyregulated.India investment in Securities in primary andsecondary markets including shares, debentures andwarrants of companies, unlisted, listed or to be listedon a recognized stock exchange in India.In Indian spot market, FIIs will not be allowed toissue P-Notes more than 40 per cent of their assetsunder custody, at the rate of 5 per cent of theirassets.


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INDIA

Agriculture, 17

Industry, 28.2

services, 54.9

Contribution to GDP

Agriculture

Industry

services


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DECLINE IN VOLATILITY IN OUTPUT


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FII limits in India

For Government Bonds

100 % Debt Route US $ 1.55 billion

70 : 30 Route US $ 200 million

Total Limit US $ 1.75 billion

Normal FII (70:30 Route) 100% Debt FII

Total investment in equity and equityrelated instruments shall not be lessthan 70% of aggregate of allinvestments.

100% investment shall be made indebt security only.


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SEBI REGULATION ON FII

24% forIndian

company

20% in caseof public

sector bank

Can beraised upto

sectorialcap


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DISADVANTAGE OF HUGE CAPITAL INFLOW?

Huge capitalinflow

Encouragingeconomic

growth

Localcurrency togain value

Underminethe exportindustry

Rise ininflation

Reducingdomestic

componentby selling

treasury bills


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% SHARE OF FII INVESTMENT

MARKET CAPITALISATION OF FIIS HOLDING (IN NSE LISTED COMPANIES) TO TOTAL MARKET CAPITALISATION OF NSE -12.5


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TURNOVER IN F & O SEGMENT


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GROWTH RATE

-202468

10

12

2005-06 2006-072007-08

2008-092009-10

9.5 9.79.2

6.7 7.25.2

3.7 4.7

1.6

-0.2

11.110.2 10.5

9.88.7

GDP growth rate Agriculture Services


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INFLATION RATE VARIATION

4.45.4

4.7

8.3

9.9

0

2

4

6

8

10

12

2005-06 2006-07 2007-08 2008-09 2009-10

Inflation Rate


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FII INFLOWS OVER THE YEARS

-15 -10 -5 0 5 10 15 20 25

2005-06

2006-07

2007-08

2008-09

2009-10

9.9

3.2

20.3

-15

23.8

FII Inflows(US$ bn)


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FII TAX INDIA


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Agriculture, 10.9

Industry, 48.6

Services, 40.5

Agriculture

Industry

Services

CONTRIBUTION TO GDP-CHINA


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CHINESE REGULATORS.

Q FII-Q ualified Foreign InstitutionalInvestors

State Administration of Foreign

Exchange (SAFE)

China Securities RegulatoryCommission (CS RC)

People s bank of China


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CHINESE SECURITIES MARKET

The Shanghai Stock Exchange (S HSE)established on Dec19,1990Shenzhen Stock Exchange (SZSE) on July 3, 1991.

The Hongkong Stock Exchange goes back to 1871.

.H -Share

B-Share

A-Share


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QFII IN CHINAA Q FII invest in

(i) publicly listed shares on the Shanghai orShenzhen Stock Exchange other than Ashares;

(ii) publicly traded treasurybonds, convertible bonds and corporatebonds;

(iii) other financial instruments approvedby CSRC.

Regulation on Q FII

(i) An individual Q FII may not hold morethan 10% of the total outstandingshares of any single listed company

(ii) in any single listed company, sharesheld by all Q FIIs may not exceed 20% of the total outstanding shares of the

listed company.76 re d. FII in China


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SECURITY EXCHANGES IN CHINA

Data updated on December 2009

SSE P/ERatio of SSE SZSE P/ERatio of SZSE HKEX

A shares 850 20.18 473 44.12

B shares 54 18.21 54 21.83

H-Shares 1241

Average/ Total 904 20.11 527 46.01 34.51


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QFII ROUTE TO CHINA

China does not encourage FII route, has fixed tax law for FII.

China Investment restricted to B-Shares of listed companies only.

China provides numerous preferential treatments in foreign taxation, andhas successively concluded tax treaties with 60 countries.

Sino-foreign Equity Joint Ventures, Sino-foreign Contractual JointVentures, Wholly Foreign-Owned Enterprise

China Encourages FDI Inflow and shows a negative Tax Revenues fromExports


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CHINA - BANK LOANS

Bank credit have skyrocketed .Lending's have shown anYOY growth of 30%.H igher Chances of default.


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INVESTMENT AND CONSUMPTION

Whether all investmentsare capable earning a profitto service there debt

financing.Private consumption stillweakDependence on worldeconomy.


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0

4

6

8

10

1

14

005 006 007 008 009 010

10.411.6

13.01

9.05 8.74

10.5

GDP Growth

CHINA


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SSE COMPOSITE VARIATION OVER THE YEARS


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CHINESE BOND MARKET


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VARIATION OF INFLATIONRATE OVER THE YEARS


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HIGH INFLOW VIS-A-VIS LOW INFLATION

Any country experiencing very rapid productivity growth in the tradable goods sectorwill see a rise in the real value of its exchange rate.

central bank intervene

net current account inflows should causeexcess domestic monetary expansion

Domestic prices must rise

Rapid money growth should have pushed

China into an inflationary spiral

total appreciation in the past decade hasbeen much less than the relativegrowth in productivity


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But this not the Case in China . Low inflation because of F inancial repression

the vast bulk of Chinese savings is in the form of bank deposits, and thedeposit rate is set at extremely low levels.

that monetary growth is channelled not into household demand but ratherinto the production of more goods.

Financial repression leads to overinvestment, asset bubbles, and risingexcess capacity.


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F I I II I I

32.27%

31.85%

24.30%

2.81%4.50% 2.78%

0.36% 1.11% 0.02%Government Bonds

Central Bank Bills

Policy Bank Bonds

Financial Instit tion Bonds

Corporate Bonds

Corporate CommercialPapers

Assets Backed Sec rities


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VARIATION OF GOVT. BOND YIELD


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VARIATION OF CURRENT ACCOUNT


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VARIATION OF BALANCE OF TRADE OVER THE YEARS


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INVESTMENT IN CHINA

The economic indicators in China indicates that there is a great deal of uncertainty in this market.

On the positive side, investing in uncertainty can lead to richrewards. However, on the downside, it can also lead to largelosses. Thus, any Chinese investment to be an aggressive part of yourportfolio, and should be limited accordingly.

To Invest in China, one should also consider the political framework in thecountry which promotes capitalism , still ruled by communist party.


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Economy Analysis_ Asia