Market musing - January 2016

·         Everyone in pointing 1 finger at China and 4 at themselves while status quo on restructuring economies continues. As we experience a new economic normal situation, deleveraging and lower GDP growth continues. Commodity prices remain sober, and financial markets remains volatile.

·         Rating agencies are on the edge and ready to downgrade when pin drops and breaks the silence (unfortunate but true). Credit concerns and rating actions will keep bond yields higher and base rates (Libor) inches up - difficult and expensive to borrow. 

·         Accelerated corporate action to pare debt and costs, manage risks, create customised solutions, unprofitable investments or investments with lower ROA % (10%) are being hived off - Corporates are restructuring to manage resources (and cash) efficiently, enhance returns and defend ratings and balance sheet size and debt.

·         Infosys, Wipro, SAP office folks are busy as bench size at outsourcing centres is increasing; realty prices in Bangalore, Manila, Shenzhen are inching up.

·         Corporate lawyer and investment manager friends have been working late hours - M&A and bankruptcy actions related activities is expected to surge as advise turns to action.

·         Disruptive technologies, radical thinking and fin-tech banking helping gen Z to enter the business and entrepreneurial world. Banks and governments (that believe in spreading wealth and rehash growth) are increasing recasting their strategy to focus on SME’s, sustainable technologies and small business; mega projects in oil, gas, mining, thermal electricity generation is getting out of favour.

·         Company management are at loggerheads with shareholders – corporate survival or dividend distribution. Corporate boards are contemplating recalibration of dividend and excess cash distribution strategy to either conserve cash flows to defend business or return excess return unused capital.  Expect bleak year for dividend yields, equity prices, and shareholders returns. 

·        The psychological game is on - who blinks first!  economics vs. emotions, Social order vs. inclusion, startup with disruptive technology and the old order, man va. robots, big corp, govt. and wall street vs. masses and small business, subsidies vs. taxes, old vs. new economy, savings vs. debt, proxy and guerilla war vs. peace!!