Deepak Lalwani's India Report - My thanks to the author for this useful report for anyone interested in this rapidly growing market. It is posted in the Subscriber's Area but here is a brief sample:

India's monsoon rainfall in the crucial crop planting month of July has been close to normal, recovering sharply from a 16% deficit in June. In the 4 month monsoon season (June-September) July is normally the wettest and accounts for about a third of the rainfall. Mr Ajit Tyagi, director general of the India Meteorological Department, expects rains to increase in the next two months due to the La Nina effect and produce an overall rainfall of 102% of the 50-year average for this season. La Nina causes wetter-than-normal rain conditions in Asia and drier weather in the Americas. Mr Tyagi's predictions will be followed with keen interest this year after last year's failed monsoons caused the worst drought in 37 years and badly hit farm income due to much lower agricultural output. The drought and lower crop production sharply pushed up food prices and raised inflation, which in turn pushed interest rates higher. However, despite the worst drought since 1972, the economy grew 7.4% to March 2010, up from 6.7% a year earlier.

My view - An important question for investors is: Will a better crop cycle following India's current monsoon lower food prices sufficiently in the months ahead to prevent interest rates from rising to the point where they topple the stock market?

This item continues in the Subscriber's Area.

Email of the day (1) - On discussing perceptions of risk in an historic context yesterday:

"Your perspective on Tim Price was really timely and delightful. The French have a saying: "plus ca change, plus ca reste le meme" which translates as the more things change, the more things remain the same.

"Your question 'is it not foolish' is a thought provoking one. Perhaps people do not like to remember history - or even acknowledge it - because it highlights one's foolishness.

My comment - I'm glad you enjoyed it.

I think it is easy to forget or overlook relevant historical examples when we get caught up in the emotion of the moment.

Email of the day (2) - On Vietnam:

"Good morning gentlemen. I would be interested in your thoughts please on what may be happening in the Vietnamese market, why has it not gone up like its neighbours? It is one of the few Asian / emerging markets whose index (VNINDEX) and ETF (DB x tracker XFVT - think liquidity) remains at or below it's 200 day moving average and is therefore, for me, a possible contender in the International Beauty contest! Your last comment on this market was in May with some observations from subscribers in June. Thanks for your continued excellent service."

My comment - Thanks for the feedback.

This item continues in the Subscriber's Area.

Email of the day (3) - On my personal long-term equity investment portfolio:

"I want to look at David's personal portfolio. How do I find it please? I have put 'my personal' into the 'search' but just get the comments list."

My comment - Search under 'top-10' but here is the link to January's review to save you time. While I often refer to individual components of this personal portfolio, I am obviously overdue for another full review and will do it shortly. There have been two major changes in the portfolio since the January review and the candidates were identified in the copy.

GMO Quarterly Letter: Summer Essays - My thanks to a subscriber for this varied and ever-interesting report by Jeremy Grantham. It is posted in the Subscriber's Area but here is a brief sample:

Let me give a few more details: just behind U.S. high quality stocks, at 7.3% real on a seven-year horizon, is my long-time favorite, emerging market equities at 6.6%. This is now above our assumed 6.2% long-term equilibrium return. Additionally, my faith in an eventual decent P/E premium over developed equities exceeding 15%, perhaps by a lot, is intact. Emerging equities' fundamentals also continue to run circles around ours. EAFE equities at 4.9% are a little expensive (6% or 7%) but make a respectable filler for a global equity portfolio. Forestry remains, in my opinion, a good diversifier if times turn out well, a brilliant store of value should inflation unexpectedly run away, and a historically excellent defensive investment should the economy unravel. Otherwise, I hate it.

My view - Jeremy Grantham likes emerging equities' fundamentals but this issue mainly details his concerns for the West. One of the best essays in my opinion is number 2: "Finance Goes Rogue (But Volcker Wins a Round!)", followed by number 4: "Everything You Need to Know About Global Warming in 5 Minutes."



Additional commentary by Eoin Treacy

Mexican Tortillas Assure Carstens Lending Rate Can Stay Steady - This article by Jonathan J. Levin for Bloomberg may be of interest to subscribers. Here is a section:

The central bank may shave as much as 0.5 percentage point off the overnight rate by year-end, Solorzano said, according to a July 5 interview with Bloomberg News in Mexico City.

The outlook for rates depends on the strength of the peso and the economy in the U.S., which buys about 80 percent of Mexico's exports, said Luis de la Calle, the Mexican economist who helped negotiate the North American Free Trade Agreement. A peso rally would force the bank to lower rates this year because it would staunch exports by making them more expensive in dollar terms, he said.

"They'd get nervous and would lower the interest rate,"
said De La Calle, who is now a partner at Mexico City-based business adviser De la Calle, Madrazo, Mancera SC.

Economic Recovery
Economists have raised forecasts for Mexican growth on speculation the nation's manufacturers will benefit from revived U.S. demand for goods from refrigerators to cars, boosting Mexican employment, incomes and consumption. Mexico's gross domestic product will expand 4.4 percent this year, up from a 3.3 percent projection in January, as it recovers from the deepest recession since 1932, according to the average estimate of economists in a Banco de Mexico survey published July 1.

Carstens has no reason to cut interest rates, said Fernando Alvarez Toca, chief executive officer of Banco Compartamos SA, the Mexican bank that lends to low-income consumers. "Mexico is already seeing signs of a recovery," Alvarez Toca said.

By keeping rates on hold, the bank is closing in on its inflation target while helping the economy rebound, according to Paulo Leme, chief Latin America economist at Goldman Sachs Group Inc., speaking from Miami.

"Some observers derogatorily labeled Carstens a dove," Leme said. "He has the right neutral stance. In terms of monetary policy, you always have to be ahead of the curve."

My view - Mexico has received a great deal of negative press stemming from the drug war where thousands have died in the last few years. However, the stock market has marched steadily higher from its 2008 low and is among a handful of Asian and Latin American markets to have surpassed its pre-crisis peak. There are a number of factors driving this growth not least the low interest rate environment, thriving domestic demand growth, limited agriculture price inflation and the historically weak, but improving, position of the Peso.

This section continues in the Subscriber's Area.

Policy's Bottomed, So Will the Market - Thanks to a subscriber for this informative 72-page report by Minggao Shen and Grace Lam for Citi focusing on the Chinese market. The full report is posted in the Subscriber's Area but here is a section:

A liquidity rally is likely before the end of the year. The liquidity stretch so far occurs in a relative term, i.e., the slowing credit and money growth from a year ago. The overall level of liquidity condition in the Chinese economy remains at the historically loose end. Domestic property market squeeze and US dollar weakness could bring more liquidity floods into China's equity market. As long as the downside market risks are contained by policy stability and reaction, a liquidity rally can be expected.

The rally should be sizable once it occurs, and the A share market could possible outperform the H share market in 2H. The Shanghai A share market had dipped into the 2200-2500 range as expected, and this could be tested again in 3Q. Its rebound could break through a few resistance levels and wipe out some losses generated this year, and we expect that the A share market could touch the range of 2800-3100 and CSI300 between 2900-3100. The disappearing A share premium vs. H share indicates buying opportunities. The A share premium is once again touching the historically lower level (Figure 17). In the past years, sizable contractions often implied that the A share was possibly over-sold. International investors in general are relatively more rational and forward looking than domestic investors. If history repeats again, it's saying that A share market would outperform the H share market in the rest of the year. We thus expect the HSCEI to probably return to 12000-13000.

My view - This is one of a number of reports I have seen recently expressing a cautiously optimistic view on the Chinese market and highlighting the contraction in the A-Share - H-share premium as something that implies value. Most are still leaning towards a retest of the recent lows as a likely scenario before a more emphatic rally takes hold in Q3 or Q4.

This section continues in the Subscriber's Area.

Eoin's personal portfolio: commodity long rolled forward - This section continues in the Subscriber's Area.

Email of the day - on an addition to the Chart Library:

"Would you please add the GBP distribution share class of the following fund to the chart library please (the GBP Acc share class is already in the library): EEA Life Settlements - EPICLSS GU. Thanks"

My comment - Thank you for this suggestion which has been added to the Chart Library.

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