Yen's Surges to record high

The Japanese yen has hit its strongest level against the US dollar since the end of World War II.


The exchange rate reached 76.25 yen to the dollar during US trading hours y’day, though by Thursday afternoon in Asia it was back at 79.14 yen.

G7 finance ministers are to hold a conference call to discuss how to deal with global market volatility. The G7 is a group of the world's seven richest nations, including the US, Japan, the UK and China.  Analysts expect the G7 ministers to give Japan the go-ahead to intervene in currency markets to stabilise the yen.

With Japanese rates already at almost zero, the central bank cannot cut interest rates in order to weaken the yen against other major currencies, such as the dollar or euro where interest rates are also close to zero. The Bank of Japan faces a policy conundrum.

Analysts think the central bank may now go a step further and intervene directly in markets to stem the currency's rise by selling yen and buying dollars and other foreign currencies.

Repatriation

Japan's currency has been strengthening steeply since Japan was devastated by a magnitude 9 earthquake on Friday. A rise in the yen is seen as undesirable as it undermines the competitiveness of Japanese exporters.

Analysts have been blaming the strengthening of the yen on the repatriation of assets and foreign currency by Japanese insurance firms.

Other Japanese investors also own large holdings of foreign currency assets.

During periods of volatility - such as the 2008 financial crisis - investors responded by repatriating these assets, pushing up the yen's value, and thereby cementing its status as a haven currency.

Source :http://www.bbc.co.uk/news/business-12768098

Mirae Asset India – China Consumption Fund

Consumption Story

Post the 2008 financial meltdown, the world experienced sharp drop in economic growth, the hope of recovery in the world was kept alive by China and India. China and India have emerged from the crisis relatively unscathed. These two economies were protected as a result of their burgeoning local consumption. As these two economies are roaring back to their pre-crisis growth rates, the domestic consumption by people and the government helped the companies that are in the consumption arena to have good revenue and profit growth in the coming years. So, as to capture this profit trend to the investors, the Mirae AMC has come out with the MIRAE ASSET INDIA-CHINA CONSUMPTION FUND.

Salient features of the fund

This fund will invest a major portion (65%-90%) of its assets in Indian companies which target the domestic consumption sector in India. This asset allocation has been done to let the investors avail the equity fund tax benefit.

This fund will also invest 10%-35% in Chinese companies that target the domestic consumption sector in China. Liquidity in the fund is taken care by an allocation of 0%-25% in the money market instruments. This fund is not a fund of funds and will directly invest in Chinese securities.

Consumption category is a broad category and includes sectors like FMCG, consumer durables, auto, telecom, banks etc. The products and the services which are used by the common man can be considered as sectors focusing on the consumption side and this is applicable to both the countries.

Why the euphoria on domestic consumption in India and China?

According to the projections by Price Waterhouse Coopers; the Chinese and the Indian economies are expected to double by 2020. According to the same estimates, China is expected to become the largest economy in the world, overtaking US by 2020 and India is expected to overtake the Japanese economy in the next 2-3 years. By 2050, China will be the top economy in the world followed by India.

Projections of economic growth of India, China, US and Japan up to 2020

The rapid economic growth in these two countries will increase the number of middle class people in both the nations. According to a research paper published by Homi Kharas and OECD

India will have the largest middle class in the world by 2050 followed by China.

Global Middle class share from 2000 to 2050

The rising GDP and increasing middle class would mean more money in the hands of the middle class. With more money, they would have a higher disposable income which would in turn increase the consumption of basic amenities.

According to ENAM’s estimate organized retail, Air conditioners, Home Loans and cars sales will have more than 20% CAGR from 2010 to 2020. Two wheelers, packed foods, Cable and DTH and refrigerators sales will have a CAGR of more than 10% from 2010 to 2020.

With higher consumption from the masses, the companies focusing on delivering these products and services will thereby, benefit from higher revenues and profits.

Our take on this NFO

This fund offers a unique opportunity to Indian investors to profit from the rise in domestic consumption in India and China.

The fund although carries risk of exchange rate fluctuations due to investments in China, the exchange rate risk is low because at least 65% of the assets would be invested in Indian companies. So, we advise the investors to allocate a maximum of 5% of their equity portfolio in this fund as it provides a good diversification allocation.

New Fund Offering Details

NFO Closes  on 23rd March 2011

Minimum Investment Rs. 5000

Taxation  : Treated as an equity fund

Benchmark

MSCI India Consumption Index (65% ) + MSCI China Consumption Index (35%) (Price in INR)

(Source: The emerging middle class in developing countries by Homi Kharas, OECD)