Weekly Newsletter

Week of 10th February 2020

What’s on our mind this week ?

China coronavirus update

The coronavirus epidemic keeps making the headlines with over 43,000 people infected and 1,000 fatalities. Most of the infected (over 90%) are contained to the Hubei province and daily growth seem to have stabilized while the number of patients having recovered is growing (over 4,000 as these lines are written). Looking at estimates of the number of people having contracted mild versions of the virus experts estimate the fatality rate of the disease is likely closer to 1% instead of the 2% previously reported which makes it very different from SARS in that respect and closer to the flu as it also appears to be more contagious than SARS (some argue the flu is a greater health concern, looking at Hong Kong alone since mid-January the coronavirus claimed one life and influenza over 90).

In China, activity has restarted slowly with a number of factories resuming work on Monday although it will take time before we see the economy running at 100%. Assuming the virus can be fully contained by the end of March economists anticipate the Q1 growth YoY would be around 3.6% and the FY around 5.3% both down from slightly above 6%. It is however good to see activity resume as the impact of the extended Chinese New Year holidays start to be felt outside China with factories having to stop working for lack of China-made supplies such as the Nissan plants in Japan which were forced to close earlier this week.

The coronavirus crisis is far from being over yet but behind the headlines and local panic reports early signs of an improving situation can be felt. The new Chinese growth forecasts, far from depressing the market, have given hope for a more proactive fiscal policy with micro-incentives across the economy. The overall impact on the market, outside of a number of consumer stocks has been very mild so far this month as well as on our portfolios with both rebounding. We are keeping an eye on a number of the more depressed stocks to find interesting points to add or enter them.



India’s policy rate meeting


India held its policy meeting last week and left the repo rate unchanged at 5.15%. It was a unanimous vote by the six-member Monetary Policy Committee (MPC). MPC maintained an accommodative stance in its sixth bi-monthly policy meet of FY20. It indicated that they would maintain an accommodative stance for as long as it is required to revive the economy as it remains weak and the output gap is negative. The Reserve Bank of India (RBI) expects the growth to recover to 6% for FY21 from the projected 5% for FY20. While the CPI inflation remained high in December 2019 reaching a five year high of 7.35% RBI revised its CPI inflation projection upwards to 6.5% for Q4 FY20, 5.4-5.5% for H1 FY21 and 3.2% for Q3 FY21. Inflation which is fueled by food prices is expected to moderate in the coming quarters while the pick-up in prices of non-vegetable food items, specifically in milk due to a rise in input costs, and pulses (edible seeds of plants such as dry beans, dry broad beans, dry peas, etc… used in Indian cooking) due to a shortfall during the summer/fall harvest, are all likely to sustain cited RBI.  

It is generally positive that the RBI intends to keep an accommodative stance given the difficulties the economy is encountering. Nevertheless, from our Indian equity holding perspective, we do not see any major impact at this stage.


India’s Life Insurance Corporation to list

India announced its budget on 1st Feb 2020 for the financial year FY21. During the announcement plans to divest a part of its stake in Life Insurance Corporation (LIC) through an IPO were disclosed. LIC is an insurance and investment company wholly owned by the Government of India. It is the largest life insurer of the country with over 70% market share, 300m policy holders, 1.2m agents and an investment fund of nearly USD 450bn. The government will soon set up an inter-ministerial group to look into the listing. The listing stake is expected to be around 10% and the IPO to happen in H2 FY21. A valuation of USD 100bn to USD 120bn is expected which would make it the most valuable company in India by market cap. If 10% of the company is divested the proceeds are expected to generate USD10-12bn which should come handy for the government to meet its aggressive disinvestment targets for FY21.

It will be very interesting to see the leader of Indian life insurance come to the market and generally positive for such company to have some private capital rather than being solely State run. We look forward to seeing more details about the company, its operations and growth ahead of the listing.


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