INR Looks Cheap on a Trade-Weighted Basis

INR: 36-Country Nominal Effective Exchange Rate




INR: 36-Country Real Effective Exchange Rate



My initial view was that the US recovers first. That is clearly not the case. In the initial phase of the recovery, both - rising risk appetite (equity rally) and interest rate differentials - should work against the US dollar. The rupee looks cheap and December 2009 forwards are pricing in rupee depreciation of about 1%. Both these factors should help if the dollar starts to strengthen.

Relative Value in Russian Equities

‘Dummy’ Day-Traders Whipsawing Russia Signals Buy

Completely agree. If this recovery is for real, Russian equities could deliver stellar returns.

Food for All Palates

Manufacturing ISM: Looks Like a "V"




Existing Home Sales: Looks Like a "U"



If you look enough, you will find data that supports your view. That is why my endeavour is to find "view neutral" investment ideas. There were plenty of these at the start of the year with several asset classes discounting Armageddon. The low lying picks are gone now.

SENSEX vs. USD/INR: NEGATIVE CORRELATION ALIVE AND KICKING

This negative correlation has been alive and kicking for a long time now. The mid-oughts' bull market in equities coincided with global dollar weakness. During the crisis, the ultimate safe haven status of US Treasuries provided a further boost to this inverse co-movement.

The big question is what happens to the US dollar as the global economy recovers. The answer to that depends on whether the world can decouple from the US. I remain sceptical of the decoupling argument, at least in the near-term.

Russian Equities Are Decidedly Cheap

The Exhibit shows the ratio of RTS (scaled by 1000) to nominal GDP. Clearly, Russia looks cheap. But cheap does not mean that it cannot get still cheaper. That is exactly what I discovered last year when I bought RSX around 19 and it fell like a stone to below 12. That said, after the global rally in equities, valuation still supports a case for upside in this market.

Even if one gets the short-term wrong, there is always the case for buying resource oriented equities for the longer-term.

Sector Performance Since the Correction Started

Oil and materials have driven markets lower. That is in line with reality. It is important to remember that the years 2003-2007 were about a synchronous global upturn and not just India and China growing at a breakneck pace. The global recession will certainly end sometime in the near future. Yet, a worldwide boom is nowhere in sight.

U.S. 5Y5Y BREAKEVENS BACK TO PRE-CRISIS LEVELS