Talking Points This Week: It’s China's Turn, But Not At India's Expense

It wasn't the strongest week for equity markets worldwide. U.S. stocks notched their biggest weekly drop in more than a month, as investors took a series of hotter-than-expected economic data as a sign that the central bank would keep interest rates higher for a longer time to curb persistent inflation. This is in anticipation of the Fed policy in the upcoming week.

Even oil prices had heavy losses in the week, with Brent crude losing about 10% in its biggest weekly decline since August. Indian markets were lackadaisical as well, with the benchmark Nifty 50 index flat for the week, down about 0.8%.

However, China’s primary markets are bucking the trend with a record $92 billion haul, and the focus on India in different forms continues. Here are the key talking points this week:

It’s China's Turn

An Elara Capital note said that aggressive redemptions have resumed from global equities over the past three weeks. As much as $35 billion has been pulled out, mostly from the U.S.

Redemptions were also seen from exchange-traded funds, totaling $8 billion over the past two weeks, according to the note.

But while that has led to global equities not faring well, Chinese markets have done well, with a 2.6% uptick in the last five days for the CSI 300 and a 3.53% uptick for the Hang Seng.

Despite concerns about rising Covid-19 infections, the country's economic growth will "keep picking up" as new Covid control policies are implemented, according to outgoing Premier Li Keqiang.

That alone should be a vital change in policy for China. Remember, Chinese authorities accelerated a shift toward reopening the economy, with Shanghai and Hangzhou easing some Covid restrictions after protests last weekend. JPMorgan says a growth rate of around 5% in China is achievable next year, and that should aid the sentiment in a market where valuations, despite the recent upticks, are benign.

India Still The Cynosure Of Lot Of Eyes

The World Bank has upped its growth estimates for India in the current financial year, even as Fitch has reduced the FY24 and FY25 growth estimates. These flip-flops in growth estimates notwithstanding, there are a number of interesting developments to focus on.

India is working on an initial agreement for a rupee-dirham payment mechanism with the United Arab Emirates as early as January, according to people with knowledge of the matter, as it looks to diversify from the dollar and boost bilateral trade links.

Officials from the nations’ central banks met last week to discuss technical possibilities, while their foreign ministries are driving the talks.

Meanwhile, Morocco is considering partnering with Gautam Adani on a large-scale hydrogen project amid a renewable energy push to meet demand at home and in Europe, with the Moroccan authorities thinking of signing final investment decisions for “at least two competitive industrial projects” in 2023, Moroccan Energy Transition Minister Leila Benali told Bloomberg in an interview over the weekend.

And the party continues for investing in India, with Apple exploring the possibility of moving some iPad production to India, as per reports.

Also, India's own plans seem tall, having unveiled a Rs 2.44-lakh-crore ($29.6 billion) plan to build transmission lines to connect renewable generation and nearly triple its clean-power capacity by 2030.

Tech Back In Focus

During its U.S. investor day, HCL Tech's chief executive officer narrowed the company’s FY23 revenue growth guidance to the lower end of its guidance band of 13.5-14.5% in constant currency terms, which it had increased during the second quarter results in October from 12-14%.

The company blamed the adjustment on a weaker macro environment, drop in discretionary spend and higher furloughs, especially in the telecom vertical. It also now expects the services growth to come at the lower end of its 16-17% guidance range.

This set the cat amongst the pigeons on Friday, with stocks falling like ninepins. HCL Tech dropped over 6.5%, pulling the IT index over 0.5% lower with it. Will this show up in the other players as well? Remains to be seen. HCL Tech did warn of a slowdown in telecom spending, and it may show up in the books of some of the other companies this quarter. It's a space that will be watched very closely.

Bad News For Travellers And Good News For South Koreans

We end this piece with two interesting updates, not correlated.
First, there is bad news for travellers. Air fares are set to soar in 2023. Prices will climb by as much as 12% on Europe-Asia routes and 10% for North America-Asia flights, according to American Express Global Business Travel.

Drivers of fare increases globally include inflation, rising fuel costs, capacity constraints, and rerouting to avoid Russian airspace. Holidays are set to be expensive in 2023, and hospitality as a sector could potentially see going local as a new trend.
Secondly, almost everyone is about to become a year younger in South Korea. South Korean lawmakers approved a measure that would revise the way the country tallies a person’s age, ending a system that counted new-born as a year old and meaning that most of its citizens are about to get younger. And that proves, once again, that age is just a number!

Niraj Shah is Executive Editor at BQ Prime.