In this briefing:
- Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
- Direct Income Transfers Likely Soon; Universal Basic Income Possible By 2024 Funded by RBI Reserves
- Changing Lanes
- Japan Pharma – Top Picks (28 Dec 2018)
- The Four Vulnerabilities in Thai Property
1. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
The year 2018 has proven tumultuous for global markets. Rapidly changing geopolitical priorities of the US, an erstwhile hegemon, have played a role no less significant than the withdrawal of liquidity by leading central banks or US monetary policy tightening. The US has openly declared that it is in a state of “cold war” with China. Despite the recent truce, signs are abundant that the confrontation between the two global superpowers will continue into 2019 and beyond. In 2019, we expect more countries to find themselves in a position where they must choose who they want to side with, the US or China. There are other tectonic shifts, too, which are causing re-alignment of global geopolitical alliances.
2. Direct Income Transfers Likely Soon; Universal Basic Income Possible By 2024 Funded by RBI Reserves
Direct income transfers to farmers are likely to become reality as competitive loan waivers are fast becoming a norm than an exception and every party is offering a larger waiver.
Direct income transfers have been quite successful in the South Indian state of Telangana with KCR promising one at the national level if the Federal front (that he is proposing) is voted to power in the general elections.
Cost of each of the measures (from loan waivers to universal basic income for all Indians) is between 0.7% to 2.7% of GDP with Universal Basic Income (Rs 7620/individual for 75% of Indians) costing the highest.
Even as initial fiscal costs are alarming, a gradual scale up (like in the Rural Employment Guarantee Scheme) and transfer of reserves from RBI in tranches could mitigate some fiscal impact. We expect the expert committee of the govt and the RBI to identify transferable reserves between Rs 1.0trn – 3.0trn.
Overall, the freebies to Rural India will certainly power the consumption story strongly in 2019 with products sold in rural areas like FMCG, tractors and motorcycles expected to gain.
3. Changing Lanes
The hyper-competitive Indian payments industry is changing. New regulations are increasing the cost operations, NPCI (National Payments Corporation of India) & Reserve Bank of India (RBI) are breaking all barriers to entry enabling a level playing field that ensures no competitive moats exist. Although there are volumes, profitability remains a distant dream and likely to remain so making Indian payments a bad business to be invested in.
4. Japan Pharma – Top Picks (28 Dec 2018)
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5. The Four Vulnerabilities in Thai Property
As the year closes, developers from giant AP to SC Asset have been warning markets about a downturn in the property market in 2019, and the world is no stranger to the interlinks between economic crisis and property sector. There are four reasons why they might be right to be so bearish:
- Banks Rejection rates for mortgages have been on the rise. Yet, few credible developers get rejected, because banks have a preference for corporate loans. This means they are effectively supporting the supply side without demand.
- New financing methods. In recent years, REIT IPOs have become very popular, increasing the amount of financing available to developers. But what of the demand side? Slower wage growth, wealth concentration at the top, rising unemployment.
- Higher interest rates. While the BOT has resisted rate hikes, they have finally capitulated this month. High rates, lower affordability.
- Regulations. A cap on loans-to-value ratio at 80% further limits the mortgage availability, but who’s limiting supply?
