Friday, January 2, 2009

From Brad Setser's Analysis of China's Exports

My comment on Brad's post :
(I might be making some corrections/additions to this later)

I find Brad's analysis very interesting from an Indian market perspective. Thanks a lot Brad for your insightful post. The Nifty has rallied from its October low of around 2500 to around 3050 levels at this writing.Over the last 4 trading days volumes have been low (presumably affected by the holiday season) and the rally has proceeded in the range upwards from around 2810 to 3050 in these 4 days. The November trade data for the Indian economy is out. It shows a contraction of around 9% plus in merchandise exports in Nov 2009 and an increase of around 3%plus in non oil-imports. India's fiscal deficit and current account deficit are both widening and forex reserves are falling.Today the Govt. of India is expected to make an announcement regarding further stimulus programs after market hours. Speculation in the marketplace is around the following factors:1) The Govt. stimulus program is expected to be bullish.2) Earnings for the Sep-Dec Quarter will start to be announced around 10 days from now.This is expected to have a negative effect on market sentiment.3) Global cues are being closely watched. FII buying has begun in Dec 2008 after a selling trend throughout 2008. However, if you total up FII turnover from the previous trough onwards you get a negative total (i.e. more sales than purchases)Given your analysis that "the global environment is changing in ways that will make it harder for China to avoid a sharp downturn in its exports no matter what China does" I believe it applies to India's merchandise exports as well.Merchandise exports are around 15% of India's GDP and exports total up to around 32% of GDP overall. Your post reinforces my bearish outlook on the Nifty for the January series.At the same time you have to remember the recent rally on the Nifty has been led largely by HNIs and retail investors rather than institutional buying.The current bear market rally can either be artificially extended beyond the earnings season, or there could be a natural collapse to re - test the October lows of 2500.

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