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Concern over end of monetary easing, declining markets

Concern over end of monetary easing, declining markets
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First Published: Fri, May 20 2011. 10 24 PM IST
Updated: Fri, May 20 2011. 10 23 PM IST
Mumbai: Talk about the end of the second round of monetary easing in the US to fight recession, or QE2 (quantitative easing), and the recent decline in markets across the globe dominated discussions in the blogosphere.
Zero Hedge
A post, signed under the pseudonym Tyler Durden, said that the end of QE2 might bring down stocks and commodities unless the US Federal Reserve came up with QE3.
Durden writes: “We have long claimed that 2011 is playing out in a manner virtually identical to 2010, almost to the tic.
And as we approach the end of QE2 in six weeks, a quick glance at what happened with stocks following the end of QE1 in March of 2010 will be illustrative of what to expect this time around.”
Durden quotes David Rosenberg to argue that just like the period between the end of QE1 in March 2010 and the announcement of QE2 in end-August, equities are likely to disappoint after QE2 ends. Gold may rally as uncertainty becomes more pronounced, they say at http://tinyurl.com/3ru8mqz.
The end of monetary easing measures in June is not the only concern though. Buttonwood writes that fears about a slowdown in growth in the developed world may be very real although data on growth so far from the larger European countries has been positive.
Buttonwood writes at http://tinyurl.com/6br69et : “The first quarter growth numbers from France and Germany were very impressive, even if they owed a little to a rebound from late 2010. But a look at the purchasing managers’ index is less cheery. It adds weight to the feeling that the recent fall in bond yields and commodity prices may be pointing to a slowdown.”
Despite rising concerns on Greek sovereign debt and fears of a slowdown in the larger European nations, all news on Europe is not gloomy.
Antonio Borges points out that the Baltic economies, among the hardest hit during the credit crisis of 2008, have seen a sharp revival. Borges says: “With all the anxiety generated by the troubles of Portugal, Greece, and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin, and devaluation. Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7% in the first quarter of 2011. But many other countries in the region are seeing strong growth as well.” A return to fiscal prudence and a shift away from overvalued sectors like real estate has helped these economies, concludes Borges at http://tinyurl.com/62wbalk.
Beyond Brics
Closer home, the contrasting performance of India and Indonesia is garnering increasing attention. Citing Credit Suisse AG economist Robert Prior-Wandesforde, Jonathan Wheatley writes that Indonesia has managed inflation better than India, leading to an outperformance of Indonesian equities. Wheatley writes, referring to the two economies: “They both have big populations. Their economies are both inward-looking. They both have pretensions as Asian economic superpowers. So how come Indonesia and India have delivered such dramatically different returns to investors this year? “As Robert Prior-Wandesforde of Credit Suisse points out in a research note, the answer has a lot to do with inflation. And investors betting that Indonesia will go on outperforming India should take note: the picture could be about to change...
“While India has allowed fuel prices to rise, Indonesia has kept subsidies in place. That has helped keep Indonesian inflation lower, but does not bode well for the future.”
Wheatley points out that faster monetary tightening in India might finally convince investors that India is not behind the curve at http://tinyurl.com/6xjlxae.
Indian Investor’s Blog
The stock market decline since the start of the year has taken a toll on cash market volumes in India. Deepak Shenoy points out that average daily volumes in Indian equities has fallen to the lowest level since February 2009
This has happened even as the number of traded securities has gone up with new listings, indicating lack of investor appetite, writes Shenoy at http://tinyurl.com/64rrzum.
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First Published: Fri, May 20 2011. 10 24 PM IST