Doing Business With China!!

When I read the article in Business Line today, it saddened me quite a bit. China which has of late become the face of the BRIC nations is turning out to be a wolf in sheep skin. Doingbusiness.org ranks it 83 for "ease of doing business" and 88 for "protecting investors". So when I read that several Chinese banks including the Bank of China had refused to honor Letters of Credit which they had earlier guaranteed to traders from India, it correlated well with the dismal ranking that the country had been given by the World Bank.

Several Chinese banks refused to honour at least 15 LCs, each worth $3 million, amounting to $45 million and these include just the ones reported against. The question one needs to wonder about is whether China injecting $500 odd billion in its economy gives it the excuse to refuse payment on LCs and other obligations it had guaranteed. Should the relief package come at the cost of payments to other nations and how firm do laws of International Trade stand when a country just gives you a deaf ear? If a country's banks act like this, imagine what signals it sends to the companies in such a nation. You decide it yourself....

India: The Least Preferred Amongst BRIC Nations

In the last 5 months, Foreign Institutional investors have sold proceeds worth more than Rs 17000 crore and hit the Sensex with more than 5000 points in just 2 months. A recent Merrill Lynch survey of fund managers who invest in global emerging markets revealed that a whopping 81% chose to allocate less proportion of their funds to India. India is also the least preferred investment destination in the next twelve months among the BRIC nations, the survey found.

A majority of the fund managers in India believe that the P/E is still too high even after the recent beating the markets have taken. Fund managers now find it a safer bet to stick to fundamentals and let go of just technical analysis for the time being.

Its shocking to see that currently India seems to be the least preferred amongst the BRIC nations. Property prices are expected to take a slump of further 25% from current levels. Merrill Lynch analysts Michael Hartnett and Michael Penn though, have a contrarian view. They advise investors to stay long in the market and not invest in Mid-Cap stocks until the markets stabilize. Equity valuations are expected to be fair if the Sensex settles around 12500 for the near term. But keeping in mind the depth of correction from 22000 levels, it is highly unlikely that the market will not rebound at least for the short term. This means that the opportunity for bottom fishing combined with speculation will not let the Sensex hover around its previous lows.

What is advisable is not to enter into fresh medium term positions in Mid-Caps. It is also advisable not to invest in Auto, Real Estate and Metal indices for the time being.