The World Economy Is Expected To Grow By 6% 🦄
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Howdy Toasters!
In today’s issue, we discuss;
- The world economy is expected to grow by 6%, says IMF’s latest assessment report.
- Chinese tech stocks plunged over a broadening regulatory crackdown.
- Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!
Bharti Airtel: 567.90 | 27.35 (5.06%)
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The share jumped over 5% after the telecom major announced revisions to its prepaid plans, raising its entry-level pricing by nearly 60 percent. The company said it has discontinued its Rs 49 entry-level prepaid recharge
Dr Reddy’s Labs: 4731.75 | -111.60 (-2.30%)
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The stock price corrected over 2 percent after the pharma major reported a consolidated profit of Rs 570.8 crore for the quarter ended June 2021
Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn.
IMF released their latest assessment report; what did it say and what should you take from it? 🧐
- Overall, the world economy is expected to grow by 6%, unchanged from the forecasts released in April, and a strong rebound from last year’s 3.2% contraction; a finer reading suggests a downgrade for emerging economies, and an upgrade in numbers for advanced keeps status quo (in terms of numbers)
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Prospects for economies (emerging vs advanced) are varying and a marked divergence has emerged, primarily based on the country’s ability to source and administer vaccines
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Advanced economies are benefitting from better access to vaccines, where ~40% of the population has been vaccinated, despite challenges from new variants (Delta whatever), with growth forecasts seeing an upward revision to the tune of 0.5% (massive); US & UK are leading the way (don’t be surprised) with both economies pegged to grow at 7%, and clocking best years since 1984 and 1980 respectively
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Emerging economies (India growth rates have been slashed from 12.5% to 9.5%) in comparison have struggled to source and administer vaccines at a larger scale, with current estimates pegged at ~11% of the population, and an even tinier fraction in low-income economies
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Faster than expected vaccination rates, on the back of easier access and a quicker than anticipated return to normalcy have led to upgrades (most notably in the USA & UK), while a slower roll-out and renewed waves of Covid-19 across emerging economies (and especially India) have resulted in downgrades (ex-China)
Damn! Do I want to know more? 🤔
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Divergences in policy support are the second source of a deepening divide, with a continued sizeable fiscal support of USD 4.6 Trillion in advanced economies (most upward revision has been a direct consequence of US & Next Generation European Union Fund fiscal support) massive in comparison to emerging economies (which has discontinued most equivalent measures in 2020 and are now preparing to build a buffer to manage prices)
- Inflation concerns persist, and as per the IMF report remain transitory in nature – i) due to pent-up demand of sectors like travel & hospitality, ii) overall employment rates are well below pre-pandemic levels, with overall wage growth within the range
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Vaccines man, it’s all about vaccinating and not just the US & UK, but the whole world –
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40% of the population of every country by 2021 and 60% by Mid 2022
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1 Billion vaccine doses need to be shared by advanced economies & manufacturers with low & emerging economies
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Continue fiscal loosening, without the overhang of inflation, with the assumption that the numbers are transitory in nature (nice?)
Yoo!! What is happening to Chinese tech stocks? What do you need to know and what are the larger ramifications? 🤨
- Xi’s losing it? Or Xi’s consolidating his hold? The Hang Seng Tech Index in HK (which holds major Chinese Tech companies like Tencent, Alibaba) tumbled 8% on Tuesday, registering a third consecutive day of decline; CSI 300 (in mainland China) retreated 3.5% and the Chinese Yuan weakened against the dollar (phews!!)
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Among big individual stocks, online gaming giant Tencent fell 9%, pushing the market capitalization down to USD 544 billion, HK listed Alibaba, China’s largest e-commerce player fell 6.4%, food delivery company Meituan retreated by 18% (retreat softens the blow doesn’t it? :P)
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The CCP has initiated draconian(?) moves to curb the after school tutoring industry (USD 100 Billion sectors) forcing players to turn into non-profits, causing the stocks of most publicly listed companies to lose (in some cases) the entirety of their market value; New Oriental Education & Technology Group lost ~71% over three consecutive days of fall (not making this up)
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It’s not all doom & gloom tbh- some high tech companies, with limited/limited perceived impact of regulatory crackdowns, were not highly impacted – HK listed Semiconductor Manufacturing International was up by 5.8%
Damn! Reason behind this? And how does this impact us (i.e. India)?
🤔
- China is months into a regulatory crackdown of its large tech giants (we want to believe it all started when Jack disappeared and the Ant Financial IPO was derailed, but he resurfaced right, so all’s well that ends well? Don’t think so) that has spanned issues like Data Security, Monopolistic Behaviour, and financial instability
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Private Tech giants have grown in the recent past (and so have their data reserves), more often than not backed by government support in the form of regulatory and/or financial assistance, but yet are ultimately still private in nature; there’s only one boss in town though, the Chinese Community Party (CCP) calls the shot and having taken quite from USA (with big tech increasingly difficult to contain) the party has consolidated with the aim to contain data under one power center
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China is pivoting back to its socialist ideals, and there’s limited scope for that in big tech right? Growing income inequality, especially in Chinese hinterlands has meant a general distrust towards the CCP, and Xi’s messaging is aimed at amending that
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The country’s struggled with its declining birth rate, and some observers have pointed out that a long-term sustainable growth rate of even 5% requires reversing or at least slowing down the declining trend in China’s working-age population (damn!!)
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India can be a major beneficiary of such a regulatory crackdown; our working-age population is to peak in the next 10 years, there is far greater transparency and amiability in regulatory matters (?) and the big-tech revolution is just about kicking off in full flow; investors have been enthused by the early signs, with the realignment of portfolios a major talking point (sweet)
What else caught our eye? 👀
Digital Payment surged in the last year (obviously right?)
- Increased adoption of cashless transactions (pandemic et al.) have resulted in a 30.2% increase in digital transactions for the year ended March 21, according to figures released by the RBI
- The central bank had previously announced the formation of a Payment Index (RBI-DPI) to track digitization of transactions in the country, taking 2018 as the base
Bharti Airtel revised their tariffs (upwards, again), with market sentiment reflecting enthusiasm (see: Movers & Shakers above)
- The company revised tariffs for their entry-level prepaid plan (INR 49 to INR 79), implying a tariff hike of 61%; this is the second tariff hike in the span of a week
- As per calculations, the hike should result in a 2% and 3% increase to consolidated revenues & EBITDA; in total ARPU increase because of this hike would amount to 5-6% in post-paid and entry-level prepaid offerings (nice!!)
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