World wealth to grow 50% in 5 years: Credit Suisse

Posted on 19 October 2011 - 04:52pm

Last updated on 20 October 2011 - 07:58am

ZURICH (Oct 19, 2011): Global wealth could rise 50% to US$345 trillion over the next five years, spurred by a near doubling of total household wealth in China and strong growth in Asia Pacific, Latin America and Africa, a Credit Suisse report released on Wednesday said.

The Global Wealth Report 2011 from Credit Suisse research said total global wealth jumped 14% between January 2010 and June 2011, ending the period at US$231 trillion, with Asia Pacific countries responsible for 54% of the rise.

"These are times of unprecedented economic change, and a radical reconfiguration of the world's economic order is taking shape," said Osama Abbasi, chief executive Officer for Asia Pacific at Credit Suisse.

"Emerging markets are important drivers of the global recovery and remain the key growth engines of global wealth."

With an expected US$81 trillion, the United States is seen remaining in the top spot in 2016 in terms of total household wealth, while China is set to leapfrog Japan into second place by almost doubling its household wealth to US$39 trillion.

Adults in Switzerland, Australia and Norway are the richest in the world, with Swiss adults holding average wealth of US$540,010, the only country where the average adult has more than US$500,000.

The net worth of the average Swiss person when measured in US dollars, was bumped up by the strength of the Swiss franc, which rose about 10% in value against the greenback from the start of the year to the end of June. – Reuters

How much should you invest in a stock?

		Teh Hooi Ling Sat, Nov 24, 2007 The Business Times
How much should you invest in a stock?
THE science of numbers has developed quite a bit since June 1955, when a new quiz show called The $64,000 Question made its debut on American television. The show was a hit. It captured as much as 85 per cent of the viewing audience and spawned dozens of copycat shows. There was even betting on which contestants would win. But the problem was the show was produced in New York and aired live on the East Coast of the US. The telecast, however, was delayed by three hours on the West Coast. A gambler took advantage of the time difference by finding out by phone who the winners were, and then placing his bets before the West Coast airing. John Kelly, a physicist at Bell Labs, heard about the scam on the news. After some pondering, he was convinced that a gambler with "inside information" could use some of the equations developed by his colleague - Claude Shannon - to achieve the highest return on his capital. Mr Shannon, who created information theory after having realised that computers could express numbers, words, pictures, audio and video as strings of digital 0s and 1s, had developed formulas to deal with the signal noise of long-distance telephone transmission. Mr Kelly saw that the equations could be applied to the problem of a gambler who has inside information, say, about a horse race, and who is trying to determine his optimum bet size. A gamblr gets a tip on a race's outcome. He could bet everything he's got on the horse that's supposed to win. But if the gambler adopts this approach, he will lose everything should the information turn out to be wrong. Alternatively, he could play it safe and bet a minimal amount on each tip. This squanders the considerable advantage the inside tips supply. In Kelly's analysis, the smart gambler should be interested in "compound return" on capital. That is, to optimise the long-term growth rate of one's capital, the gambler - the theory also applies to investors - should vary the wager as a proportion to his overall capital depending on the probability of bet being a winning one, and on the payout of the winning bet. The Kelly formula or Kelly criterion has become a popular money-management formula for investors, hedge fund managers and economists. Uncertain events As the saying goes, the only certainties in life are death and taxes. For everything else, we form some kind of expectations of the outcome based on our experience, or what have been documented by others. In finance, the expected value is used to account for the uncertain outcome of, say, a project or an investment. Project A, has 30 per cent chance of making a profit of 20 per cent, 40 per cent of a profit of 12 per cent and 30 per cent of making a loss of 15 per cent. So the expected return is 6.3 per cent  (30%x20% + 40%x12% + 30% x -15%). If there are numerous investment opportunities with that kind of probabilistic outcome, then over a long period of time, the investor will earn an average of 6.3 per cent return per investment, as indicated by the expected return. However, some investments or gambles are such that there is a one in a million chance of getting a $2.5 million payoff for a $1 bet. But for the other 999,999 times, you lose 100 per cent of your wager. The expected return is a good 150 per cent. But if one were to bet a significant sum of one's wealth on this kind of gamble, it is almost a certainty that one would be bankrupted before the big payoff comes along. According to Kelly's formula, two numbers should decide how much capital one should allocate to bet on an uncertain event: the probability of the bet being a winning one, and the payout. The formula is this: (Probability of bet being a winning one x (expected rate of return +2) -1) / (expected rate of return + 1). So if you think that an investment has a 51 per cent chance of returning 20 per cent, then according to the formula, you should put 10 per cent of your capital in that investment. But if the probability of the investment yielding 20 per cent drops to 45 per cent or less, then you should not make any bet at all. Meanwhile, a stock with half a chance of returning 30 per cent, the wager size should be 11.5 per cent of your portfolio. This method forces an investor to seriously and thoroughly analyse the potential of a stock. And when he or she comes across a stock whose potential they think is severely unappreciated by the market, then they should have the conviction to commit a sizeable bet on it. The prerequisite for this kind of approach is that the investor must have deep understanding of a stock and the industry it operates in, and have knowledge of how companies are valued by the market. In a way, the world's most successful investor, Warren Buffett, also subscribes to this strategy. He advocates focus investing, and to bet big on high probability events. There have been studies done that, using Kelly's formula one can minimise the expected time to reach a fixed fortune. From the table, it appears that the probability of a favourable outcome carries a much bigger weight in determining how much one should put into an investment. Disadvantages The Kelly formula was developed to solve similar problems in gambling where the outcome is either win or lose. And it assumes a 100 per cent loss when the outcome is unfavourable. In the stock market, one rarely lose 100 per cent of one's investment in a single trade.  Also, a financial investor cannot completely rely on the number suggested by the Kelly formula as it does not take into consideration the possibility of a few available investment options. In gambling, using Kelly's formula can produce a rather volatile result. There is a one-third chance of halving the bankroll before it is doubled. According to some literature, a popular alternative is to bet only half the amount suggested, which gives three-quarters of the investment return with much less volatility. Where money accumulates at 9.06 per cent compound interest with full bets, it still accumulates at 7.5 per cent for half-bets. And as mentioned, this kind of strategy is applicable to those who know their ways around the stock market. But even for experts, putting 30 per cent of one's portfolio in a stock with a 60 per cent probability of a 35 per cent return seems rather big a bet. The numbers should at best be used as a rough guide. And for those who don't have the time or the inclination to carry out in-depth studies of stocks, a diversified  approach is perhaps safer. The writer is a CFA charterholder. She can be reached at hooiling@sph.com.sg

Warrants trading: What you need to know

These cheap investment tools were virtually non-existent in Singapore a few years ago, but a recent growth spurt has sent their popularity soaring. Let's look at reasons to invest in warrants and how to go about it.
IF THE experts are right, the current boom in this investment tool is far from petering out.

They say more and more market traders are jumping in, as well as investors looking beyond stocks and bonds to bolster their portfolios.

To get an idea of just how popular they have become, consider this: Warrants turnover on the Singapore Exchange has grown from zero in 2003 to about $3 billion a month now.

The number of active warrant accounts has also shot up more than tenfold, to 20,154 this June from 12 months earlier.

A key attraction of warrants is that they are cheap.

Warrants trade around 20 cents to 30 cents, so the minimum investment for one lot - 1,000 shares - could be as low as $200 to $300.

As with any instrument, money can be made and lost when trading warrants.

For example, say an investor bought a call warrant on stock X for 30 cents with an exercise price of $5. Also, assume the conversion ratio is one to one, which means one warrant can be converted into one share.
The current share price is $5.25.

If the investor holds the warrant to maturity and exercises it, he is effectively paying $5.30 apiece for the shares (30 cents warrant cost plus $5 exercise price).

If the price of stock X stays at $5.25, he will get back 25 cents, so effectively, he will lose five cents ($5.30 minus $5.25).

If the share price falls to $5 or below, he will lose just his investment capital of 30 cents, but no more, even if the share price falls drastically.

On the other hand, if the stock's market price shoots up to $5.35, converting the warrant into a share would mean a five cent profit.

Consultant Peter Ang, 32, started trading warrants this year with a principal sum of $15,000. He made a 25 per cent return in just three days, after he bought DBS Group Holdings and CapitaLand warrants in September. But he lost about $20,000 in two weeks when the stock market nosedived recently. 'I wasn't careful, so I didn't cut my losses fast enough,' he said.

Despite the spectacular growth in the Singapore warrants market, Hong Kong is still well ahead because of a flood of China listings there.

Previous attempts to launch warrants trading here in 1995, and again in 1999, tanked for various reasons - including overly stringent listing rules and inadequate investor education.  

But three years ago, warrant issuers - some of the biggest players include Deutsche Bank, Macquarie Bank, Societe Generale and BNP Paribas - started to double as market makers. This means these banks provided buy and sell prices on warrants to ensure that investors had the chance to enter or exit the market.  They also embarked on investor education seminars and dedicated websites featuring trading tools.


How to pick a suitable warrant?


Directional view
Without getting bogged down in technical terms such as 'implied volatility', you should consider one factor when picking a warrant: whether you think the underlying asset is likely to go up or down in value.
Your view will determine whether you select a call warrant or a put warrant.
For example, suppose the Government has announced a new project and the likelihood of CapitaLand securing the project is high.
If you think this is good news for CapitaLand, you could consider buying call warrants on the stock - since you would expect the stock price to rise.
But if you think CapitaLand's share price is more likely to fall, you might want to buy a put warrant.
'Theoretically, if one has a neutral view on a stock, it would not be advisable to invest in warrants,' Deutsche vice-president Sandra Lee cautioned.

Timing
You also need to factor in the timeframe - and be confident that the underlying asset price is set to reach your price target at the same time that the warrant matures.
Take a call warrant, for example. The longer the time to expiry, the more time there is for the underlying asset to appreciate, which in turn will increase the price of the call warrant.
A call warrant that is far 'out-of-the money' with very little time to expiry is considered highly risky. This is because it has an exercise price that is much higher than its underlying price and yet has little time to appreciate.
In contrast, when the call warrant's exercise price is lower than its underlying price, the warrant is regarded as 'in-the-money'.
For both call warrants and put warrants, if the exercise price is equal to the underlying price, the warrants are said to be 'at-the-money'.
'If you believe the market is going to have a sharp correction soon, you should choose a short-term out-of-the- money put warrant,' said Mr Simon Yung, BNP's head of retail listed products sales for Singapore and Hong Kong.
'If you expect a stock to move up gradually in one to two months' time, you should choose a mid-term at-the- money or a 1 to 5 per cent out-of-the- money call warrant.'


Why invest in warrants?
Gearing effect
The biggest advantage warrants trading has over stocks trading is the gearing effect, which means that you can make huge gains from a modest investment outlay.
For example, it can cost nearly $20,000 to buy one lot of DBS shares (assuming a market price of $20 a share).
An increase of 1 per cent in the DBS share price will give you a return of $200.
But if you buy a DBS warrant with an effective gearing of 10 times, it should roughly return the same profit of $200.
The effective gearing indicates roughly how many per cent a warrant price will move if the underlying stock changes by 1 per cent.
In this case, trading in the DBS warrant costs just $2,000 but reaps the same $200 return.
'If the share price moves in your favour, you will get higher returns with a higher level of gearing. But if you get your view wrong, losses will also be greater,' said Mr Barnaby Matthews, Macquarie's head of warrants sales.
Since warrants are typically cheaper than underlying shares, this potentially frees up investors' cash for other purposes.

A hedging tool
Buying a put warrant - which gives you the right to sell the underlying asset later - is like buying an insurance policy for your portfolio, as it protects you from falls in the market.

'If the underlying asset declines, then put warrants will appreciate in price to offset losses suffered by the underlying asset,' said Mr Ooi Lid Seng, Societe Generale's vice-president of structured products for Asia ex-Japan.

For example, one can hold OCBC Bank shares and buy OCBC put warrants. If the OCBC share price keeps falling, losses will be partially offset by the gain in the put warrant price.

As warrants can be used to capture both the upside (call warrants) and the downside (put warrants), they can be used as a tool for risk management in a stock portfolio.

Mr Yung said that warrants can be a perfect instrument for balancing a portfolio's risk profile. 'A portfolio with only bonds, property and stock may not be able to optimise the risk-taking capability of the investor,' he said.


Tips on investing

FIRST, investors should never invest all their investment capital in warrants.

'Generally, we do not advise them to invest more than 10 per cent of their total investment capital in warrants due to the high-risk and high-return nature of warrants,' Mr Ooi said.

Retirees should also not use retirement funds needed to maintain their lifestyle to invest in warrants, as they generally have a lower risk tolerance, he added.

Investors should also be disciplined about taking profits and cutting losses. Mr Matthews advised investors to monitor their positions closely as warrants tend to move in greater percentage terms than shares.
Customer service manager Jason Kua, 37, would know. Three weeks ago, he lost about $25,000 in just two weeks after trading in some Straits Times Index warrants.

'Greed made me lose a lot. I was hoping my initial losses could be recovered, but this didn't happen,' he said.
Finally, investors should attend a seminar or do some reading to ensure that they understand the product before investing.

'Asking the expert before you invest is always a good idea,' Mr Yung said.
--------------------------------------------------------------------------------
What is a warrant?

WARRANTS are 'derivative' investment products - that is, they derive their value from an underlying asset such as a stock or a market index such as the Straits Times Index.
They give the investor the right to buy or sell the underlying asset from the issuer by paying a specific 'strike' or exercise price within a certain timeframe.
A call warrant gives the holder the option to buy, while a put warrant gives the option to sell.
Take a Keppel Corp call warrant for example.
If the price of the underlying Keppel stock rises above the exercise price before the expiry of the warrant, it will clearly be to your advantage to exercise the right to buy Keppel shares.
If you plan to exercise the Keppel warrant - that is, convert it into a Keppel share - you must do so before the expiration date. Of course, if Keppel's price stays below the exercise price, the warrants will expire worthless.


But investors often do not have to hold warrants to maturity. Normally, they simply buy and sell warrants on the stock market as they move in line with movements in the underlying share price.


'Warrants, unlike shares, have a finite lifespan,' said Deutsche Bank vice-president Sandra Lee. 'For each day the investor holds on to the warrant, the warrant loses some time value.'

Warrants usually have three- to six-month expiry dates.


http://www.asiaone.com/Business/My+Money/Building+Your+Nest+Egg/Investments+And+Savings/Story/A1Story20071205-39670.html

Warrants: A High-Return Investment Tool

A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. It is unlike an option in that a warrant is issued by a company, whereas an option is an instrument of the stock exchange. The security represented in the warrant (usually share equity) is delivered by the issuing company instead of by an investor holding the shares.

Companies will often include warrants as part of a new-issue offering to entice investors into buying the new security. A warrant can also increase a shareholder's confidence in a stock, provided the underlying value of the security actually does increase over time. (Warrants are just one type of equity derivative. Find out about the others in 5 Equity Derivatives And How They Work.)

Types of Warrants

There are two different types of warrants: a call warrant and a put warrant. A call warrant represents a specific number of shares that can be purchased from the issuer at a specific price, on or before a certain date. A put warrant represents a certain amount of equity that can be sold back to the issuer at a specified price, on or before a stated date.

Characteristics of a Warrant Warrant certificates have stated particulars regarding the investment tool they represent. All warrants have a specified expiry date, the last day the rights of a warrant can be executed. Warrants are classified by their exercise style: an American warrant, for instance, can be exercised anytime before or on the stated expiry date, and a European warrant, on the other hand, can be carried out only on the day of expiration.

The underlying instrument the warrant represents is also stated on warrant certificates. A warrant typically corresponds to a specific number of shares, but it can also represent a commodity, index or a currency.

The exercise or strike price is the amount that must be paid in order to either buy the call warrant or sell the put warrant. The payment of the strike price results in a transfer of the specified amount of the underlying instrument.

The conversion ratio is the number of warrants needed in order to buy (or sell) one investment unit. Therefore, if the conversion ratio to buy stock XYZ is 3:1, this means that the holder needs three warrants in order to purchase one share. Usually, if the conversion ratio is high, the price of the share will be low, and vice versa.

In the case of an index warrant, an index multiplier would be stated instead. This figure would be used to determine the amount payable to the holder upon the exercise date.

Investing in Warrants Warrants are transferable, quoted certificates, and they tend to be more attractive for medium-term to long-term investment schemes.Tending to be high-risk, high-return investment tools that remain largely unexploited in investment strategies, warrants are also an attractive option for speculators and hedgers. Transparency is high and warrants offer a viable option for private investors as well. This is because the cost of a warrant is commonly low, and the initial investment needed to command a large amount of equity is actually quite small.

Advantages

Let us look at an example that illustrates one of the potential benefits of warrants. Say that XYZ shares are currently priced on the market for $1.50 per share. In order to purchase 1,000 shares, an investor would need $1,500. However, if the investor opted to buy a warrant (representing one share) that was going for $0.50 per warrant, he or she would be in possession of 3,000 shares using the same $1,500.

Because the prices of warrants are low, the leverage and gearing they offer is high. This means that there is a potential for larger capital gains and losses. While it is common for both a share price and a warrant price to move in parallel (in absolute terms) the percentage gain (or loss), will be significantly varied because of the initial difference in price. Warrants generally exaggerate share price movements in terms of percentage change.

Let us look at another example to illustrate these points. Say that share XYZ gains $0.30 per share from $1.50, to close at $1.80. The percentage gain would be 20%. However, with a $0.30 gain in the warrant, from $0.50 to $0.80, the percentage gain would be 60%.

In this example, the gearing factor is calculated by dividing the original share price by the original warrant price: $1.50 / $0.50 = 3. The "3" is the gearing factor - essentially the amount of financial leverage the warrant offers. The higher the number, the larger the potential for capital gains (or losses).

Warrants can offer significant gains to an investor during a bull market. They can also offer some protection to an investor during a bear market. This is because as the price of an underlying share begins to drop, the warrant may not realize as much loss because the price, in relation to the actual share, is already low. (Leverage can be a good thing, up to a point. Learn more in The Leverage Cliff: Watch Your Step.)

Disadvantages

Like any other type of investment, warrants also have their drawbacks and risks. As mentioned above, the leverage and gearing warrants offer can be high. But these can also work to the disadvantage of the investor. If we reverse the outcome of the example from above and realize a drop in absolute price by $0.30, the percentage loss for the share price would be 20%, while the loss on the warrant would be 60% - obvious when you consider the factor of three used to leverage, but a different matter when it bites a hole in your portfolio.

Another disadvantage and risk to the warrant investor is that the value of the certificate can drop to zero. If that were to happen before it is exercised, the warrant would lose any redemption value.

Finally, a holder of a warrant does not have any voting, shareholding or dividend rights. The investor can therefore have no say in the functioning of the company, even though he or she is affected by any decisions made.

A Bittersweet Stock Jump

One notable instance in which warrants made a big difference to the company and investors took place in the early 1980s when the Chrysler Corporation received governmentally guaranteed loans totaling approximately $1.2 billion. Chrysler used warrants - 14.4 million of them - to "sweeten" the deal for the government and solidify the loans.

Because these loans would keep the auto giant from bankruptcy, management showed little hesitation issuing what they thought was a purely superficial bonus that would never be cashed in. At the time of issuance Chrysler stock was hovering around $5, so issuing warrants with an exercise price of $13 did not seem like a bad idea. However, the warrants ended up costing Chrysler approximately $311 million, as their stock shot up to nearly $30. For the federal government, this "cherry on top" turned quite profitable, but for Chrysler it was an expensive afterthought.

The Bottom Line

Warrants can offer a smart addition to an investor's portfolio, but warrant investors need to be attentive to market movements due to their risky nature. This largely unused investment alternative, however, can offer the small investor the opportunity for diversity without having to compete with the elephants. (What's true for warrants is true for options, learn more in our Options Basics Tutorial.)

by Reem Heakal

Read more: http://www.investopedia.com/articles/04/021704.asp#ixzz1bab75A2o

Which security offers the best protection against inflation?

The security which offers the best protection against purchasing power risk or inflation is which of the following?

---

a. fixed annuity

b. common stock

c. treasury bond

d. certificate of deposit

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Answers: b
Debt securities and investments that promise fixed rates of returns are the most susceptible to purchasing power risk or inflation. Fixed annuities, CD’s, and treasury bonds all fall under these categories.

Read more: http://www.investopedia.com/ask/answers/10/inflation-protection.asp#ixzz1bSW36QRQ

44% of people plan to never invest again

JUNE 6, 2011 · 

A recent survey shows that 44% of people plan to never invest money in the stock market again.

“Prudential, which polled more than 1,000 investors between the ages of 35 and 70 online earlier this year, found that 58% of those surveyed have lost faith in the stock market. Even more alarming, 44% said they plan to never invest in stocks. Ever.”

Think about that for a minute.

That decision is not the well-reasoned response of someone who has carefully evaluated the risk and reward ratio of investing.

It is an emotional response born out of fear (“I don’t want to lose my money!!!”) and ignorance (“this stock market is a crock!”).

Here are a few notes to consider:

• Perhaps the worst financial move you could make would be to withdraw from the stock market. These are some of the same people who will complain about money their entire lives, never stopping to realize that their own behavior — decades prior — caused their financial situation
• If you’re truly risk-averse, you have other options to mitigate risk, such as investing in lower-risk investments or changing your contribution rates. However, this assumes you are rational and will “understand” the options. The truth, of course, is that discontinuing investments is anything but rational.
• I don’t only blame these people, by the way. Although we are responsible for our own actions, the financial education in this country has failed us.
• Ironically, as the Wall Street Journal notes, “It looks as though many of the retail investors now getting back into stocks are the same people who bailed from the market just before the start of a historic bull run.” What’s the takeaway? You will never be able to time the market accurately over the long term. This is where some crackpot commenter will say, “DUH RAMIT, I SAW THE HOUSING CRASH COMING A MILE AWAY AND PUT ALL MY MONEY IN RED BRICKS!! NOW IT’S SAFE!! HA HA AHAAHAHA.” You may get lucky with timing once. But eventually, you will lose
• If you’re in your 20′s and 30′s, your time horizon allows you to withstand temporary downturns and still come out ahead by retirement age
• The idea that “I don’t want to lose my money” ignores the fact that by not investing, you will also lose money — it will just be an invisible loss that will only be realized decades later
• Older people who lost everything in the stock market should never have been in that position — their asset allocation failed them
• The investment strategy for the vast majority of individual investors should be passive, buy-and-hold investing. There’s no need to obsessively monitor investments or day-trade. I check my investments every 6-12 months as I have better things to do than micro-monitor these numbers.
• Target-date funds make sure your asset allocation is always age-appropriate with little/no effort from you. It is one of the finest automation strategies in life.

If you’re curious how to set up an automatic investing plan — including which investing accounts I use and how I chose my asset allocation — pick up a copy of my book. Here’s the print version and Kindle version.

Results from the book:

“Thanks for the advice. Have been able to build 25k in a roth, 7k in a 401k, automate all my finances and live a bliss life thanks to your book.”
–Adrian S.

“Since I bought your book, I’ve cleared five thousand in credit card debt and twenty thousand in student loans. I’m maxing out my roth and my 401k, have a savings plan and negotiated my way into six figures.”
–Nicholas C.

“After buying your book, my personal finances have changed completely…all of my credit cards (which I pay off in full each month) are completely automated. I also rolled both 401ks into a Vanguard IRA.  Yesterday, I was able to put enough money into the IRA to max it out for the year 2010…something I didn’t think I’d be able to do for a few years.  I’m setting up an autopayment plan to put my 2011 IRA payments on cruise control.”
–Steve K.

http://www.iwillteachyoutoberich.com/blog/44-of-people-plan-to-never-invest-again/

Risks rise for India as global economy totters

The Indian economy faces the added risk of heightened policy paralysis, which economists say has the potential to hurt growth as investors stay on the sidelines.

Surojit Gupta, TNN | Sep 25, 2011, 12.04AM IST

NEW DELHI: Risks for the Indian economy have intensified in recent weeks and any drastic change in ratings by global rating agencies in coming months could pile pressure and add to the gloom that has gripped Asia's third-largest economy.

Ratings agency Standard & (S&P) says risks associated with weaker-than-expected global growth, sovereign debt concerns in Europe and potential tightening in funding conditions weigh on Asia-Pacific's sovereign credit trends.

The Indian economy faces the added risk of heightened policy paralysis, which economists say has the potential to hurt growth as investors stay on the sidelines.

"The three risks would be inflation, low or negative growth in the agricultural sector and potential policy paralysis if further issues arise which could stop the proceedings in the Parliament, as has been the case until quite recently this year," Takahira Ogawa, S&P's director of sovereign and international public finance ratings, told TOI when asked about the key risks facing the economy. S&P has a BBB- (stable) rating on India, which implies investment grade.

"We expect India's growth rate for fiscal year 2011-12 to be 7.8%," Ogawa said.

Several economists that TOI spoke to said growth could slow to 7.2 to 7.5% in the current fiscal largely due to the impact of the Reserve Bank of India's aggressive interest rate tightening to counter stubbornly high inflation. The International Monetary Fund too has trimmed India's growth estimates citing weak growth in the rest of the world.

According to Ogawa, the fiscal deficit - a measure of the extent to which the government has to borrow - could widen to 5.7% of gross domestic product this year if crude prices remain high. Asked when S&P will issue fresh ratings views for India, Ogawa said: "We review our sovereign ratings on a regular basis. Our analysts will make the calls on credit risk as they see them based on Standard & Poor's published rating criteria."

The global economic situation has worsened in recent weeks. The Federal Reserve on Wednesday said there are significant downside risks to the US economic outlook, including strains in the global financial markets. The rising economic woes on both sides of the Atlantic have wreaked havoc across global financial markets.

In India, the stock market has plunged while the rupee has posted its biggest weekly fall in more than 15 years. Industrial growth in July slowed to 3.3% while high interest rates have hit investments. Exports are expected to moderate and lower-than-expected receipts may make it difficult to bridge the fiscal deficit. Developments on the political front have added to the policy paralysis that had set in after a slew of scandals emerged last year.

"There is complete drift and no decision making. There is a sense of despair. I don't remember a situation like this before. I don't see any cure in the short term," former RBI governor Bimal Jalan said. He said even if there were adverse rating actions in the months ahead it would lead to some short-term volatility in the stock market. According to him, the key issue is to restore confidence.

Analysts say the slide of the rupee is not a good sign and there is an urgent need for the government to act and reverse the situation to enable the economy to return to its robust growth path.

"What is worrying is that the rupee has collapsed. This is a real concern. This means money is not coming in. This is not good for a country which is planning to grow at 8%-9%," HDFC chairman Deepak Parekh told TOI.

"We have to open up FDI, make it attractive for companies. Indian companies are going abroad, foreign companies are not coming in. This is a cause for great concern. We are a capital short country. The government has to find ways to get long-term foreign investment into the country. Policies have to be fixed," he said.

But Kaushik Basu, the finance ministry's chief economic adviser, defended the government's handling of the price situation. "I believe it is a difficult situation that has been very well handled in India. This is clear from global comparisons. We are still amongst the most robust economies," he said.

http://timesofindia.indiatimes.com/business/india-business/Risks-rise-for-India-as-global-economy-totters/pmarticleshow/10108814.cms?prtpage=1

"India presents a more serious cause for worry" as its economy "is slowing sharply"

India's economy slows sharply: Moody's

October 18, 2011 - 7:05AM

India's slowing economic growth is a "cause for worry", research group Moody's Analytics says, highlighting the failure of aggressive interest rate hikes to curb near double-digit inflation.

India's growth has weakened under the brunt of 12 interest rate increases since March 2010 that have pushed up borrowing costs for everything from consumer appliances to plant equipment.

India's growth would slow from an expected 7.8 per cent year-on-year in the first half of 2011 to 6.5 per cent by mid-2012, said Glenn Levine, senior economist at Moody's Analytics.

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That still implied a "soft landing" - a rate of growth high enough to avoid recession - Levine said in a research note on Monday, while warning that this outcome was "by no means assured".

Although the economy of neighbouring emerging market China was also slowing, it was happening "at an entirely manageable rate", Levine said.

"India presents a more serious cause for worry" as its economy "is slowing sharply", he said.

With inflation remaining stubbornly high at 9.72 per cent in September, India's central bank may be forced into further monetary tightening in the months ahead which would exacerbate the slowdown, Levine said.

Many economists expect another 25-basis point rate hike later this month, pushing India's benchmark lending rate to around a three-year peak of 8.50 per cent.

"So far, the Reserve Bank of India's 325 basis points' worth of tightening must be judged a failure" while domestic demand has been hit hard, Levine said.

The faltering US economy and euro zone debt crisis are beginning to curb growth in Asia, prompting many central banks in the region to shift focus from fighting inflation to promoting growth.

Indonesia, whose central bank was the first in the region to loosen monetary policy in response to the latest global financial crisis, is "still in good shape", Levine said.

Singapore, among the most open, trade-dependent economies in Asia, and whose growth path is a bellwether for the region, has shown a rebound in economic expansion, he noted.

China's economy should help keep growth in the Asia-Pacific region on a solid footing, Levine said.

"But if China and India, the region's two emerging giants, were to slow more than expected, much of the region could be pushed into recession," he said.

Australia "offers the clearest example" of vulnerability with growth driven by booming mining and its strong links to Chinese commodity demand, while the rest of the economy is still struggling, he said.

"A fall in commodity demand linked to slowdowns in China and India would be enough to knock Australia's patchy recovery off track," Levine said.

South Korea also relies heavily on China's demand for plant equipment and other machinery.

Its growth should continue at a "decent, though not outstanding clip," he forecast, but there are "growing downside risks" from any collapse in export demand.

AFP

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