Aurelia Butler

MUMBAI (Reuters) – Indian investors are looking to increase the proportion of debt in their portfolios on expectations of a peak in policy tightening, a desire to lock in high yields and as a diversification from expensive stock markets, analysts and fund managers said.Debt investments offered barely any increase in returns last year amid high volatility due to the Ukraine war, aggressive rate tightening by the U.S. Federal Reserve and the Reserve Bank of India, along with steep global inflation.Meanwhile, returns stagnated in 2020 and 2021 with low yields, after the pandemic led to massive rate cuts. “People are getting a sense that we are reaching a peak of the rate (hiking) cycle,” said Alok Saigal, head of wealth management firm Nuvama Private, which has 1.2 trillion rupees ($14.58 billion)of assets under management.”We are actually getting incoming demand from clients asking us for opportunities or avenues where they can lock in yields, where they can allocate a reasonable amount of money to fixed income,” he added.The 10-year government bond yield has risen 87 basis points (bps) in 2022, whereas AAA-rated benchmark short-medium corporate bond yields moved up 150 – 200 bps.As company valuations jumped over the last two years, the opportunity cost of investment in equities has risen, leading to incremental fund flows to debt markets.Equity markets, particularly in India, performed exceptionally well over the last three years as domestic investors plowed savings into stocks amid negligible or even negative returns from fixed income assets due to low rates and high inflation. GRAPHIC: India debt and equity mutual fund scheme flows – https://www.reuters.com/graphics/INDIA-MARKETS/gkvlwxgmnpb/chart.png MOVE FROM EQUITIES INTO FIXED INCOMEThe gross yield-to-maturity of debt mutual funds has moved up to 6.75-7.75% versus 4.5%-5.5% in 2021, offering a “very good” entry point for investors from a medium-term horizon, said Unmesh Kulkarni, managing director and senior advisor at Julius Baer India. With inflation continuing to stay high globally and the risk of sustained rate hikes from global central banks pushing economies into a recession, 2023 is likely to be challenging for equity markets.”Poor global economic growth is not very good news for equities,” V.K. Vijayakumar, chief investment strategist at Geojit Financial Services said.Vijayakumar said he expects fixed income assets, including government and corporate debt, to offer more than 8% returns this year, against less than 6% in 2022.Nuvama’s Saigal said returns could go above 10% if investors are willing to take risk and hold on longer in their portfolios.POTENTIAL HEADWINDSWhile 2023 seems relatively better for fixed income in India, it is not without its share of uncertainties, analysts said.Even as the RBI is expected to ease the pace of rate hikes going forward, global central banks may be unrelenting given the stubbornly high inflation.”The global situation is the most relevant risk at this point in time,” Julius Baer’s Kulkarni said.”This could constrain the RBI from pausing too early, as any compression in the interest rate differentials could adversely affect flows into Indian debt markets and also put pressure on the INR, which has already suffered heavily over the past year.” (This story has been refiled to add source in the headline, and also rewrites paragraph 1)($1 = 82.3310 Indian rupees) More

Welcome to the first Trade Secrets of 2023. I used to do New Year predictions for the twelve months ahead, sometimes even moderately accurate ones. But that was in the days when trade policy involved discrete initiatives whose outcomes you could actually judge — investment agreements, appointments of World Trade Organization directors-general, retaliation on digital services taxes, futile attempts to make China buy American soyabeans . . . that kind of thing. These days, globalisation’s being bounced around by a whole range of interconnected macroeconomic and geopolitical issues: world growth, inflation, the US-China tech tussle, global energy shocks, Covid-19 and the Ukraine war. My one firm prediction is that we’ll see a lot of trade folk having to learn new stuff very quickly, including here at Trade Secrets.Today’s main piece looks at how these cross-cutting issues affect one of the biggest running stories: the US’s aggressive moves on industrial policy. Charted waters is about the UK’s food price inflation problem. As usual, if you have views you wish to unload, email me at [email protected] impulses and contradictory aims . . . Joe Biden left no doubt about his intentions for 2023. It was, he tweeted to the world on January 5, “the year of buying American”. It’s dawned on the US’s trading partners that the president was really serious about using spending, regulations and export controls to establish and maintain leads across a swath of tech products. The US is also clearly not going to let international trade rules stand in its way, as the USTR’s contemptuous dismissal of the WTO ruling against its national security tariffs showed. So how does the rest of the world react?It’s a tricky one, because the US has mixed motives and multiple goals. That’s not surprising: Biden is, all at once, new cold war anti-China warrior with alliance-building instincts who believes in boosting American manufacturing and combating climate change. He is large, he contains multitudes.In domestic economics/industrial terms, he’s trying to promote all of the following: products with genuine national security implications (semiconductors with military use)high value-added products where the US wants a global lead (electric vehicles)products whose workers, especially unionised ones, might swing elections (steel)lower US income inequalityIn geopolitics/geoeconomics terms, he simultaneously wants to do these:combat climate changemake the US self-sufficient/secure in critical goodsbuild regional and global alliancesproject US interests abroadIt’s clear these immediately set up conflicts. See this review of my FT colleague Rana Foroohar’s book showing that some of the anti-globalisation crowd have finally got the economic localism they want, but in the wrong way and for the wrong reason, ie bashing China. (The greatest treason, and so on.)For example: the infamous electric vehicle credits in the Inflation Reduction Act address the high-value added product goal and — having now added Canada and Mexico as beneficiaries — the regional alliance goal. But they undermine the climate change target by restricting competition that might provide Americans with the cheapest EVs, and also the global alliance goal by annoying the Europeans, Japanese and Koreans.The national security steel tariffs, and their quota descendants, address the swing voter goal and the self-sufficiency goal — though seem unlikely to reduce inequality much, like all of trade policy. But again they annoy global allies and mean ignoring the WTO, thus absenting the US from a leadership role in the global economy.. . . make for mind-bending trade diplomacyWhen it comes to implementation, the administration thus has to pick its way carefully and try to hit as many targets as possible, which gets trickier when you add in folks on Capitol Hill with different preferences. The US Treasury is tweaking the EV credits to allow in EU, Japanese and Korean vehicles, but that is annoying Buy America (or Buy USMCA) senator Joe Manchin of West Virginia, who wants to hold up the implementation. Manchin’s fellow Democratic senator Raphael Warnock of Georgia is also trying to delay the subsidy handouts but for an opposed reason, wanting time for the Hyundai plant in his state to get up and running first.This means the US’s trading partners and supposed allies having to do tricky calculations of optimal political responses. Do they rely on quiet diplomacy to negotiate loopholes in the IRA, relying on Biden’s alliance-building instincts, or file a WTO case to increase international pressure?Does the EU go along with the US’s plans for a green steel club? That would advance transatlantic harmony and boost steel production, but undermine Europe’s plans for the carbon border adjustment mechanism and make Brussels vulnerable to a WTO challenge from China and others.Do the EU, Japan and Korea try to integrate their own semiconductor supply networks with the US, or go for self-sufficiency? And if it’s the latter, where does the money come from?That’s even before we’ve thrown in other strategic considerations — the EU desire to keep the Americans engaged in Ukraine, the US attempt to rope Europe into a general anti-China stance on everything, the emerging non-aligned movement of middle-income countries that doesn’t want to take sides in a superpower argy-bargy.These are fiendishly hard judgments to make, and I’m not going to predict how they’ll turn out. As the old saying goes: I don’t have a solution, but I do admire the problem.As well as this newsletter, I write a Trade Secrets column for the FT website every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersSometimes the British reputation for gloominess seems justified. Headline inflation is bad in the UK, but the rise in the cost of food for the nation is even worse.

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But wait. Is there a silver lining to this cloud? It seems that consumers — or at least supermarket shoppers — are not bearing the brunt of this element of the cost of living crisis. That headache is primarily being suffered by the farmers and the supermarkets themselves. OK, so still not such good news for the country as a whole. (Jonathan Moules)Trade linksThe New York Federal Reserve’s measure of supply chain pressure, after falling sharply between May and September, levelled out above its historical average between October and December. Renewed problems with Chinese supply thanks to its Covid-19 lockdowns prevented further declines.China EV makers are worried by the end of state subsidies and shortages of semiconductors.In a striking indication of the complexities of the relationship between trade diplomacy and geopolitics, Taiwan has asked to join dispute proceedings on China’s challenge to US semiconductor export controls at the WTO, though it’s not clear whose side it will take, or indeed whether it’s picking sides at all.My esteemed FT colleague Helen Thomas completely nails the problems with politically motivated industrial policy, here with regard to the UK’s repeated bailouts of its steel industry.Rishi Sunak, the UK prime minister du jour, is reportedly preparing one of Britain’s now regular capitulations to Brussels over post-Brexit arrangements, in this case by meekly postponing till after the country’s next general election the repeal of EU law applicable in the UK.Trade Secrets is edited by Jonathan Moules More

The emergency declaration authorizes the Federal Emergency Management Agency (FEMA) to coordinate disaster relief efforts and mobilize emergency resources, the White House said in a statement. In the last week, severe weather spawned violent wind gusts that toppled trucks, flooded the streets of small towns along northern California’s coast and churned up a storm surge that destroyed a pier in Santa Cruz. More

Investing.com — China has effectively ended its campaign to clamp down on big Internet companies, a top official said a day after Alibaba (NYSE:BABA) founder Jack Ma relinquished control of financial services giant Ant Group. In Brazil, police restored order after a mob supporting ousted President Jair Bolsonaro stormed Congress and government buildings on Sunday. Over 300 arrests were made and incoming president Lula da Silva promised to punish the perpetrators. Stocks are set to open higher, building on Friday’s gains after a ‘Goldilocks’ jobs report, but videogames publishers are under pressure after a big profit warning in the sector. And crude oil surges as China signals it’s preparing for a big rebound in consumption this year. Here’s what you need to know in financial markets on Monday, 9th January.1. China’s crackdown on Internet giants is overA top Chinese official declared the two-year clampdown on Internet companies over, spurring a rally in technology stocks.Guo Shuqing, chairman of China’s Banking and Insurance Regulatory Commission, told state media that the authorities had effectively ended its campaign against the country’s big platform companies, after months of regulatory actions that have made a huge dent in the fortunes of China’s biggest Internet entrepreneurs.The announcement came a day after financial services giant Ant Group announced Jack Ma had given up control of the company, an apparent quid pro quo for it getting approval to raise capital.Alibaba ADRs rose 5% in premarket trading as a result.2. Lula back in charge after Bolsonaro supporters storm government buildingsPolice in Brazil said they had completely restored control over government and Congress buildings after they were stormed by supporters of the ousted right-wing President Jair Bolsonaro on Sunday.Bolsonaro criticized the perpetrators and denied any involvement in the riot, which echoed the January 6th riot at the U.S. Capitol that followed the election defeat of President Donald Trump. Incoming President Ignacio ‘Lula’ da Silva promised to punish those responsible and said he will “follow the money” in an investigation into who was behind it. Over 300 people were arrested.Brazil’s Supreme Court, meanwhile, suspended the governor of the capital Brasilia for 90 days, owing to his failure to pre-empt the riot.3. Stocks set to open higher; Wall Street job cuts eyed U.S. stock markets are set to open higher, building on Friday’s gains made after a December jobs report that invited speculation on when the Federal Reserve will pivot from raising interest rates to cutting them.The report had shown growth in jobs and wages slowing to a more sustainable level, without giving signs of an imminent recession, bolstering hopes that the Fed might still achieve its aim of a ‘soft landing’ for the economy.By 06:30 ET (11:30 GMT), Dow Jones futures were up 85 points, or 0.3%, while S&P 500 futures and Nasdaq 100 futures were up by a similar amount. Stocks likely to be in focus later include Deere (NYSE:DE), which may come under pressure after agreeing to let farmers repair their own Deere machinery. A deal signed at the weekend with farmers’ representatives threatens a lucrative stream of after-sales service for the company.Also in focus will be Goldman Sachs (NYSE:GS), which was reported by Bloomberg to be preparing its biggest round of job cuts since 2009 after over-hiring during the pandemic.Cannabis company Tilray (NASDAQ:TLRY) is due to report earnings.  4. Videogames publishers in spotlight after a big profit warning in EuropeAnother area of focus on Monday will be videogames publishers, after U.K.-listed Frontier Developments (LON:FDEV) reported a big slowdown in sales of its flagship Formula 1 racing game.Frontier said demand for its F1 Manager 2022 game fell “materially below” expectations in 2022 while sales of other titles like Planet Coaster and Jurassic World Evolution also missed estimates. Its indicated revenue may fall in 2023.  While not a big name in the global sector, Frontier’s F1 Manager 2022 is a benchmark for that particular niche of gaming, giving the results a potential read-across to other names such as Electronic Arts (NASDAQ:EA) and Ubisoft (EPA:UBIP). The latter fell 3.5% in morning trading in Paris.5. Oil surges on signs of Chinese demand reboundCrude oil prices surged after China announced a big rise in import quotas for the coming year, suggesting it is preparing for a big rebound in demand as it reopens its economy. Reuters sources indicated a 20% increase from 2022 import levels.By 06:45 ET, U.S. crude futures were up 3.3% at $76.17 a barrel, while Brent crude was up 3.0% at $80.89 a barrel.The impact of the change in China’s public health policies will be in evidence over the next week, as Chinese travelers gear up to travel without restrictions during the Lunar New Year holiday for the first time since 2020.Elsewhere, a brief threat to the spot market quickly evaporated after a ship that had run aground in the Suez Canal was freed by tugboats, allowing traffic through the vital waterway to resume quickly. More