Financial Turmoil: is tiger ok?

Everyone heard about the financial turmoil which all started mid-last year. And the effects can still be seen, primarily the wall street financial institutions (heart for financial services), but Bay street banks aren’t that far behind. Although the credit crunch triggered a major slow down in the US and arguably in Europe, many emerging markets such as India, and China, maintained their momentum giving a rise to theory of “decoupling” (in simple words, economies of India and China are no longer dependent on US economy, which was the case few years ago).

With emerging markets offering higher alphas or higher returns, global investors who have appetite for risk have been shifting their assets to these fast growing emerging markets. Speaking for India specifically, I believe the economy has already showing signs of overheating. India are reeling under high inflation and price rise which is seriously affecting the poor and low income groups since the impact is severe on food and related commodities. Though the inflation rate is stated to be around 12% this is based on Wholesale Price Index. Retail/Consumer price index would be far higher and if we add housing, education and health care costs it is unbearable. Not to mention last year’s stock market for both India and China, have fallen sharply.

A lot of things happening here: a money in flow from foreign investors, oil prices going up, food prices going up. Foreign capital inflows will only fuel inflation. The more foreign capital that flows in, more the CB would need to buy in dollars to hold down rupee, which means printing money (no, only they can do it!!! haha) or by raising reserve requirements for financial institutions. When it comes to India, many think is it too hot or is it too cold? Is it politics or is it economics.