Harry S. Dent | Thursday, September 05, 2013 >>
There’s no way you could have missed it.
The Indian rupee and several other emerging-market currencies, like the South African rand and the Indonesian rupiah, have been in free fall of late. And people seem surprised by these events.
They shouldn’t be.
If, like you, they read our work, they wouldn’t be.
In the May issue of Boom & Bust, we warned of the impact of falling commodity prices on emerging countries. We’ve covered the topic several times in this newsletter, the most recent being July 23.
What we didn’t detail was the possible length of this crisis. So let’s do that today.
Let’s answer the question: Is this a short-term meltdown or are these countries facing a long-term crisis?
The answer is this: It’s complicated.
In the short term, yes, this crisis will abate. It may continue for a while longer, but it shouldn’t get that much worse as commodity prices continue to fall over the next decade and we see the next global financial crisis.
In the medium term, the situation in emerging markets, and particularly India, is going to get a lot worse.
However, in the long term, India may be the single best large country for business growth and investment.
Let me explain this forecast in more detail, starting with the short-term analysis. We reached our conclusion on this matter after reading Mark Galasiewski’s viewpoint.
Mark is editor of the Asian-Pacific Financial Forecast. And he will be a speaker at our Irrational Economics Summit this November in California.
I actually first heard Mark speak at Tony Robbins’ Platinum conference in Whistler in March of this year, where I was also speaking. If you know anything about Tony, you’ll know that he only invites the top-notch speakers to his events.
What struck me about Mark’s viewpoint was that he focused on technical analysis in Asia – the most opportune region of the world, by my demographic analysis and urbanization projections.
By the end of his talk, I knew we had to have him speak at our conference. We want people that have something real and unique to say. We don’t just want bestselling authors (although we do have some of those).
We want people that give you real information, as our keynote speaker, George Gilder, defines it. As far as George is concerned, real information and knowledge are surprising. It’s what you didn’t know you didn’t know.
I strongly urge you to attend our conference this November 6 to 8. There is so much you don’t know you don’t know. You’ll find all the details you need here.
But now back to India.
While everyone worries about the falling rupee, Mark shows that since 1970 the number of rupees per dollar has risen, which means the currency has been falling for a long time, (the top half of the chart below) and with it the Indian stock market has risen equally dramatically, as measured by the Sensex Index (the bottom half of the chart).
Hence, the short-term picture of India in crisis, suffering the classic emerging-country complex of high growth and rising inflation, does not represent the bigger picture.
Global stimulus policies have helped push up consumer inflation in India. Now a falling rupee, the result of trade deficits and low foreign-exchange reserves, is pushing up short-term inflation higher, and that hurts economic growth. But again, this is a short-term trend, not a long-term one.
Capital is also starting to flee India, both from the rich there and from foreign investment. This will only accelerate, especially if the hot money from stimulus in developed countries slows should the U.S. Federal Reserve taper.
Mark’s technical analysis also shows a sustained uptrend in India’s Sensex stock market, provided Indian stocks don’t break through the historic support line established since 1980, which is currently around 17,000.
This makes him – and us – bullish on India and many Asian stocks near term.
With that said, Mark will certainly be among the first to warn of a deeper correction should that trend line be broken (as will we). Then we could see the deeper crash that we expect in the next several years.
However, long term, India is the one large country that has far more potential than the U.S. or China to grow almost exponentially. Its workforce and demographic trends don’t peak until around 2065 to 2070! China’s peak is between now and 2025. The U.S. peaked in 2007 and will move sideways for decades. Japan and much of Europe will only see shrinking workforce and demographic trends.
Without a doubt, India has everything it needs to boom in the decades ahead. Investors just need patience while the country struggles against its historical bureaucracy and its underinvestment in infrastructures (as compared to China’s even more dangerous overinvestment).
Here’s my view. I see India’s Sensex market breaking that lower trend line and retesting the 2008 lows, around 7,500. After that, India could be the buy of the decade… maybe even the century!
P.S. Mark’s newsletter is part of the Elliott Wave International family, which Robert Prechter founded. I’ve studied and followed Robert since the early 1980s. And I’ve been using the Elliott Wave as a way of refining my demographic analysis for decades. As far as I’m concerned, it was one of the great technical-analysis innovations in the markets of my lifetime. I suggest you check out Mark’s newsletter. Here’s more information for you. And reserve your seat at our Irrational Economics Summit so you can meet him and listen to him speak. You won’t regret it.
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