• Morgan Stanley: Will the RBI Allow Further Rupee Appreciation?

On a 12-month trailing basis, capital inflows have increased to an all-time high of US$112.8 billion as of February 1, 2008, as compared with US$40.4 billion during the 12 months ended February 2, 2007.

The currency remains overvalued on a real effective exchange rate basis (36-country index). The rupee was about 9.2% above the 10-year mean as of October 2007 (the latest data point available). Apart from the adverse demand effect of a US slowdown, the strong currency has already affected export growth.

The three-month moving average growth of industrial production has decelerated to 8.2% as of December 2007 as compared with 12-13% growth registered during February-March 2007.

• Wall Street Journal: China Spurs Coal-Price Surge

• Bloomberg: Vanguard Battles Barclays Over `Derivatives for the Masses’

Barclays Plc introduced a new product that put a scare into Vanguard Group Inc. and the rest of the $13 trillion U.S. mutual-fund industry . . .

The security, called an exchange-traded note, allows individual investors to buy a type of forward contract linked to commodities and assets ranging from oil to currencies to foreign stock indexes. It has lower fees than mutual funds, is less regulated and, for now, lets holders defer taxable income indefinitely.

. . . The notes are “derivatives for the masses,” . . . For the mutual funds, reining them in is “the issue of the year.”

. . . unlike mutual funds, which are required to make regular taxable distributions to investors, income earned on exchange-traded notes is tax-deferred. And the notes may qualify for lower capital-gains-tax rates if sold.

 

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