Post-Brexit Turmoil

Britain is in a tight fix now as it faces the uphill task of negotiating terms with the EU and trying to find a new normal. Britain wants to know what things with the EU will look like before beginning the official process of separation, however the EU wants the process of separation (invoking article 50 of the Lisbon Treaty ) to be kick started and official before it begins to even negotiate about how things will be like.

In addition, a record $3 trillion was wiped out of the global market in a span of 2 days because of Brexit. The panic caused by Brexit also saw investors fleeing to safe havens of government bonds and precious metals.

Two things seem to be for sure though. One, volatility is here to stay for a while. Two, the Fed is unlikely to raise interest rates in the near future.

 

 

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The Exit of India’s Banking Watchdog

Royal Bank of India’s (RBI) governor, Raghuram Rajan, has been let go at a precarious time in India’s economic development. Before Rajan could make any headway in his initiative on pushing lenders to clean up their act, his term ended and it was not renewed. Rajan had rejected the idea of the central bank pressing its own balance sheet into rescue efforts and rightly so, but the government could still help itself to the monetary authority’s equity and use the funds to bail out troubled lenders. It is estimated that it will take RBI about $59 billion of its capital for a bank clean up. This could have a major impact on India’s economy if not handled well.

SO Brexit happened. Now what?

And Britain has finally exited the European Union (EU) after 43 years. The markets’ immediate reaction? The Pound fell to 31-year low (1985 levels) of US $1.32 to the British Pound, and the FTSE 100 fell 7.3% at press time. It is almost definite that European Markets will probably take a hit, and European equities and fixed income asset classes will be under pressure. Asia is not likely to be hit badly by Brexit, because its investments in the UK and Eurozone are very limited. But the world economy has taken a blow, and because of this, Asia will also be affected.

Why must we invest?

Investing is the counter balance to inflation. Currently, inflation stands at an average of 3% per year. We can’t deny or avoid it: Our money is shrinking with each passing year when it is left idle in the bank. Of course we must diversify, so we should put some money in fixed deposits and bond funds. But the real money grower is equities, because they have much upside potential. In the long term, and I look at a time horizon of 20 to 30 years, equities will appreciate. Think of your money invested in equities like a girl with a yo-yo riding on an upward bound escalator. Yes, the stock market will go up and down like a yo-yo and there will be volatility with the extreme swings and all, but in the light of the bigger picture, the escalator is upward bound, so your money will also grow.

What’s happening in India?

When it comes to investments, somehow investors tend to overlook India. When people mention India, multitudes of starving people begging in the streets, underdeveloped infrastructure and rural villages come to mind. India, however, is a developing economy with the world’s second largest population. Its economy grew by 7.9% year-on-year in the first three months of 2016 and the GDP annual growth rate had an average of 6.07% from 1951 till 2016. This is very impressive to me. 

Also, the long-term growth prospects of the Indian economy are positive due to its young population, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. The Indian economy has the potential to become the world’s third largest economy by the next decade, and one of the largest economies by mid-century.

What should one invest in then in India? Well, for a start, its service sectors contributed to 57% of GDP in 2012 to 2013. India has become a major exporter of IT services, Business Process Outsourcing (BPO) services as well as software services. So the next time you think of investing in a single sector, don’t forget India.

Sentiments on China

Is China facing an uphill task to overhaul its economy? Definitely. Can China pull through this tough patch and set its economy straight? Many are pessimistic about it, but there are experts such as Jim Walker, a long-time China bear, who think otherwise. “I was more worried about China four years ago than I am today,” says Walker. He feels that it will not be China’s 1 trillion dollar debt, corruption, communism or shadow banking that will cause trouble for the country, but rather the overly pessimistic global sentiments towards China. “The real job for me now is to critically assess whether there are enough things in the China bag of tricks to avoid a catastrophic outcome,” said Walker during an interview in Beijing last week. “At the moment, I would say there are.”

Japanese Yen

With the world economy undergoing a roller coaster ride and global equities undergoing high volatility, investors are seeking a safe haven in the Japanese Yen. Although the Yen has been weak against the dollar for a great many years, people still feel it is a safe currency to put their money into because of its stable prices and perhaps because of Japan’s current prime minister, Abe, and his radical promises to reform the Japanese economy.

Investing in Property

The first property you buy will probably be your home. Unlike stocks and bonds, equities and unit trusts, you will naturally feel emotions when buying and selling your home. A physical house carries with it hopes and dreams, memories and possibility. However it is these same emotions that cause people to make costly financial mistakes when transacting on a house. A word of advice: Don’t spend and commit yourself beyond your means and budget. It takes money to build a house but it takes love and family to make a home.

Starting Young

A good piece of advice about investing is to start investing when you are young. Once one starts getting income, one should start investing. Time is your best friend when it comes to investing. The longer you have, the more opportunities you have to make your money grow for you.

Trump Vs Clinton

If Donald Trump wins the presidential elections, I think the world had better be ready for some radical changes. Trump is quite the character and is unabashed in his attitude, views and brash words. He promises to ban all Muslims from entering the US, build physical and metaphorical “walls” to protect Americans and keep out undesirable foreigners. He is also pro-life. I think he will run America as though it is his company, yet he is the trump card of chance and possibility.

If Hillary Clinton wins the elections, what would that mean for America? Some parts of her vision include strong pro-choice abortion laws, attempts to end substance abuse and gun violence in America, a green America that will be the clean energy superpower of the 21st century and a fairer campaign finance reform which will amplify the voice of the everyday American. It all sounds good and well and I think that compared to Trump, Hillary seems to be the voice of reason and security.

But will either president be able to implement their vision and carry out all their promises to Americans? Nonetheless, the 8th of November will be a landmark watershed day in America’s history.