Equity markets well ahead of the story: Roach
Stephen Roach, a leading economist and the chairman of Morgan Stanley Asia, is more optimistic about India than China. He sees the global economy growing by just around 1.5 per cent for about two years, which he considered recession, as it is much below the trend growth rate. Speaking to reporters in Mumbai on Wednesday, Roach said equity markets are running ahead of fundamentals and would correct soon. Excerpts from the interaction:
On per capita consumption in India, China miniscule compared to US
The total consumption in the US last year was around $10 trillion when it accounts for just four per cent of the world population. The combined consumption in India and China was at $2 trillion while accounting for 40 per cent of the global population. This gap in consumption is unlikely to be bridged and the nations depending more on exports are unlikely to see recovery soon.
On China’s vulnerability: dependence on exports
China has been overly dependent on exports and is vulnerable to relapse in 2009, as fading investment stimulus is not countered by US-led snapback in external demand. India is less exposed to exports but its dependency on foreign funds is high.
On India being better positioned
The real surprise in Asia has been India. India has improved, has better savings rate, has increased foreign direct investments, has higher spending on infrastructure and has world-class companies and workforce.
On potholes on the growth path
Budget deficit and current account deficits could hamper reforms and spending on infrastructure. India would also need to take initiative to build its fund base and reduce dependency on foreign funds.
On equity markets over-reacting
Equity markets are well ahead of the story. There is likely to be a correction soon. Markets are not behaving on fundamentals but on sentiments.
On indications from US data
The green shoots would turn brown this summer. The economic data points in the US are still on the negative side. The data is being twisted to suggest a recovery.
On the US Economy
It’s premature to conclude that the worst is over and to expect a V-shaped recovery. With US households remaining income-short, overly indebted and saving-deficient, the consumption growth is likely to remain low. Real consumption growth is likely to fall from around 4 per cent in 1995-2007 to around 1.5 per cent over three to five years.