Milton Friedman once said, “Only a crisis, actual or perceived – produces real change”. This is very true in an Indian context. The Indian economy, one of Morgan Stanley’s “fragile five” in 2013, mired in a balance of payment crises with a rupee in free fall, now boasts 7.6% GDP growth and a slight current account surplus.  Ever since the end of India’s License Raj era in 1991, foreign investors have pinpointed India’s growth performance as accidental and not structural. This is no longer true. India’s growth momentum is domestic and secular, not dependent on bullish global market cycles alone.

Emerging markets have been facing difficult times especially with the rising dollar and collapse in commodities. Uncertainties from the Chinese economy have increased with manufacturing burdened by overcapacity albeit cushioned by a strong consumer. From Latin America to the Middle East, productivity gains can only be achieved through improving business environment and infrastructure led growth to diversify away from the vagaries of commodity markets.

The distinctly visible direction of global politics has triggered a new era of de-globalisation and closed economic policies. Emerging economies in this era cannot export their way to prosperity. They have to rely on domestic markets which would focus on services led growth diverging away from manufacturing where automation will reduce jobs.

India’s top down story could stand out as a key differentiating factor in a world starving for domestic demand led growth uncorrelated to cyclical commodities. The government along with the central bank is addressing some key structural problems which make economy more resilient and low risk even at the cost of short term pain like rural stress and a delayed recovery in private investment. Few areas which stand out:

Crushing crony capitalism: For most of India’s independent history, crony capitalists have cornered key resources in large sectors of the economy. Modi led government which made tall promises during election rhetoric has been addressing this issue through transparent, policy oriented approach and even draconian legislation. Corruption in India is now a more bottom up problem than a top down problem.

Focus on financial stability: Indian policymakers have been complacent with high growth often at the cost of high inflation and financial stability. Since 2013, with relentless focus and help from commodity crash, the sticky consumer price inflation has come down from 10% to below 6% which coupled with lower fiscal deficit has allowed the interest rates to fall 150 bps. A relatively stable currency attracts investments.

Financial inclusion: Considerable progress has been made in the last two years with over 220 million new bank accounts covering over 90% of unbanked families. This would further help reduce the $40 billion subsidy bill through direct benefit transfers. With Indian corporate reeling under a balance sheet recession, the retail credit is clocking growth of over 18% which emphasises the consumption recovery.

Lowering the cost of capital: India despite having a high savings rate is burdened by a high cost of capital as over 50% of India’s household savings are in locked in land or gold. The orderly real estate correction and measures to curb gold demand has meant more savings into the financial system. This means India’s cost of debt capital is coming down structurally.

Note that Indian capital markets reflect these new macro realities while Dalal Street falls on global risk aversion, these declines are a buying opportunity. Its implied volatility has fallen dramatically over last two years as it attracts more sticky long term investors. At 16 times earnings, India is not cheap but its valuation is anchored by the tail wind of earnings recovery and structural reform.

In 2015, India attracted $63 billion in green-field FDI, a global record that beat even the US & China. India is unquestionably the world’s most attractive consumption driven growth story with macro-economic stability. As a parliamentary democracy with a demographic dividend of 1.2 billion people and an entrepreneurial tradition that preceded the East India Company by centuries, India is on a roll on the global economic stage. Brexit trauma only reinforces the Indian story since it precludes a traumatic rise in US dollar interest rates and places a premium on secular growth story. This is India’s new tryst with economic destiny.

Link: http://www.khaleejtimes.com/business/economy/global-investing-is-indias-macro-economic-rise-accidental-or-structural

Australia’s largest privately owned hotel management company StayWell Hospitality Group (SWHG) today announced the signing of a management agreement to open and operate the company’s first Park Regis properties in Makkah Saudi Arabia.

Expected to open in the second quarter of 2018, the remarkable two hotels boast 286 and 344 guest rooms respectively (630 rooms in total). This Park Regis development will be one of the latest openings for the fast growing international brand which has a presence in Australia, Singapore, United Arab Emirates, India, United Kingdom and Indonesia.

StayWell Hospitality Group CEO Mr Simon Wan said that formalising the management agreement for the hotels is a strategic move for the Sydney based company in entering the established Saudi Arabia market to grow its presence in the Middle East further.

“These two unique hotels will offer guests superb dining options as well as deluxe accommodation within walking distance to the Grand Mosque in Makkah.

“The hotels are targeting to open in time for the 2018 Hajj and will welcome guests for the annual Islamic pilgrimage to Makkah visitors in this religious destination. We are looking forward to both hotels complementing our existing Park Regis Kris Kin and our upcoming Park Regis Business Bay hotel, located in Dubai. We are also actively looking for further opportunities to expand our network in the Middle East,” he said.

The owner’s representative Riyad Alhoraibi said “Discussions on the Park Regis Makkah hotels first started at ATM 2015 and over the ensuing months the relationship developed culminating in the signing of agreement for the two properties just weeks before the 2016 ATM.”

“We are delighted to be able to offer guests a range of accommodation in Ibrahim Al Khalil Street within walking distance from the Haram.”

The opening of the Park Regis Makkah hotels will bring the StayWell Hospitality Group’s portfolio to 31 hotels worldwide and 4 in the region and a step closer to the group’s strategic objective of expanding its portfolio to 100 hotels within three years.

Press Coverage:

http://www.hospitalitynet.org/news/4075135.html

https://www.zawya.com//story/Australias_StayWell_announces_1st_Saudi_hotel-ZAWYA20160328090322/

http://www.arabianbusiness.com/australian-hotel-giant-inks-deal-for-first-makkah-properties-626515.html

It is dangerous to speak truth to power in a time of cholera. It is dangerous to tell the truth, to call billionaire oligarchs who have looted state owned banks “crooked”, to call the Maharajah’s political courtiers “venal”, to criticize religious intolerance when a lifelong RSS zealot is the Indian Prime Minister. So Raghuram Rajan, the most brilliant central bank governor to serve India’s 1.2 billion people, obviously had to go. Billionaire oligarchs and the RSS’s brown shorts, stick wielding ideologues are the real kingmakers in Modi’s India seven decades after a RSS assassin gun down Mahatma Gandhi.

Raghu, as he once asked me to call him the only time we met at a New York conference in 1999, stabilized the Indian rupee, slashed inflation and the repo rate, saved India a sovereign credit downgrade, restored monetary credibility with the offshore fund managers who bankroll its 7.6% GDP growth rate, was the most respected Asian central banker at the IMF, the World Bank, the Fed, the Bank of England, the political chancelleries of the world. But a bigot BJP lawmaker, a nonentity who lost his teaching job at Harvard for his communal, extremist poison, branded him “not mentally fully Indian”. This would be hilarious if it were not so tragic that a peanut brained intellectual joke dares to judge Raghu, who I am almost certain will win the first Noble Prize in economics for India since Cambridge’s Dr. Amartya Sen.

This world class economist, a gift from the gods to India and my professional dismal science tribe, was not given a term extention while his predecessor, whose money printing cost Indians a 50% free fall in the rupee and who inflicted the draconian regressive tax of double digit inflation on 500 million poor Indians, served a full five years. Raghu, a man hailed as a genius by the cognoscenti of Wall Street, Liverpool Street and, yes, Dalal Street is sacked by the Prime Minister while men who have plundered India’s public banks and inflamed religious intolerance grace the inner sanctums of the BJP. This is wrong. This is shameful. This is unreal. This will haunt India for decades after Modinomics is exposed as nothing remotely similar to the Reagan/Thatcher economic revolutions that embraced the free market and rolled back the state in the 1980’s. But, friends, Romans, I publish this column to bury Dr. Rajan, not to praise him.

Raghu returns to the realm of ideas in Chicago where he is happiest. I do not blame him. A man who refuses to toady up to the political masters as RBI Governor is anathema to both Congress and the BJP’s imperious, imperial court. Arun Jaitley is a loyalist and a lawyer, not even an economist but he and not Arun Shourie is the Finance Minister. Men who value ideas and beauty do not crave petty power or black money slush funds in a Swiss private bank. Raghu should have heeded the advice of Lord Tennyson and the lesson of the Light Brigade. Ours is not to reason why, ours is but to do and die. We need meek, timid, compliant yes men at the RBI who do not call oligarchs and banksters “crooked”, who do not brand the Netaji Crooks R Us Brigade “venal”, who do not evoke the memory of the Nuremberg Laws (strange, I will be in Nuremberg next week!) in New Delhi 2016. We need men who can bat and ball, hail Caesar on command, dutifully scream yes sir, no sir, three bags full sir (sirji, in Pakistan, in the court of King Assi Tussi!).

Modi should really appoint another Tamil to be governor of the RBI. Dr. Subramanian Swami would be an ideal Indian ambassador to Wall Street. Rekha would be even better, a lady of grace and beauty even greater than Swami’s. It does not matter who is the next governor of the RBI because now we know why they get the job.

My Indian friends tell me Dr. Rajan’s sacking in a storm in a teacup, that he was no jewel in India’s crown, that it is rude to expose Emperors who wear no loincloths. I passionately disagree. As an investor in emerging markets, I live and die by the Latin world credere – belief. Without credere, there is no credit. So Modi and Jaitley have gravely damaged India’s sovereign risk and raised the risk premium for inflation, G-Sec issuances and the rupee. Yet this is far less important than the BJP’s power of politics and patronage – the Congress was no different, only far sleazier. The next RBI governor will have to curry favour at the court of the BJP princes, not insist that India’s powerless be defined in the image of the powerful, as they have been for all these centuries. I hope to shake Raghuram Rajan’s hand for the second time in my life. Raghu, you are my hero. India will never forget you.

It is impossible to predict the macro zeitgeist in real time as a global political event of such seismic importance unfolds before my Bloomberg screen. So I go all cash and fly to Munich not to seek peace in our time but to revisit loony King Ludwig’s Bavarian Gothic fairy tales castles, the cafes of Schwabing/Marienplatz and visit Garmisch with my liebe Hausfrau. There will be a bloodbath in global finance in the next six months. Why? Bank credit default swaps suggest a rise in funding risk. This is Lehman all over again, only worse.

Note Brexit crude oil fell 5% on Brexit. The cost of bank risk will skyrocket in a world where Barclays and RBS shares can fall 20% in a single session. Is this negative for GCC banks, the largest component of regional stock markets? Is the Queen of England English (well, she is genetically German, thanks to Empress Vicky and Prince Al, the bearded dude on the big chair in Hyde Park!).

Defensive sectors? Note UK education publisher Pearson PLC rose 2%. So did Swiss pharma Novartis. Gold? If you are lucky enough to get a profit taking move down to $1310 for new money. It makes total sense to short Tesco with its huge sterling revenues but buy Carrefour, now 7% cheaper even though it has no real sterling revenues. Vive la France, vive MAF Holdings, vive Carrefour!

The real winner of Brexit? Boris Johnson, possibly the next Old Etonian Prime Minister. Donald Trump scored the marketing coup of the millennium by making sure he opened a Scottish golf resort on the day Brexit shook the sceptered isle, this green and pleasant land.

The Chicago Volatility Index has soared 32%, a compelling argument to sell put options on devastated UK banks. Why not Barclays New York ADR, down 30% overnight, a screaming option strategy. Jes Staley was one of the smartest investment bankers of my generation at J.P. Morgan and he will turnaround the 300 year old Quaker bank Bob Diamond’s LIBOR rigging banksters destroyed. Dividend cut? Yes. Gulliver’s travels? Futile since HSBC shares have been such a disaster despite $100 billion in write offs, legal fines, 80 business exits, a $109 billion Mexican money laundering fine, 50,000 payroll cuts, the $5 billion sale of HSBC Brazil to Banco Bradesco. Profit warning? Yes.

I have done my best to hedge global macro risk in 2016 by recommending (table pounding!) the most shunned, least foreign owned emerging market in Asia – Pakistan. This is a local play since the biggest holders of Pakistan sovereign Eurobonds are Khoja financiers of Zurich and the Gulf, not the big EM leemings in the City, New York and Singapore (Aberdeen Wallah!). Friends who trusted me on Pakistan lucked out in the best performing stock market in Asia or Europe in 2016. Bull market zindabad! Christmas came early on McLeod Road in Karachi.

I was horrified that so many Gulf family office and institutions have this touching faith in London property even though it is among the most overvalued bubbles on the earth. I have made no secret of my investment thesis on Makkah Umra hostels, an asset class immune to Brexit risk or even the Saudi credit cycle. To exploit a no brainer asset class it is unfortunately necessary to possess a brain, as some of the biggest and smartest families and institutions in the GCC know all too well.

Fund managers shares should be shorted Hundreds of billions of retail money will flee asset managers in US, Europe and, yes, the GCC. Bear markets are savage and merciless. I know. I barely survived several in my own life. How will UK fund managers sell funds on the Continent? Paybacks in Finanzplatz Frankfurt and the Ville Lumiere are being plotted against the City even as I write. Who to short? Notice Invesco fell 10% on Friday. Get real. Get out. A UK asset management platform is no leprosy due to Brexit. Outflows will escalate. Fees will shrink. Markets abroad will vanish. Balance sheets will tremble. Index funds will fail. Firms will die. Private equity firms? A screaming short, with both black stones and black rocks.

The markets assume the European project will unravel. Why else is London down 3% but Italy and Spain down 12 – 14% as I write. There are existential threats to the Euro with the elections/referendum this autumn against the regimes of Rey Manuel and Matteo Caesar, the coolest Florentine to rule Bella Italian since Lorenzo de Medici. If Italy/Spain exits, Monnet’s dream ends. Global equities then fall 50%, as they did in 2008 and 2001.

David Cameron, Wall Street’s elite, Mutti Merkel, Obama, the Eurocrats of Brussels, the great and the good of the City and the IMF’s Lady Christine all got it so horribly wrong. I slept Thursday night with sterling at 1.50 on New York and awoke to see it trade at 1.34 on Friday, a 30 year low before the Plaza Accords. Britain has voted to leave the EU and Scotland’s Chief Minister has asked for a new referendum. The next domino to fall could well be Mrs. Merkel, Mother of Europe now that Cameron has committed political hara-kiri. There is now other way to gloss over the fact that, alas, all bets are off in global markets. I never thought I would live to see the day Nigel Farage sounded Churchillian, though with a hint of Lord Haw Haw’s sinister sneer. But I did.

Brexit will have a chilling impact on capex, growth, jobs in England (UK for how long?). Recession is certain if the Bank of England does not stimulate the money markets with a £80 – 100 billion gilt purchases. Morgan Stanley plans to move 2000 employees to Dublin (great) and Frankfurt (awful). This is the tip of the iceberg. Property prices from office towers in the City to cozy pied-à-terre in Belgravia, Mayfair, South Ken and Chelsea will plunge. Battersea’s offplan leveraged Ponzi scheme on the Thames? A 80% price fall in 2017-18.

I see no reason to buy sterling now as the Old Lady of Threadneedle Street has no choice but to resort (lender of the last resort!) to money printing if the recession deepens. It is also dangerous to bottom fish in British equities as profit forecasts will darken this autumn. Bookie stocks in London deserve to be shorted or even delisted for providing such lousy pole forecasts. They should stick to Kim and Kanye or Premier League WFG chav stories. It makes sense to position for second round geopolitical and financial shocks as Article 50 is invoked and the Tories begin another civil war now that Cameron has deprived them from the pleasure of a Thatcher/Heath style regicide.

UK economic growth will take a hit as the Foreign Office and Downing Street rearrange international economic relations. My friends on London currency desks tell me that the Swiss central bank intervened to stem the franc’s safe haven spike. I have loved gold and gold miners, (up 90%) since 2015. Cash is king, queen and grand vizier to me as I see asset prices slammed by contagion.

UK equities will benefit from the pound’s fall only when it bottoms – too bad they do not give us an electric shock in the derrière when this happens. Yet can the Bank of England really kick start the UK economy with rate cuts alone amid such protracted geopolitical and financial market volatility? No. Recession is certain.

UK bank shares, UK property firms and German machinery exporters are obvious shorts in this milieu. The pound is in free fall and can well fall to 1.25, lovely for UK exporters (Diageo, Unilever, Burberry, Victrex) while a disaster for banks and property, the reason Lloyds, RBS, Barratt, British Land and Persimmon are down 20%. The shock to the UK economy is far too traumatic.

All my friend, mostly fund managers and merchant bankers in the City, voted Remain. However, the cabbies I took in Chester and York (went to see Roman and Plantagenet ruins!) were informly Leave, as was my favorite pukka sahib Brit. CIO friend at a major Omani bank in Muscat.

Gold outperformed every other Brexit strategy hedges I know, with its 7% stellar move. I would not commit capital now as there is major blood on a Street far too complacent about Remain. We saw a 25% hit in Japanese equities but the Bank of Japan cannot risk 95 yen and the death rattle of Abenomics. This means massive intervention in the yen money market in Marounuchi, an argument to buy the Nikkei index fund (symbol EWJ). Expect to hear the Federal Open Mouth Committee (FOMC) jawbone markets in high decibel count as the terrified hoofbeats of the Wall Street herds trigger panic in the court of Mama Yellen. The capitulation trade? Deutsche Bank, UBS, Credit Suisse and, yes, Barclays Bank PLC!

These are historic times for the global financial markets. The June FOMC left the overnight borrowing rates target unchanged but the Yellen Fed has also rolled back its expectations for future rate increases in 2016 and downgraded her implicit US growth and inflation forecast. The ten year US Tresury note yield has plummeted to a low of 1.56%, thanks to Brexit related safe haven flows now that the ten year German Bund yield is negative. The Bank of Japan also did nothing to reassure the markets with a “shock and awe” monetary ease, impotent to act on the eve of Brexit and the upper house Japanese Diet election. The dovish Fed, a continued negative 0.1% policy rate in Tokyo and a fall in Brexit crude to $46 meant the Japanese yen was poised for a sharp rise against the US dollar, Euro and Australia/Canada. This is exactly what happened as the yen surged to 104 against the dollar, 117.50 against the Euro and almost 78 against the Aussie dollar.

While gold futures traded as high as $1312 in Singapore after the Fed monetary conclave on Wednesday, spot bullion closed at $1284 in New York after the Dow Jones index made a 250 point snapback on Thursday. Gold is the obvious beneficiary of a dovish Fed, negative interest rates in Germany and Japan and the safe haven bid to hedge Brexit risk. While the Japan yen could also spike higher to 100 on Brexit, there is a constant risk of central bank intervention at current levels. This is not the case with gold or even silver, which I had recommended in the $15 level in this column and has now risen to $17.60 spot as I write. If Brexit happens, I have no doubt in my mind that we will see gold trade at $1400 an ounce in New York on June 23. If Britain does not vote to leave the EU, gold falls to pre-May payroll data or $1210-1220 on an immediate liquidation move. Yet this sell off should be aggressively accumulated, since the lower projections for Fed interest rate hikes makes gold an obvious winner asset class for 2016.

The World Bank has also slashed its expectations of global growth, Deutsche Bank shares have plunged 50% in 2016, below their Lehman Brothers lows in 2008 (wo is der black swan?), Venezuela is Latin America’s latest “failed state” thanks to Nicolas Maduro and the ghost of Commandante Chavez, the Kremlin and the US are on a collision course in Syria and Donald Trump is the presumptive Republican nominee as terrorist outrages hit Florida, Paris and Yorkshire. Notice that the Gold Miners index fund (symbol GDX) is up 84% in 2016. No typo, friends. I repeat the gold miners index is up 84% in 2016. This is the mother of all breakouts in the kingdom of Auric!

The FOMC policy U-turn also increases my bullishness on high yield carry currencies in certain (but definitely not all. Avoid the Nigerian naira and petro currencies like the plague!) emerging markets. The current Brexit risk off angst in the emerging markets can give some crucial money making carry ideas. I believe the Indian rupee would be an absolute must buy at 67 even if Dr. Rajan decides to return to his tenured professorship in South Chicago. There is a non-trivial risk of a US recession, a Chinese banking crisis or the failure of a major European bank. These are all reasons why gold and silver could be the best performing currencies of 2016. In any case, it is profitable to buy the Indian rupee against the Singapore dollar and Malaysian ringgit.

The sterling one month option volatility now exceeds 20, the level I remember in October 2008, when Gordon Brown’s UK Treasury bailed out RBS and Lloyds. In essence, the markets expect the pound to plummet to 1.25 – 1.28 if Britain votes to leave the EU on June 23. Fine. Sterling volatility is impossibly risky. So I would sell a 1.40 one month put as my Remain trade strategy idea! This could be the most exciting week to trade sterling since the Scottish referendum and even Black Wednesday 1992. This will be the week that will change global finance, possibly witness Britain’s biggest political decision in our lifetimes. Happy hunting, mates!

http://www.khaleejtimes.com/search?text=Matein%20Khalid&content=articles