Category: Your Money

China to ONGC: bu pao

The South China Sea

Image via Wikipedia

With gas prices at the pump close to $6 to a gallon and a bulk of its energy being imported, India is out exploring for oil. However, it has hit a wall in its efforts, a Chinese-wall, if you will:

India is being pulled into a complex and increasingly tense territorial dispute in the South China Sea, with China repeatedly warning ONGC, the Indian state oil company, that its joint exploration plans with Vietnam amount to a violation of Chinese sovereignty.

The South China Sea, which Beijing claims almost in its entirety, is thought to be rich in oil and gas and is one of the world’s most important shipping routes. And is increasingly becoming one of the region’s major potential flashpoints.

ONGC’s overseas arm, ONGC Videsh, accounts for much of India’s investment in Vietnam. It operates one gas field—Block 06.1 in the Nam Con Son basin off Vietnam’s south coast—in a joint venture with TNK-BP and PetroVietnam, which China has not protested over.

While the world is busy with the old world’s problems, this has the potential to turn real ugly real fast.

Read more here.

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Some HFT strategies to be banned in EU

“There are particular automated strategies that have been identified by regulators which, if carried out, are likely to constitute market abuse,” the European Commission document says. “Further identifying abusive strategies will ensure a consistent approach in monitoring and enforcement by competent authorities.”

Among other strategies, the Brussels-based commission specifically targets:

  • Layering: in which traders place large orders they have no intention of allowing to go through,
  • Quote stuffing: in which investors seek an advantage by delaying data feeds, and
  • Spoofing: in which market participants try to trick other computers into making decisions that can be exploited for profit.

Read the Bloomberg article here.

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Hedge-fund manager calls Fed’s policy ‘superstition’

John Hussman says the only basis for further Fed action is superstition in the absence of either fact or theory.

Effective policy acts to relieve some constraint on the economy that is actually binding. Effective policy has some “transmission mechanism,” where changes in the policy target can be expected to translate into decisions that improve the allocation of resources and the level of activity in the economy. Effective policy is also preferably grounded in historical evidence that supports its effectiveness, or at the very least does not contradict the action. At present, the policy menu advocated by Ben Bernanke has none of these advantages.

Read more here.

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Are mutual funds worth it?

Mutual funds in India

Image via Wikipedia

There a mind-boggling number of mutual funds operating in India. According to the AMFI, there are about 42 fund houses, offering more than 4500 funds! They span equities, fixed-income and hybrids with a whole host of options available for pay-outs, tax-planning, etc. With so much on offer, one would think that there must be a solid value proposition that allows so many players in the market.

However, it appears that most mutual funds in India underperform their benchmarks! According to a June 2011 study by CRISIL:

Among equity-oriented funds, majority of large cap and diversified equity funds underperformed their benchmark indices, viz, the S&P CNX Nifty and the S&P CNX 500, respectively, in all three time periods of analysis (1, 3 and 5 years).

In case of equity-linked saving schemes (ELSS), majority of funds have underperformed the
benchmark S&P CNX 500 over the 3 and 5 year time frames. The ELSS category (investments are intended for tax saving and typically have a 3-year lock-in) witnessed 57% and 65% of the funds underperforming the benchmark S&P CNX 500 over the 3 and 5 year time frames, respectively.

Here’s a snippet from the report:

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So the question remains: why are investors paying asset management fees to fund-managers for under-performing the benchmarks? Why not invest in ETFs where you are at least tracking the market (at a much lower fee)?

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