Goldman: Avoid China, India in 2011

January 18th, 2011
in econ_news

Econintersect:   According to articles appearing in many places, including The Economic Times (India), Goldman Sachs, the US investment banking giant, has issued a short-term alert over investing in India and China due to the impact of rising inflation, advising clients to rotate into Wall Street and other bourses as a safer bet over coming months, a media report said on Tuesday.

Follow up:

According to an article in The Telgraph, Tim Moe, Goldman's chief Asia-Pacific strategist told a London conference:

To be frank, we may have held on too long to our overweight position in China last year. We have decided that discretion is the better part of valour and have tactically reduced our weight. Asia is not in the sweet part of the cycle. The longer-term picture of Asia outperforming the US is taking a breather.  The cooling ardour for China is significant shift for the bank that coined the term BRIC and has been the cheerleader of the emerging market story over the past decade.

According to the report, India is an even bigger worry, with yawning twin deficits, and overheating visible on all fronts. The nation's central bank warned this week of "surging inflation".   The Economic Times said:

"India's current account deficit is running at a record pace of 4.1 percent of GDP and it is 100 percent funded by short-term portfolio flows, which cannot be relied on indefinitely," said Moe, describing Mumbai's bourse as "crowded".

Goldman insists that the longer-term super-boom remains healthy in both the BRIC nations and a broader group of countries, or "N-11", led by South Korea, Indonesia, the Philippines, Turkey and Egypt.  In a December 4, 2010 research paper, Goldman said:

The BRIC and N-11 economies collectively appear to have withstood the crisis better than many of their developed-country counterparts. Indeed, their contribution to world economic activity has increased even more through the crisis, and since. This is likely to continue in the near, medium and long term. We now think it is more likely, rather than less, that China will become as big as the US by 2027 and the BRICs will become as big as the G7 by 2032. China, Brazil and India have all  performed particularly well, and although Russia has not done so recently, as long as it recovers quickly, it deserves its position as a BRIC.  The N-11 countries are a very diverse group, as we have always emphasised, at many different stages of development. We don’t think any of them currently has enough justification to be considered as big as a BRIC, but some are showing encouraging signs, including Indonesia.

Obviously, with today's news Goldman has changed its short-term outlook in the last four weeks, at least for the first half of 2011.

From the Beijing News:

The surprise for 2011 will be a torrid recovery in the US, with growth of 3.4 percent to 3.8 percent, as the country confounds critics and averts a post-bubble 'Lost Decade'.

Even Japan will outshine China, pulling out of its deflation trap, with earnings growth of 23 percent this year and 22 percent in 2012.

Sources: Goldman Sachs Global Economic Paper No:  192, The Telegraph, The Economic Times and Beijing News.

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