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China and India Factors....

CHINA & INDIA FACTOR

Dear Members,

We were once again wrong about the move of the Dollar early last week mainly due to a sharp decline of the US Dollar as well as rumors that China could withdraw from the Dollar. There have been serious discussions about China stopping to invest in other currencies, especially the Dollar because they feel uneasy at this stage about buying more USA debts. The Chinese are also wary about investing in the Euro because they are uneasy with the European Union and its policies. China has a definite plan whose details will be apparent in a few years once they start dominating the world economy. At this stage the Chinese don’t allow free floating of the Yuan and bond markets, and many reforms have been implemented in the financial system including banking. Several countries distanced themselves from the USD after September 2001, but many institutions and central banks began accumulating it as a safe haven when the financial system in developed started to collapse in the middle of 2008.

 

While there is no doubt about the future role of China in the world economy, India will also hold a significant position and should not be ignored. The investor community is therefore urged to pay close attention to events in these two countries. Six months back we saw the communist party in India withdraw their support to the Congress government concerning the nuclear deal. Many political analysts believe that the party withdrew its support on the instruction of the Chinese as they were uneasy with drastic economic changes occurring in the Indian energy sector with the help of the USA. As we all know, the Congress government survived at the time, and results of the recent elections are now out: Congress has won another mandate from the people to form the next government.  This is a resounding slap on the face of the Communist party from the people of India because they want the story of growth to continue.

 

India is a democratic country while China is a communist nation, and there is therefore a big difference in their policies. One must however remember that each country has a population of more than a billion people, and so demand will always be their. The housing market has declined sharply in the USA and Europe for the last two years. This collapse had very little effect on India and members should focus on the country as well as on China because both countries will follow the rise of the USA (DOW 32000) during the next five years. Fortune will therefore be made in power and alternative energy. Out of a 100, I will put 80 in India place 20 in China because I am aware of the risks in the communist country and its policies. Fifteen years back I predicted that there would be a breakup of china after 2015, and there’s therefore a big but concealed risk factor in investing or keeping the Yuan.

Thanks & God Bless

Mahendra Sharma