Note from JP Morgan:
Over the past 18 months, we have cut our 2013 EM growth forecast from 6% to 4½%. We continue to see downside risk with activity data tracking below our Q2 projections and no evidence of policies to reverse this slowdown. A number of EMs have inflation pressures and weaker currencies that require tighter monetary policies while wage pressures have eroded profit margins and thus corporate expansion. This slowdown has momentum. At some point, the EM slowdown could drag DM along.
The EM equities have performed the worst:
And FII’s have been evacuating the bond markets:
Credit Suisse: In India, foreign investors’ fixed income holdings fell sharply in June and continue to fall in July. We expect selling to subside and buying to resume in 3Q 2013.
Barclays remains bullish on the Rupee: While near-term depreciation risks remain, the INR has fallen significantly since early May, and in this context we expect the currency to appreciate against the USD over the coming year. We believe this will be driven by a narrower current account deficit and policy initiatives that can meaningfully ease funding concerns (ie, NRI bond issuance), as well as RBI rate cuts facilitated by relatively subdued inflation pressures. Despite the limited potential downside to USD/INR near term, the rupee is now 15% undervalued versus the USD, according to our estimates.
Investors will do well to remember this titbit: When John Pierpont Morgan was asked what the stock market will do, he said “It will fluctuate.”