India may not benefit much from the recovery prospects of US economy in 2011 for it is a low export-oriented economy, said Macquarie Securities. However, this prospect is expected to help Indian information technology (IT) companies, to which many American companies outsource their IT work.
"India stands out as substantially less export-driven overall (among ex-Japan Asian economies), with the region's lowest export/(gross domestic product) GDP ratio by far - a critical defensive quality during periods of weak global growth, but arguably a comparative liability as global demand revives," Macquarie said.
Of the five largest Asia ex-Japan Index constituent countries (China, Korea, Taiwan, India and Hong Kong), Korea and Taiwan demonstrate the largest trade correlation with US capital expenditure,whereas HK and China's exports to the US correlate more strongly with US consumer spending and India simply remains much less export-intense overall.
FII story
- Korea and Taiwan demonstrate the largest trade correlation with US capital expenditure among the five largest Asia ex-Japan Index constituent countries (China, Korea, Taiwan, India & Hong Kong)
- Hong Kong and China's exports to the US correlate more strongly with US consumer spending and India simply remains much less export-intense overall
- India's export-GDP is at about 15%, while Hong Kong and China have 40 per cent, with most of their exports going to US
- About 35-40 per cent of the US business spending goes to IT and electronic hardware & equipment
- Foreign net-buying/selling data for the six Asia ex-Japan markets that publish data show substantial shifts in emphasis since November from India- & ASEAN-oriented buying toward Korea and Taiwan
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India's export-GDP is at about 15 per cent, while Hong Kong & China have 40 per cent ratio, with most of their exports destined to US. Stronger US prospects are beginning to reveal themselves is in US firms' reported capital spending intentions, as reflected in the Philadelphia (state's) Federal Reserve's monthly survey/diffusion index. Historically, some 35-40 per cent of US business spending goes to IT and electronic hardware and equipment - suggesting a potential lift for Asian electronics and capital goods producers' export earnings as the US recovery gathers pace in 2011.
"Asia's more US focused, trade-intensive, and electronics-and capital goods-intensive equity markets stand to benefit more," Macquarie added. The US' Federal Reserve (US counterpart of the RBI) has a few days back kept its policy rates unchanged, in order to give further impetus to economic growth.
Foreign net-buying/selling data for the six Asia ex-Japan markets that publish data show substantial shifts in emphasis since November from India- and ASEAN-oriented buying toward Korea and Taiwan.
Among the six Asia ex-Japan local stock exchanges that provide data on foreign net-buying/selling (i.e. Taiwan, Korea, India, Thailand, Indonesia and the Philippines), there was a substantial decline since late November in India's share of total Asia-bound flows to just 14 per cent of the latest four-week sum against 50 per cent during September-October and a dip to net-selling of the Thailand, Indonesia and the Philippines (TIPs) in aggregate in November, which shifted back into netbuying thus far in December.
Foreign investment inflows into Indian equities in 2010 so far have touched an unprecedented $28.5 billion (or Rs 1.31 lakh crore), including their investments into the primary market, which encompasses initial and followon public issues, about $4.12 billion (or Rs 18,293 crore) of it coming in November alone, according to data provided by the Securities and Exchange Board of India (Sebi). However, in the current month they are a bit lukewarm India with net investments till 16th in the negative at $298 million (or Rs 1,314 crore). However, the Bombay Stock Exchange (BSE) data shows that Foreign Institutional Investors (FII)s have unwound their positions worth Rs 3,922 crore in December till date.
The most robust 2011 earnings per share (EPS) upgrades since November are occurring in externally-driven and business spending-driven sectors such as semiconductors, capital goods, and transport, while EPS estimates in domestic sectors such as retail and food and beverages (F&B) languish or decline.
However, Macquarie allayed fears that the growing clout of the US equities backed by its economic growth, would play out to be a zero-sum game (one will succeed while the other will fail) for the Asian equities till the US economy reports sustainable growth rates. But interest in fixed income market is expected to shift out of some Asian markets.
Courtesy: Mail Today
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