Charts That Matter – November 2016 – Value investing works in the US… but

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Abstract: Recently, I have come across various articles, commentaries and observations on US mortgages, student ang auto loans, etc. This chart on consumer debt by UBS and it’s findings are especially interesting as they highlight stress in the higher income households, though, clearly what  made me stand up and take notice was the reason for this likelihood of default. Does this portend a worrying trend?

Back in India, housing prices accelerated for the first time in more than a year. Though it would not be prudent to draw conclusions on the sustainability of the trend from one quarters’ data, but, there is an effort by developers to address sagging sales by changing product mix in an effort to increase affordability. The INR has held up well, and this chart points to new and relatively unexplored channels of issuance in Japan – up 7x in the last 2 years, on a low base though. There is also a chart on divergence of Japanese QE mechanism vis-a-vis the US.

In China, the recent rebound in the property market and continued infrastructure focus have resulted in the factory gate inflation driven by a rise in coal prices and demand for metals.

In this world of central bank induced liquidity, we highlight two very interesting charts that contrast investment styles that have worked in India vis-a-vis the US.

There is also, an aptly timed chart on the top 10 fears of Americans shows that they fear corruption of government officials higher than terrorism and a loss of a loved one!

  • Firm Name – Tata Asset Management Ltd.
  • Author name – Ritesh Jain
  • Designation- Chief Investment officer
  • Title – Charts That Matter – November 2016

Charts That Matter – November 2016


UBS set out to answer a key question about US consumer debt – and their findings are worrying


Source: Business Insider, UBS

Japanese households lap up rupee denominated bonds: issuances double from last year

US Consumer Debt, QE & Corruption

So whats happening?

  • Rupee amongst the best perofrming EM currencies this half
  • Stable macro indicators – fiscal situation, stable inflation
  • As per bloomberg, the rupee is projected to climb 7.3% against the Yen by 2017

Source: Bloomberg

RBI’s housing pricing index accelerates in Q1 FY16 – marks the first rise in house price inflation since early 2015

US Consumer Debt, QE & Corruption

Source: Nomura

  • Incremental project launches of property developers are in the non – luxury segment
  • Housing loans rose ~18% y-o-y in September even as industrial credit continues to be low (~1%)
  • This festive season, SBI has cut its home loan rate to the lowest in 6 years

Source: News reports

Will US QE prove to be more toxic than Japanese QE?

US Consumer Debt, QE & Corruption

In US, easy central bank policy has led to corporate leveraging with companies buying back their own equity. In contrast, in Japan the BoJ simply buys equities directly

Source: FT

Value investing works in the US… but

US Consumer Debt, QE & Corruption

Source: Ambit Capital, Note: Data compiled using BSE200 index

… Value investing has been unable to outperform in the Indian context

US Consumer Debt, QE & Corruption

Possible reasons:

  • Declining return ratios for value companies in India unlike in the US
  • Leveraged balance sheets
  • Poor accounting quality

Source: Ambit Capital, Data compiled using S&P500 index

In Rupee terms, thermal coal spot prices are already touching the highs seen in October 2010

US Consumer Debt, QE & Corruption

Margins for imported coal based plants, cement and steel sectors could come under pressure going forward

Source: Bloomberg

China sees first factory-gate inflation in almost five years

Indication of relieving disinflationary pressures in the world’s second largest economy. Will China break the trend and start being a reason for inflation in the world?

China’s producer-price index, long suppressed by excess industrial capacity and weak global commodity prices. Increase in PPI now is mainly driven by rise in coal prices as mines were closed and production cuts were set in the sector. Also strongly rebounding property market and continuing infrastructure spending boosted demand for metals. Down the road, rising prices should help companies repay loans, chipping away at mounting debt loads, economists said.

US Consumer Debt, QE & Corruption

Over 60% of Americans fear “Corruption of Government officials”, above anything else.

Even after a lot of Creepy Clown sightings across US due to the Election and Halloween, they feature near the bottom with only ~7.5% fearing them

US Consumer Debt, QE & Corruption

US Consumer Debt, QE & Corruption


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