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New trends

Two major trends that have come about in the last few weeks and months:

  1. Crude oil fall –

Crude has fallen very sharply from the highs of US$60/barrel (recent high) to US$41/barrel. The reasons behind such events could be plenty. Iran deal, US crude output, shale gas discovery and weak global economy are a few. But we have to remain focussed on playing the theme…

How do you play it? Airlines -Warren Buffet is well known to hate airlines, shipping companies (another complicated business), plastics etc.

Airlines are big consumers of oil and after the disastrous performances over the last few years, one cannot remain oblivious to the fact that they will be big beneficiaries. However, we would view these businesses for shorter term investments as their balance sheets, business practises are too arcane for a longer-term analysis.

2. China devaluation –

China, is different. They don’t hold elections. Most families have only one child and some tend to be spoilt. Most Chinese really follow any religion and gamble a lot (We hate generalisations, but you get the point). But they do know how to get things done, rightly or wrongly is matter of another discussion. They also call their state head – “Premier”!

The Chinese government is realising that it has a problem at hand. Among the many things it hates is “rumours” – they key reason they have banned facebook, google etc. – but smart Chinese know how to use these things through VPNs. They hate slowdowns. After years of double digit GDP growth, it has a problem at hand. They literally produce too much of everything. Their production of everything basic – cement, metals etc., dwarfs every other nation and they know how to keep costs to the minimum.

This has led to two big problems – pollution and oversupply.

During my visit to China last year, I was amazed at – 1. The massive housing construction and 2. How expensive some thing really were – such as a bottle of water at the airport costs US$2 and coffee at the airport costs US$10. 3. How every other mill was concerned about the government action on pollution and the word “Government” comes up in almost every other conversation.

They have started with simpler things such as devalue the currency. And so naturally drag the Rupee, which has been held stable largely due to capital flows. India is generous recipient of capital flows and has a rather large diaspora.

 

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