Greenback to sizzle as Euro fizzles out
The Greek PM was forced to leave his chair by his wayward countrymen who did not like to pay a price for having defaulted on national debt.
Out of the PIGS (Portugal, Italy, Greece and Spain) one of them has succumbed. Will others follow? At the point of writing, Italy seems to be next in the queue. When that happens, it could have a domino effect and lead to the breakdown of the Euro as a currency. The better off nations in the Euro, like Germany and France have to face austerity as they struggle to support their wayward Euro cousins.
There is fear. What it means for India is a sure slowdown in economic growth. Further weakening of the rupee could happen. As the Euro loses its position as an alternate to the US dollar, the greenback will emerge stro-nger. For those desperate for an alternate to the US dollar, the avenue left would be to invest in Gold and perhaps other precious metals.
To cut a long story short, as the Euro crisis unfolds, global growth will definitely slow down. Trade would shrink and fear will rule the money markets. Emerging markets will look riskier. And money will rush to US dollar government securities, gold and/or other precious metals.Let us look at the consequences it will have for us in terms of looking at investment options.
Equities suddenly look shaky. At current levels, our markets are the most expensive in the world. The superior growth argument is no longer valid as companies will find it difficult to post earnings growth. Companies with export income will witness trouble growing their exports profitably, as most parts of the world take austerity measures to see them through the crisis, which is kind of fuelling on itself now.
We are already seeing the beginnings of a slowdown. Capital markets are not helping raise new money, showing a reluctance to put money at risk. More companies are issuing debt paper at progressively higher interest rates as investor fatigue is being fought by fear of risk and a preference to keep money intact.
Lots of interesting stocks in the US and some markets look very tempting, offering dividend yields in the range of five to six per cent.
With so much despair and gloom, I am willing to take a call on equities, now. Most domestically oriented businesses are doing well. Most Indian companies have reasonably healthy balance sheets and consumer spending is still strong.
(The writer is an independent investment analyst.)
Post new comment