Indian markets just keep rolling along. The benchmark NIFTY and
SENSEX indexes have risen close to 5% over the past two weeks. Talk
about bad news being baked into the price.
[caption id="attachment_69279" align="alignright" width="300"
caption="The Worli Skyline (Mumbai) with Bandra Worli Sea Link
view"]
[/caption]
On the face of it, a country could hardly have a worse fortnight
than India just experienced. Cascading electric power failures left
up to half of a country of 1.2 billion blacked out during the last
weekend in July. (Those that actually had access to electricity
anyway).
And that was not all the bearish information coming out of New
Delhi. Prime Minister Manmohan Singh ended a few-month stint
doubling as his own finance minister, having achieved none of the
reforms economists hoped for (like liberalizing electricity prices
to a level that might encourage investment). India's industrial
output
shrank for the third month in four
during July, contracting by 2% compared to a 9% expansion last
year. The monsoon rains fell short, raising the specter of less
plentiful food supplies and consequent rising prices.
Yet equities in Indian markets are worth more every day.
Foreign investment funds put $2 billion into the
beleaguered country
in July, making a total of $11.3 billion this year. Why?
The possible answer is both depressing and encouraging to those
of us with the odd passion for armchair-analyzing faraway emerging
markets. Depressing because it shows how painstaking research and
erudition often go for nought in the real world experience of
places like Indian markets.
Both common sense and advanced economics tell you a country
cannot advance very far without a reliable power grid. Follow-up
reporting to the power melt-down opened hair-raising details of an
antiquated, state-owned, coal-fired Indian grid that has
missed output targets continuously
since the 1950s. Yet investors who sold India on this undeniable
evidence of dysfunction would have made the wrong bet; in the short
term anyway.
The encouraging part is that investors are buying into Indian
markets just because they feel like buying. And if they are buying
troubled India, they are buying other emerging markets more
aggressively. The most popular U.S.-listed Indian ETF,
EPI
(
quote
), has gained nearly 9% since June 1. The Standard & Poor's 500
index of U.S. stocks has done a bit better, advancing by 10%, but
both have trailed the benchmark emerging markets ETF
EEM
(
quote
), which is up 12% in a bit more than two months.
That's a long way from the outperformance emerging markets need
to become a hot asset class again, as when they led world finance
out of its state of trauma in 2009-2010. EEM still lags the S&P
for 2012, gaining 8% compared to 11.5%. But it's not bad for a
summer when the world economy seems to be precariously on the brink
of multiple precipices again, and you would think investors would
be more inclined to hoard cash, if not canned food.
Risk is at least tentatively back on again, thanks to the woeful
returns paid by supposed safety. Indian markets going up after
melting down just proves the point.
