Global Financial Crisis-Asian View

I was just browsing through several articles at Business standard thinking what to present to you guys (I was afraid I would run out of topics soon!) when I came across this article by Prof. Shankar Acharya, Honorary Professor at ICRIER Delhi, and Chief economic advisor to the Government of India.

In his article, Prof. Acharya describes about a lecture conducted at ICRIER by noted economist Mr. Andrew Sheng. As rightly explained by Prof. Acharya, the market now is full of articles on the crisis, most of them being works of western economists. But there is few literature available on its affect on the Asian markets. Mr. Sheng's lecture describes about the very historical facts that led to build up the atmosphere for this crisis (Yes, according to Mr. Sheng, it had started as the fires of the previous downturn of 1929 was cleared up).


Click the Link below to read the whole article-

Global Financial Crisis-Asian Perspective

And needless to say, constructive criticism is invited on the article. Do post your comments.

FDI: To be or not to be??

Times of India, Feb 12, 2009: With the Government decision to ease the entry modes of FDI into the country, a great leap is expected in the areas of the already hyped retail sector, telecom, insurance etc. Earlier when a company invested in a company in India, it had to enter into a joint venture with an Indian partner. Suppose the contribution of the Foreign partner in this JV (Joint Venture) was 49% and that of the India Partner was 51%, and this JV started its own subsidiary in India, this subsidiary was supposed to be constituted of 49% FDI.

Now, with the cabinet decision on wednesday, a subsidiary from the above example would be considered as a 100% Indian entity.

It seems India has started changing much of its tactics, keeping in mind the fact that most of the past stock trends have been affected due to FII's instability.

India now seems to be locking horns with China, which has less FDI restrictions, but has more restrictions over the equity market. As a result, FII's find it very hard to enter China.

FDI entry and exit is a very difficult affair. First of all, there are the limitations which a foreign company can't exceed. Exit is also difficult, as Industrial laws mention that diluting a company employing more than 100 companies needs prior Government approval.

Now that the entry has been made easy, Indian's can expect more increase in FOREX levels. But there are also problems associated with this. Remember my earlier blog on Mao's cookie crumbling (http://fingertipfinance.blogspot.com/2009/02/renminbi.html)? Well, India could loose its cookie too, as more FDI in makes the value of Indian Rupee appreciate against the US dollar. This happens because the supply starts exceeding the demand. Imagine a shopkeeper holding excess of a particular product which he has to sell before it reaches the expiry. What does he do?? He lowers the rate of the item. That's what will happen with the dollar. 1$ that I used to get at Rs. 50 will now be available say at Rs. 42. So an American can now only get Rs. 42 of work done out of me for his 1$. Now he has to look for cheaper substitutes. That's where India looses.

Also, Indian goods could loose out their competitive value. Interest rates start coming down.

So even I am puzzled....Should we or shouldnt we....the choice is yours.

Your comments on this article are invited. Do participate.

The Yield Curve

In one of the previous blogs, I had mentioned about the negative yield curve. Well....thats what the economy is going through now. A negative yield curve is one of the indicators that has always played prequel to economic slumps in the past. An example can be quoted from the 1998 US Stock market slumpdown, during which the US market saw a lot of IT based startup companies who had borrowed a lot of funds for keeping the business running but in the end many went down. (I recommend Startup.com, a real life documentary, which shows the nuances of not only starting a new company, but also keeping it running during a market downturn)

To get an idea of an inverted curve, try plotting a graph between the rate of return for Government bonds and the period to maturity. If the plotted curve is sloping upwards, the economy has lots in store for you. If the curve is sloping downwards, and you are a fresher who has just arrived in the market, you are in neck deep trouble!!

Image Courtesy: www.Wikipedia.org

The New Curriculum

MBA aspirants joining this year & in the future may get to read a lot about the Satyam Scam & the fallen IT Czar Ramalinga Raju.

The question now being debated is whether fresh MBA grads ought to have their attention focussed on such a topic. There are some who feel that MBA's should know a thing or two about business ethics, and keeping that in mind is much more important than earning profits. Others say that such cases should be left to students doing CA courses and law firms as they are more involved directly in such cases.

According to me, a businessman needs to be aware of all his surroundings. People would think twice before they do something foolish or the other.

An MBA grad should know what has to be followed. There are many ways a company can earn its profits. Proper management happens when you take the right path of earning this profit. India is already dependent on FDI's & FII's on maintaining its stock market movement. Any similar mishap can make such investors loose their confidence in the Indian business environment, ultimately leading to more disaster.

Let us hope that there wont be another 'Enron' or 'Satyam' for us to study.

Thats how Mao's cookie crumbled!!!

You pick up your favourite toy you used while you were a kid when you notice that familiar yet unwanted tag- 'Made in China'.

One of the reasons why Chinese goods are preferred lies behind the way the Chinese currency Renminbi or more popularly called 'Yuan' is evaluated.

You see, currencies like Indian Rupee, American Dollar, GBP (Great British Pound) are traded openly in a separate market (also called as forex). This trading happens as long as each unit of currency holds a certain value against some other currency and this value keeps on changing.

I remember when I changed my Binocular with my brother for his geometry box (which I badly needed!). For my bro (who was 7 years old), Binoculars were like heaven. So he gave in.

That's whats happening with currencies. They trade when they hold value.

Now, in the last decade, for 1$ you could get 8.28 Yuan of work done! So as a company in US, I send more $'s into China. But later, in 2005, China valued Yuan to 8.11 Yuan/$. Now I am only able to get 8.11 Yuan of work done by my Chinese friends for my precious 1 $. It is at this point that I start focusing more on quality. I now start looking at countries which offer more quality goods.

Mortgage 'Cry'sis

The following document really taught me what happened at the other side of the globe which caused such a huge turmoil world over. (PLEASE NOTE: CONTAINS OBSCENE LANGUAGE)

All thanks to Ivy League MBA's who have put us in such a shape- here's the link- http://docs.google.com/Present?docid=ddp4zq7n_0cdjsr4fn

Top 10 Global Financial Brands 2009

The latest Global Banking 500 list points to the magnitude of the blood bath in the global financial markets. There is a steep drop in the Top 500's overall brand value by a whopping $ 218.1-billion (down 32% from 2007) and $3.9 trillion (down 51%) shaved from their market capitalisation during 2008!

As many as 209 brands present in 2007 league table have dropped out of the new list. Notable exits include the bailed Fannie Mae and the bust Lehman Brothers whilst the salvaged Merrill Lynch and Wachovia tumbled in the ranking table by as many as 30 and 59 places respectively.

HSBC, though able to hold on to the numero uno position in the Global 500, saw its brand value erode by a around 28% to $25.4-billion in 2009.

The beleaguered Citibank which was edged out from its No 2 rank in 2007 to No 7 in 2008, saw a massive $ 18-billion in brand value erosion last year.

Here are the Top 10 Global Financial Brands of 2009-

1. HSBC
2. Bank of America
3. Wells Fargo
4. Santander
5. IND & COMM BK OF CHINA
6. American Express
7. Citi
8. BNP Paribas
9. China Construction Bank
10. Chase

Courtesy: Times of India