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TRENDS FOR 2023
Although the calendar year changes, it does not necessarily mean that the trend changes because they do not follow calendar years.
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Long Grind in the US
Although the consensus was that the time was for a recession for the US, Ruchir thought there would be a gradual slowing of the US economy. In actual fact, the US economy did surprisingly well at 2.5% growth, a lot due to Government spending. Part of Europe was in recession; China did poorly.
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Dollar has Peaked
The Dollar Index as a whole has gone down
by 3%. This is the basket. More than half the
currencies in the world have appreciated
against the dollar. The rupee was
remarkably stable.
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When America goes down, the rest of the world will go up.
The US equity market went up 27%, whereas
the rest of the world went up just 15%. The
magnificent seven tech stocks in the US
pulled up the whole market by going up
about 100% in the year. The rest of the US
did not do too well.
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Tech stocks are going to shrink
This did not happen because of the rise of AI
and, once again, the magnificent seven
outperforming.
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Money spent on TV will reduce,
and content will improve
TV spending had a 25% p.a. growth over the
last 5 years, which in 2023 crashed to 9%.
However, the revenue per user went up as
the content improved.
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Japan is back
Japanese stocks went up 25%. They were
stuck in a deflationary cycle and could
benefit from global inflation. The
confidence in Japan has come back.
However, we did not see it as the Yen
weakened.
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A move to outsourcing outside of
China
The investment of the US in China went
down, and most of it went mainly to Mexico,
Canada, Vietnam, Taiwan and India in that
order.
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Return to Orthodoxy
Many countries did return to more orthodox
policies. Interest rates have gone up, and
the costs of funds are up. In this
environment, discipline is put on countries -
Turkey and Argentina are more conservative
in their government policies.
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Relief from Elections
The stock market would welcome new
leaders After the elections, Argentina’s
markets increased by 31%, Turkey by 29%,
and Poland by 27%.
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Look out for BlueBirds (as opposed
to Black Swans)
In early 2023, there were a lot of gloomy
forecasts. But Ruchir predicted BlueBird
events would see lower inflation and the
stock market booming. We did have the
shock of the Israel-Hamas conflict, but even
that has not affected the oil prices.
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PREDICTIONS FOR 2024
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This is the biggest year for
Democracy.
46% of the world population will have
elections this year - the highest since 1800.
Only 30% of the Governments are voted
back. This was the opposite 10-15 years ago.
Given the low approval ratings despite the
economies doing okay, there is
unhappiness with the leaders this year.
India seems to be an outlier here.
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Epic Clash: Politicians vs Investors
With elections coming, Governments would
like to spend more. As a percentage of GDP,
the fiscal deficit in the US has gone from
3.5% to 6%, which will continue for the
foreseeable future; India has gone from 4%
to 5.5%, and Mexico from 2% to 4%. Hence,
investors will demand a higher interest rate
to hold Government debt. In India, the state
government's deficit is at an all-time high.
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Backlash against Immigrants
In the last 4 years, immigration into the US
has been up 35%, the UK is up 45%, Canada
is up 20% and Australia is up 25%. The
number is just legal immigrants - illegal are
much higher. There is resentment against
this. However, it has helped India because
last year, NRIs remitted US$ 125 bn - 3% of
GDP; if you add NRI deposits, that is another
3.5%. There is a positive aspect for the
developed economies as immigrants
helped ease labour shortages, reducing
wages and hence helping inflation to cool
off. However, immigrants lead to social
tension.
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No Bust, but a slowdown is inevitable
Stocks are not as overvalued as they were in
2021. The rise in interest rates in the US did
not have a significant impact because, in
most cases, interest rates are fixed. Over
time, there will be a slow impact as interest
rates have to be refinanced. The
expectations from India are too high, and
the stock market is the most expensive in
the world. The PE in India is 22 times,
whereas the average of the rest of the world
is 15 times. The volatility in India is low,
mainly because retail speculation is high
and dips are bought into.
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Time for Europe to bounce back
Since 2011, Europe has underperformed the
US, and the gap has widened. Europe's
positives, with very low expectations:
- Europe's savings rate is higher
- Europe's inflation has fallen more, and its energy crisis is more or less over.
- Wage growth is gradually rising
- Interest rates are more flexible.
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China is fading, and the economy is shrinking
The gap between the US economy and
China's economy is widening. China is
slipping in share of global growth. For the
first time ever the FDI inflow is negative -
fallen off the cliff. India is getting 1% of GDP
as inflows, whereas other Southeast Asian
countries are getting 3-4% of GDP as
inflows.
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Stars emerging outside of China
FDI flows as a percentage of previous flows
are going to Vietnam, Chile, Indonesia,
Poland (has increased three times), Mexico
and even India to a certain extent. So this
trend is going to continue. Flows to China
will fall and will be sent elsewhere going
forward. This will only increase if the dollar
weakens.
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Dollar decline could accelerate
The down cycle of the dollar has just started
and could continue for a few years. An
alternative to central banks’ holdings could
be gold (we have been talking about this
often in the last few months), and central
banks have been buying unprecedented
amounts of gold. The US made a big
mistake when it weaponised the dollar and
the swift system, which accelerated the
dollar's decline.
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The hype in AI stocks will get a
reality check
AI companies are going to find it difficult to
monetise the technology. The rest of the
tech world has been in a mini-recession as
many of them have been shedding jobs -
over 70,000 jobs. Similar things happened in
the dot com boom - where companies took
time to monetise and had to go through a
bust first and then have more realistic
expectations of growth.
In India, too, there was a mini-recession in
tech. The investment in tech start-up funds
dropped from US 41 bn 3 years ago to US 25
bn and now just to US 7 bn.
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Political Agenda is hurting
movie-going
In India, there is an obsession with cricket. In
the last 15 years, IPL rights revenue has gone
up from 0.1 bn to 1.6 bn, and box office
revenue has gone up from 0.4 bn to 0.85 bn
in the same period. Cricket has been more
democratic, where players from small
towns are a success.
Movie makers have their own political
agenda and have forgotten how to
entertain. For example, Napoleon was
portrayed as a grumpy old man with
nothing redeeming. Oppenheimer, too, was
a political film. Even in India, we make films
like Atul, Sam Bahadur, and Fighter (loosely
based on the Pulwama attack)
Movie-making needs to go back to being
pure entertainment.
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EQUITY MARKET
The market could have a bit of time correction, but any fall in the market can be an opportunity to buy more equity. The long-term
Bull Run is intact. There is always an Event risk possibility (such as escalation in war), which is challenging to plan for. Focus more
on large-cap funds. However, there are no worries in the economy or market.
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DEBT MARKET
The interest rates are slowly drifting lower.
Will likely be range-bound until the
post-election budget, depending on the
Government's borrowing programme. The
US Federal Reserve rate cut could also
affect our interest rates.
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GOLD /SILVER
MARKET
Currently, this is also range-bound
in the short term. However,
holding gold/silver is a great
hedge against an event risk.
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