Apeksita

We just bid adieu to the year 2015 and it is time for our very own form of Apeksita. Indian astrologists have scientifically developed tools and techniques to predict the future. In essence, they used astronomy to predict the affairs of men, whether in personal or professional matters. This prospective glance in Sanskrit is known as Apeksita. It is human nature to be obsessed about the future. As a lifelong student of the stock market, I think it is important to reflect on the Apeksita of the markets in 2016, though not trying to portray myself in the shoes of a market astrologist.

The bumpy ride which closed off 2015 is expected to continue in 2016 for investors. Emerging markets, once the key engine of global economic growth, has come to an abrupt halt. The youthful years of China economic development has decelerated. Russia is expected to be entering into a major economic chaos, driven by a combination of factors, including low energy prices, collapse of its currency, central government economy mismanagement and a number of economic sanctions. Brazil is facing similar economic fate like Russia. Outside the emerging countries spaces, things are looking murky as well. European countries are yet to come out of the death spiral. Tepid growth in US is yet to show further traction. Further rate hike may cause financial tremors across the globe. The global economic situation, at this point in time, is akin to a barrel full of gunpowder, which can go off any time. The financial market meltdown since the start of 2016 is a testimony that the blast did occur (S& P 500 -7.5%, Nikkei -7.4%, Hang Seng -9.9%, BSE Sensex -6.6% in dollar term). This toing and froing of global stock markets is expected to continue in the short to medium term.

Last November terrorists attack in Paris, social and economic mess in Syria, diplomatic tensions between Saudi Arabia and Iran are poignant reminder that a tiny spark may cause a huge fire in the peace and harmony of the world economy. A classic example to justify the economic consequences of rivalry between any OPEC members cannot be underestimated. Any tensions between these countries may cause oil price either to shoot up or go down. It may inch higher due to subdued supply or go down due to scaling up of massive oil reserves. On both counts, financial markets may be on tenterhooks. Oil price is already battered by the twin pressure of excess supply and subdued global economic growth. Geopolitical and terrorist threat are dangerous watershed having dire economic and financial woes. Policymakers must face up to the reality and take responsibility for both their actions and inactions, though success are not guaranteed either way.

‘No country is an island entire of itself’ – (John Donne). Mauritius has recognised this and has become fully integrated into the world economy by way of trade in goods and services. For the past few years the Mauritian economy has stagnated, hovering around the 4% GDP growth. Youth unemployment is a source of worry due to a mismatch between the industry demand and education supply. The investment rate is hovering below the 20% mark. For job creation, increase in Foreign Direct Investment (FDI) is a must. Recent roadshows by the current governments in Malaysia, Middle East and India are expected to boost the inflows of capital. Presently, the emphasis should not only be geared towards public investment in infrastructure viz ports, dams and roads. The development strategies must also include a good dose of private markets development, human capital development (skills and training) and sustainable reforms in institutions and governance.

Nearly $ 3.2 trillion has been wiped off global stocks since the start of 2016 and yet nobody expected (apeksita) this bloodbath. A sense of 2008 ‘Deja Vu’ economic and financial crisis is not expected. Financial and economic forecasting is turning to be a difficult science these days; even witchcraft business is bearing the brunt of forecasting. As investors, we need to get accustomed to low economic growth and one should enter the financial market at good prices, in companies displaying excellent economic moat.