Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

<h2>India (neutral); bull and bear factors remain finely balanced before election</h2>The deterioration in India’s macro-economic ratios has continued apace with further rises in energy prices compounded by the fall in the value of the <a href="https://www.smartkarma.com/entities/22832" target="_blank" data-smartkarma-citation="entities:22832:1">INR (USDINR CURNCY)</a>. The most pronounced deterioration has occurred in the fiscal deficit which now stands at 6.5% or 7% and rising, if the regional deficits are fully accounted for, compared with an average of 5.5% during the 2009 to 2013 period with government debt standing at 70% of GDP.The current account deficit has also widened with forecasts up to 2.8% of GDP for the fiscal year ending in March 2019, but this still compares favourably with just under 5% recorded in 2013, whilst the current core CPI inflation rate of around 5.8% is significantly below the 10.1% average recorded between 2009 and 2013. The perception that the RBI is behind the curve in terms of monetary tightening, will begin to dissipate if UST yields and oil prices continue to fall.

India (neutral); bull and bear factors remain finely balanced before electionThe deterioration in India’s macro-economic ratios has continued apace with further rises in energy prices compounded by the fall in the value of the INR (USDINR CURNCY). The most pronounced deterioration has occurred in the fiscal deficit which now stands at 6.5% or 7% and rising, if the regional deficits are fully accounted for, compared with an average of 5.5% during the 2009 to 2013 period with government debt standing at 70% of GDP.The current account deficit has also widened with forecasts up to 2.8% of GDP for the fiscal year ending in March 2019, but this still compares favourably with just under 5% recorded in 2013, whilst the current core CPI inflation rate of around 5.8% is significantly below the 10.1% average recorded between 2009 and 2013. The perception that the RBI is behind the curve in terms of monetary tightening, will begin to dissipate if UST yields and oil prices continue to fall.

Asian Equity Markets (Ex-China) Overview; Korea, Taiwan and India

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

On an unconsolidated basis, <a href="https://www.smartkarma.com/entities/547" target="_blank" data-smartkarma-citation="entities:547:1">ICICI Bank Ltd (ICICIBC IN)</a> saw its 2Q19 revenue down in the quarter and in the year alongside higher interest costs and operating costs. This is a dismal combination. It is no wonder the bank opts to book higher impairment costs from a reduction to equity rather than through the income statement. This means that its sharp decline in unconsolidated credit costs in the quarter and the year are not truly reflective of credit quality. This is also true when considering the abysmal deterioration in bad loans by bucket with both Loss loans and Doubtful 3 loans, surging in the quarter.  In the UK, ICICI’s loss for the quarter worsened, as did profit from ICIC Home Finance. There is little here to cheer or that says recovery. Despite the robust headlines, the reality is poor.

On an unconsolidated basis, ICICI Bank Ltd (ICICIBC IN) saw its 2Q19 revenue down in the quarter and in the year alongside higher interest costs and operating costs. This is a dismal combination. It is no wonder the bank opts to book higher impairment costs from a reduction to equity rather than through the income statement. This means that its sharp decline in unconsolidated credit costs in the quarter and the year are not truly reflective of credit quality. This is also true when considering the abysmal deterioration in bad loans by bucket with both Loss loans and Doubtful 3 loans, surging in the quarter.  In the UK, ICICI’s loss for the quarter worsened, as did profit from ICIC Home Finance. There is little here to cheer or that says recovery. Despite the robust headlines, the reality is poor.

ICICI Bank – The Poor Reality Buried Beneath Robust Headlines

Forensic Analyst, Trudence Capital Advisors

Nitin Mangal

Forensic Analyst

Thematic (Sector/Industry)

In our report <a href="https://www.smartkarma.com/insights/knock-off-blindfolds-before-betting-on-bulls-n-bears" target="_blank" data-smartkarma-citation="insights:16571">Knock off Blindfolds Before Betting on Bulls 'n Bears</a>, we highlighted few blindfolds which will have a major impact on the Indian economy and stock market performance during the year. As highlighted in the report, the government has missed its fiscal deficit target, the Reserve Bank of India (RBI) has increased the Repo rate by 25 bps and the Indian currency has further depreciated and soaring to the lifetime high. Looking at the macroeconomic environment, we tried to look into various factors which may lead to a rating downgrade of India.

In our report Knock off Blindfolds Before Betting on Bulls 'n Bears, we highlighted few blindfolds which will have a major impact on the Indian economy and stock market performance during the year. As highlighted in the report, the government has missed its fiscal deficit target, the Reserve Bank of India (RBI) has increased the Repo rate by 25 bps and the Indian currency has further depreciated and soaring to the lifetime high. Looking at the macroeconomic environment, we tried to look into various factors which may lead to a rating downgrade of India.

The last thing which struggling debtors in India need is another interest rate increase. But this is precisely what they will get. Given extreme weakness in the <a href="https://www.smartkarma.com/entities/22832" target="_blank" data-smartkarma-citation="entities:22832:1">INR (USDINR CURNCY)</a> exchange rate,  rising rates will not likely end now. We have seen considerable fraud in India banking. We have seen financial irregularities. CEO positions have been constrained by the regulator. We have seen fines for banks doing misdeeds - Federal Bank the latest. What we have not yet seen are USD loans turning bad due to weakening currency, weakening economy. Perhaps this is next?

The last thing which struggling debtors in India need is another interest rate increase. But this is precisely what they will get. Given extreme weakness in the INR (USDINR CURNCY) exchange rate,  rising rates will not likely end now. We have seen considerable fraud in India banking. We have seen financial irregularities. CEO positions have been constrained by the regulator. We have seen fines for banks doing misdeeds - Federal Bank the latest. What we have not yet seen are USD loans turning bad due to weakening currency, weakening economy. Perhaps this is next?

India – Weakening Rupee Means Little Relief For Banks

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Sunlight is said to be the best disinfectant; it is also considered fatal for vampires. Whatever be the reason, the ICICI Bank board has decided to take no chances of the slightest ray falling on its murky recesses. It has appointed a complete insider to replace Chanda Kocchar, the bank’s CEO-under-investigation.Ms Kocchar, who had clung to her post with grim tenacity, finally decided to take <a href="https://beta.bseindia.com/xml-data/corpfiling/AttachLive/99eaaaf8-fc2f-4fc4-9f91-3553b8cd2688.pdf" target="_blank">premature retirement</a> from the bank, and in doing so brought down the curtain on a sordid spectacle of mis-governance and brazen conflict of interest. Even her departure displayed the impotence of the ICICI Bank board, as she decided to go on paid leave from June 19, and it was she who decided on an early retirement. For the record, the board seems to have been a spectator through this ordeal for shareholders. But nevertheless, on a day of tears for the market, ICICI Bank shareholders rejoiced and the stock closed 4.2% up – a befitting farewell for a disgraced CEO.

Sunlight is said to be the best disinfectant; it is also considered fatal for vampires. Whatever be the reason, the ICICI Bank board has decided to take no chances of the slightest ray falling on its murky recesses. It has appointed a complete insider to replace Chanda Kocchar, the bank’s CEO-under-investigation.Ms Kocchar, who had clung to her post with grim tenacity, finally decided to take premature retirement from the bank, and in doing so brought down the curtain on a sordid spectacle of mis-governance and brazen conflict of interest. Even her departure displayed the impotence of the ICICI Bank board, as she decided to go on paid leave from June 19, and it was she who decided on an early retirement. For the record, the board seems to have been a spectator through this ordeal for shareholders. But nevertheless, on a day of tears for the market, ICICI Bank shareholders rejoiced and the stock closed 4.2% up – a befitting farewell for a disgraced CEO.

ICICI Bank’s New CEO: Keeping the Bank Safe – from Sunlight

India

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

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ICICI Bank Ltd (ICICIBC IN)

Asian Equity Markets (Ex-China) Overview; Korea, Taiwan and India

India (neutral); bull and bear factors remain finely balanced before electionThe deterioration in India’s macro-economic ratios has continued apace...

John-Paul Smith

ICICI Bank – The Poor Reality Buried Beneath Robust Headlines

On an unconsolidated basis, ICICI Bank Ltd (ICICIBC IN) saw its 2Q19 revenue down in the quarter and in the year alongside higher interest costs...

Daniel Tabbush

Is India Rating Downgrade Inevitable?

In our report Knock off Blindfolds Before Betting on Bulls 'n Bears, we highlighted few blindfolds which will have a major impact on the Indian...

Nitin Mangal

India – Weakening Rupee Means Little Relief For Banks

The last thing which struggling debtors in India need is another interest rate increase. But this is precisely what they will get. Given extreme...

Daniel Tabbush

ICICI Bank’s New CEO: Keeping the Bank Safe – from Sunlight

Sunlight is said to be the best disinfectant; it is also considered fatal for vampires. Whatever be the reason, the ICICI Bank board has decided to...

Hemindra Hazari

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