Policy makers across the world favour weaker currencies as they bank on exports to boost growth
Jack Lew’s first act once he becomes US Treasury secretary will be to tell alie. On Day One as Timothy Geithner’s successor, Lew is bound to say “I support a strong dollar” to reassure markets that there will be no change in long-standing US policy.
Nothing could be further from the truth, though, as the yen trades at 2-1/2-year lows and the world considers a response to Japan’s blitz on money markets. Get ready for Currency Wars 2.0. In a world in which growth is harder to come by, policy making verges on becoming a zerosum game. Officials in the US and China were caught flatfooted by how quickly Japanese Prime Minister Shinzo Abe turned the tables in currency markets with a few vague pledges of change. Rest assured that some big responses are on the way. “Japan has restarted the currency war by its open-policy goal of a weaker yen, which has surprised everyone by its success,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore. “No country wants to be priced out of an already challenging export environment.” Take China’s incoming President Xi Jinping, who is walking into a positively treacherous situation in Beijing. He must act fast to rein in corruption, grapple with an unruly local media and tackle the pollution that obscures the sun and threatens public health. The last thing Xi needs is a plunge in exports as exchange rates move against him. The same goes for South Korean Presidentelect Park Geun Hye. Expect policy makers throughout Asia to act, too.
Benigno Aquino, the president of the Philippines, says his government may borrow dollars onshore to temper the peso’s strength. Thai Finance Minister Kittiratt Na-Ranong is getting an earful from exporters and says he’s reviewing policy changes. The sense of urgency is rising as Akira Amari, Japan’s economic minister, joins the Bank of Japan in a campaign to accelerate the yen’s decline.
European officials are none too happy, as evidenced by Luxembourg Prime Minister Jean-Claude Juncker calling the euro “dangerously high”. It’s a reminder of how bizarre the region’s crisis has been. Although Europe has endured a triumvirate of debacles — debt, banking and politics — the euro hasn’t been a source of trouble. That is, unless you consider how fallout from the yen might hurt exports. Swiss and Russian officials also are sounding the alarm.
The US is wary, as well. A key goal for Barack Obama’s second term is to resurrect the nation’s manufacturing sector. Nothing would help that process more than a weaker dollar, and the Federal Reserve’s ever-expanding balance sheet may limit the currency’s gains.
Japan can’t expect to sustain the yen’s decline for long unless the Group of Seven nations backs it. The strength of the Japanese currency, after all, was always more about the dollar and the euro being less appealing in relative terms than the yen. And now, as optimists seek Japanese assets amid hopes that Abe will end deflation, you have to figure that a yen rebound is inevitable.
That’s why traders are looking for a material change in Japanese policy. Will they get it? Buying more foreign debt might help, but the purchases would have to be huge to matter. Japan would need to add significantly to its $1.2-trillion stockpile of currency reserves, something officials in Tokyo may be reluctant to do.
The year ahead will see everyone simultaneously looking to export their way out of trouble. At best, this global race to the bottom will fail; at worst, it will lead to market swings that sap confidence and stifle growth. If Lew really is sincere about wanting a strong dollar, he will surely get it while everyone else heads the other way. — Bloomberg
World’s largest lender in terms of market cap is the first Chinese bank to open a branch in India
Industrial and Commercial Bank of China, or ICBC — the world’s biggest lender by market value, has set up business in India, which could potentially open up the market for firms from Beijing, boost investment in infrastructure sectors and foster the growth of a rupee-yuan market.
The bank will be the first of four Chinese lenders to start operations in India. India and China had signed a memorandum of understanding, or MoU, during Chinese premier Wen Jiabao’s visit, which will facilitate Chinese banks to open branches in India. “We have received a commercial banking licence. In the first stage, we would like to focus on wholesale banking services and products to Chinese enterprises and related parties,” said Sun Xiang, chief executive officer of ICBC, Mumbai branch. The bank, which is now expanding in Europe and other countries, will gradually offer personal banking to local customers and private banking services.
Four Indian banks — SBI, Bank of Baroda, Bank of India and Canara Bank — have a branch each in China. Chinese banks had sought regulatory approval to start commercial operations on grounds of reciprocity.
“ICBC would facilitate the investment of Chinese companies in India’s power, telecom and infrastructure sectors. We would also help companies raise yuan-denominated bonds if there is a demand,” said Yang Kaisheng, president of ICBC. “Corporates can get 3-5 funds by issuing dim sum bonds at an interest cost in the range of 1-3%. A similar issue in India could cost firms an interest rate of 9-10%,” said a treasury head with a private sector bank.
In 2010, China emerged as India’s biggest trade partner with a trade volume of $61.7 billion, which is nearly 20 times of what it was almost 10 years ago, while India is also China’s biggest trade partner in South Asia. ICBC has accelerated its overseas expansion plans. At the end of June 2011, the bank’s overseas assets stood at $140 billion, which account for 4% of its total assets.
“We are still a new comer in the international market when compared to other global players. In future we would like to see the share of international assets go up to 10%,” said Kaisheng. “This would be difficult as our domestic assets are growing faster,” he said.
On potential investments in India, Kaisheng said it would hinge on two factors — the bank’s capital adequacy and the proportion of funds allocated by the head office. “It is true that we operate as a branch instead of a subsidiary. However, as and when regulations demand, we would be open to converting into a wholly-owned subsidiary,” he added.
The ‘Beauty’ Of Money
INVESTMENT traditionally has been a man’s world. It’s not that women are not permitted, but traditionally it has been like that. The entire system of markets and investment mechanisms has been developed by men; with women largely remaining at the periphery of these systems. While women do participate in investing, men far outweigh them in the number and volume of investments. Women make up roughly half of the India’s population but their presence among active investing population is negligible in the country.
Financial planning is becoming imperative for women now as an increasing number of them especially in urban centres have regular jobs and careers. They now need to plan for critical life stages of education, work, marriage, maternity and retirement. For women, one of the major steps towards empowerment is achieving financial security and independence through gaining control on investing decisions.
The financial world is gradually waking up to the reality that increasingly that the ‘better half’ now has money in her hands that is waiting to be invested. The recent bull market has helped in accelerating this change process. An unprecedented increase in women participants was seen in hey days of the rally. We saw working women, college girls and even housewives getting their first exposure to capital markets. While most restricted themselves to trading on small bets, some became involved in serious investing.
While the conventional tools of investing prevail, marketers of financial products are now increasingly designing products targeted at the fairer sex. Be it insurance policies or saving bank accounts, financial companies are now creating women-centric products to tap a huge market, which has not yet been justifiably penetrated and serviced. For instance, LIC launched Jeevan Bharati, an insurance policy exclusively for women first in 2003. Last year, it launched Jeeven Bharati – I, an updated version of the earlier policy. Most banks today cater to women customers through specially designed products like special bank accounts, saving schemes etc. Who knows we will soon have mutual funds especially designed for women just as we have funds targeted at senior citizens or children.
A woman investor, most of the times invest in safe investments like gold jewellery, fixed deposits etc. Investments under mutual funds or ELSS schemes are done primarily with an objective of tax planning. Very few women would go ahead and try their hands at investing in exotic products like derivatives, interest rate swaps, arbitrage products etc.
Interestingly, the styles of investing differ between the two genders. Tradition and science both have testified that women are more risk averse than men. They are more conservative and less likely to take business risks. Budgeting comes naturally to them by virtue of handling household expenditures. Investment decisions also differ between the two genders. Many times women know less of the various investment options available, and hence are less confident about the decisions they take about their investments.
If you are a woman reading this, be prepared to get more involved in the investment decision-making process. Financial decisions are no longer a man’s domain. Knowledge about various financial products is freely available – online as well as offline. Relationship managers, some of them being women, are more than happy to service women customers. Thanks to their discipline, women as a category of investors are better placed to make money in the current markets than their male counterparts.
And there is no dearth of pampering on this count. Marketers of financial products are aggressively wooing the new generation woman. With increase in working and independent women, the marketers of investment products are coming around to address the changing gender roles in the world of investing. Many micro financial institutions cater to women’s financial needs and offer special financial assistance. Customised products, women-specific tax concessions, communication and counseling are being rolled out.
In the current difficult times of financial uncertainty, it is time for women to be ready to take the burden of any contingencies like job loss, pay cut etc. rather than be a helpless witness to the unfortunate turn of events. While she performs a balancing act between career, home and family, a woman today also has to add financial investing into her ‘things to do’ list. And women’s day seems quite appropriate to make this promise to yourself to financially empower yourself, thereby empowering your family too.
Investment strategies differ between the two genders
Financial planning is no longer a man’s domain
Most banks today cater to women customers through specially designed products like bank accounts, saving schemes etc.
Many micro financial institutions cater to women’s financial needs and offer special financial assistance Customised products, womenspecific tax concessions, communication and counselling are being rolled out