Morgan Stanley: SOE Divestment Policy: Missing the Big Picture?
Our very broad estimate indicates that the total market value of government companies (including unlisted companies) is US$406 billion. The market value of 55 listed public sector companies is US$281 billion. The average government stake in these companies (listed) is 80%, and hence the government’s stake in these listed companies is worth US$224 billion.
We expect the government to collect proceeds of about US$4-5 billion by March 2010, which will be much larger than the amount collected in recent years.
The total workforce employed in quasi-government entities (including public sector undertakings) of the central government (excluding those working directly in administrative machinery) is 5.9 million, just 1.4% of the total workforce.We believe that the key policymakers in the new government appreciate the urgent need for investment in infrastructure but are strapped for funds, with the current national fiscal deficit of about 11.8% of GDP as of F2009. We believe that the government could easily provide for additional infrastructure funding of at least US$15-20 billion (1.2-1.6% of GDP) per annum for the next three to four years through divestment. Indeed, we believe that the private sector (including foreign investors) would be likely to invest a matching amount in manufacturing in response to these infrastructure investments.
The median age of the Indian population is currently 23.7 years, one of the lowest among large nations. India is likely to add 141 million to its current working age population of 750 million by 2018, according to estimates by the United Nations.
Mauldin @ Investors Insight: A Tale of Two Depressions
… globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.
That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.
John Mauldin: The Paradox of Deficits
I think the bond market is looking a few years down the road and saying that $1-trillion deficits are simply not capable of being financed. And if the debt is monetized, then inflation is going to become a very serious issue.
When you run deficits that are 4-6-8% or more than nominal GDP, at some point things simply back up. Can we ride along for a few years? Certainly. Japan is getting ready to see its debt-to-GDP ratio rise to almost 200%. But everybody can’t do it all at once.
Call it the Paradox of Deficits. We have been running a large trade deficit in the US for years, because the people (China, Japan, and the Middle East) who wanted to sell us “stuff” were kind enough to turn around and invest the money in our bonds. This in turn created Greenspan’s conundrum, as it helped keep down US (and global) interest rates. Combine that with a massive increase in leverage, a few bubbles, and we now arrive at a true crisis.
Harper’s Mag: Invisible hands:The secret world of the oil fixer
Oil, first and foremost, is a $2 trillion international industry, and most of this annual haul is extracted from under undeveloped nations. Sometimes, a company will reach out to rulers of oil-rich states on its own, negotiating and striking deals with them through official emissaries.
More often, though, a company will instead work through men like Calil and Eronat: independent fixers, whose job it is to know the leaders and other government officials for whom oil serves as both piggybank and “political weapon.” A fixer can open doors for his corporate clients, arranging introductions to the various potentates he knows. He can help companies navigate the local bureaucracy, or provide the lay of the land with political and economic intelligence, or point to important people or companies that should be courted or hired in order to curry favor. And, in some cases, the fixer can feed money to those in power, in payoffs that often would be illegal under the stringent American and European anti-bribery laws.
Gulbenkian drew the map that defined a cooperative agreement among the French, Dutch, British, and Americans—their governments and companies—to extract oil from the former Ottoman territories. This “Red Line Agreement” earned him the bulk of his fortune, and his success established the model of the independent, cash-dispensing oil fixer. The modus operandi was simple and straightforward: the fixer took money from a company seeking an energy concession, kept one part for himself, and funneled the rest into a Swiss bank account belonging to foreign officials who awarded the concession. When the officials got their money, the fixer’s sponsor got its contract.
Morgan Stanley: Growth Cycle – Taking Stock
Corporate revenue growth has closely followed IP growth. IP growth touched a 16-year low of -2.3%Y in March 2009, from the peak of 13.6%Y during the quarter ended January 2007.
Government spending has increased sharply since October 2008, from an average of 25.2%Y growth during April-September 2008 to 67.1% during October-December 2008, and 51.7% during the two months ended January-February 2009. We estimate that the consolidated fiscal deficit (including off-budget expenditure) will be 12.4% of GDP in F2009 (12-months ended March 2009) compared with 6.8% of GDP in F2008.The corporate sector is suffering from large operating leverage.
The gap between corporate capacity for growth and realized growth is expected to be much wider in the current cycle than in the mid-1990s; that is, the capex binge has been much larger in the current cycle.
To repeat myself, Nifty EPS target before year end: 190. (Current: 210)
Must-read piece on global demographics in The Wilson Quarterly: The World’s New Numbers
Revisions made in the 2008 version of the UN’s World Population Prospects Report make it clear that this decline is not simply a Middle Eastern phenomenon. The report suggests that in Indonesia, the country with the world’s largest Muslim population, the fertility rate for the years 2010–15 will drop to 2.02, a shade below replacement level. The same UN assessment sees declines in Bangladesh (to 2.2) and Malaysia (2.35) in the same period. By 2050, even Pakistan is expected to reach a replacement-level fertility rate.
… within little more than a decade the working-age population will be shrinking by up to one million people annually. Russia is suffering a demographic decline on a scale that is normally associated with the effects of a major war.
Only a handful of scholars questioned the idea that the Chinese would outnumber all other groups for decades or even centuries to come. In fact, however, the latest UN projections suggest that China’s population, now 1.3 billion, will increase slowly through 2030 but may then be reduced to half that number by the end of the century.
“Will it matter to India and China that by the year 2020, 12 to 15 percent of their young adult males will not be able to ‘settle down’ because the girls that would have grown up to be their wives were disposed of by their societies instead?”
Perhaps the most striking fact about the demographic transformation now unfolding is that it is going to make the world look a lot more like Europe. The world is aging in an unprecedented way. A milepost in this process came in 1998, when for the first time the number of people in the developed world over the age of 60 outnumbered those below the age of 15. By 2047, the world as a whole will reach the same point.
Morgan Stanley: Capex Retrenchment – A Lot More to Go
If we include internal accruals generated by the corporate sector for this exercise, the total funding available for investment slowed to 14.9% of GDP (US$175 billion) in F2009 and should slow further to 12.5% of GDP (US$138 billion) in F2010 compared with 21.2% of GDP (US$249 billion) in F2008.
The gap between corporate capacity for growth and realized growth is expected to be much larger in the current cycle than in the mid-1990s; the capex binge was much larger in the current cycle … Even with the recovery in industrial production to an estimated 6-7% by March 2010, capacity utilization for the corporate sector should stay relatively low, dissuading them from initiating any major new capex plans.
As in the mid-1990s, we believe that the combined impact of slowing domestic consumption, higher domestic cost of capital and reduced capital access from international capital markets will result in a further major slowdown in the investment cycle over the next 12 months.
Witness the ongoing restructuring of debt by Indian companies, the continuing slowdown in residential & retail real estate, scaling down / cancellation of large commodity-related projects, and so on.
I maintain my outlook for Nifty EPS - target of 190 by end 2009, down 20% from peak of ~ 240, currently at 210.