Why the Fed won’t taper in December: Goldman Sachs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Federal Reserve faces a tough decision at its meeting this week as an improving economy builds the case for the winding down of monetary stimulus, but Goldman Sachs says the central bank is likely to hold off from tapering its USD 85 billion monthly bond-buying program until next year.

“The case for tapering on the basis of the data since October is mixed at best. The strongest argument in favor is the improvement in the trend rate of payroll growth to the 200,000 level,” Goldman Sachs economists wrote in a note late Friday. “However, we expect that Fed officials will also put considerable weight on inflation, which has fallen further in recent months.”

The US economy added a better-than-expected 203,000 jobs in November, and the unemployment rate dropped to a five-year low of 7 percent.

However, the Fed’s preferred personal consumption expenditures (PCE) inflation measure is near historical low levels, and below the central bank’s 2 percent target. Headline PCE inflation eased to 0.74 percent year-on-year in October, from 0.95 percent in the previous month.

“At current spot and projected inflation rates, a tightening move would be quite unusual by historical standards,” Goldman Sachs analysts added, noting that their central forecast is for the Fed to begin tapering in March, starting with a USD 10 billion reduction in the pace of Treasury purchases.

Read more: Gold is just the tip of the ‘Taper Tantrum’

The Federal Open Market Committee (FOMC) will hold its final policy meeting of the year on December 17-18. The meeting will also be Ben Bernanke`s second-to-last meeting at the helm of the central bank.

Anticipation is running high as the recent economic data roughly meet the Fed’s “substantial improvement in the outlook for the labor market” criterion for tapering the pace of asset purchases, say analysts.

However, Goldman economists says the second reason the central bank will refrain from tapering, is that Fed officials will likely want to offset the first taper with a strengthening of its forward guidance, but probably have yet to agree on the future course of its policies.

Read more: Fed’s dreaded ‘taper’ may not hurt after all

“With the unemployment rate now only 50 basis points from the threshold for keeping the funds rate near zero, modifying the forward guidance has become a more pressing priority,” they said. The Fed has said that interest rates would remain near zero until unemployment fell to at least 6.5 percent.

“But the October minutes and recent commentary from Fed officials suggests little consensus on how to modify the forward guidance,” they added.

The final argument against a December taper is that it would come as a hawkish surprise to markets – a signal Fed officials would not want to send.

“December remains a minority view…it could spark a further tightening of financial conditions. With mortgage rates and the 10-year yield up 30 basis points since the October meeting, this risk is probably unwelcome,” economists at the bank said.

Read more: Dollar bulls bet onmini-taper this week

According to a recent survey of 66 economists by Thompson Reuters, 32 expected the central bank to act in March, while 22 said it would scale back its bond-buying program in January. Only 12 economists anticipated action this week.

-By CNBC`s Ansuya Harjani; Follow her on Twitter:@Ansuya_H

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Another reason why Australians are lucky…

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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On average, Australians enjoy the highest inheritance payouts worldwide at roughly half a million dollars per person, HSBC has found, but on the flip side they are also getting complacent over saving for retirement.

According to HSBC’s global Future of Retirement report, Australians pass on an average inheritance of 561,636 Australian dollars (USD 501,919) to their heirs, which is four times higher than the global average of USD 148,205.

Some 69 percent of Australians, the second highest ranking of the 15 countries analyzed, were planning to leave an inheritance.

But Graham Heunis, head of retail banking and wealth management at HSBC in Australia, said the country’s hefty inheritance levels were discouraging the younger generation from worrying over their retirement.

Half of working Australians told HSBC their future inheritance would partially finance their own retirement, while 14 percent would rely solely on it.

(Read more: Australia to be ‘odd one out’ in 2014: Goldman Sachs)

“This latest report shows that this complacency [over savings] may partly stem from Australians banking on their inheritance to fund their retirement,” said Heunis.

“But this perception overlooks the fact that inheritance is often split between family members or may be eroded by children needing to pay their parents` debts such as mortgages, medical or aged care needs.”

Inheritance levels have soared in recent decades due to the strength of the Australian economy and the absence of inheritance tax, according to HSBC.

“Over the past decade Australian household wealth has grown 7.6 percent per year making us one of the richest nations per capita globally, allowing retirees to provide their children a significant financial legacy,” said Heunis.

(Read more: A Wealthy Nation That Can’t Afford to Retire)

“However, with no inheritance tax in Australia, it’s no surprise the value and proportion of inheritance among Australian retirees is exponentially higher than the rest of the world,” he added.

The report contrasted Australia with other affluent western nations like the U.K. and the U.S., where inheritance and estate tax may cost heirs upwards of 40 percent of an inheritance.

In these countries, retirees are inclined to give financial gifts throughout their lives to pay for their children’s major life events like education, mortgage or marriage rather than a lump sum endowment, said the report.

(Read more: Australia’s cheese war – the battle for Warrnambool)

“We know from previous research that Australians are complacent when it comes to retirement planning with Australians anticipating a 10-year shortfall in their retirement savings and nearly 60 percent acknowledging they are inadequately preparing or not prepared at all for retirement,” said Heunis.

“Working-age Australians need to continue preparing and saving to ensure their own financial security in retirement, and to treat any inheritance as a bonus,” he added.

Other countries with high levels of inheritance included Singapore, where 70 percent of those surveyed said they were planning on leaving a hefty stash of cash behind for their offspring, and the average amount was 466,099 Singapore dollars ($370,966). Singapore citizens are also not taxed on their inheritance.

India and Malaysia had higher percentages of people planning on giving inheritance, at 86 percent and 78 percent, respectively, but the average amount was distinctly lower, at USD 47,775 and USD 38,814, respectively.

The report interviewed 16,000 people in 15 countries, including 1,000 Australians, and examined all aspects of retirement including the transition period, income and spending, on top of legacy planning.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

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Male or female bosses? The majority prefers…

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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If American employees taking a new job were given a choice, they would prefer to work for a male over a female, a survey showed.

Thirty-five percent of respondents said they preferred a male boss, compared with 23 percent who preferred a female boss, according to a Gallup poll of 2,059 adults across the US published on Monday. The remainder said their boss`s gender makes no difference.

“Both men and women prefer a male boss. (But) women are more likely than men to have a preference, with higher proportions expressing preferences for each gender of boss,” Gallup said.

(Read more: Sometimes, the boss really is a psycho )

Sixty-three percent of women expressed a preference for their boss` gender, compared with 52 percent of males.

While there continues to be a wide gap in preferences between male and female bosses, the proportion of Americans who favor a female boss has increased by 18 percentage points over the past six decades, while there has been a 31-percentage-point decline in those who would prefer a male boss.

The gender of employees` current boss appears to affect preferences, the survey indicated.

Preference for female bosses is higher among those who currently work for a woman; the same goes for those who currently work for a man.

Of those surveyed, 54 percent have a male boss, while 30 percent have a female boss; the remainder do not have a boss.

(Read more: Nearly half of global employees unhappy in jobs: Survey )

Interestingly, age is also key factor behind preferences, with younger employees (aged 18-34) more likely to prefer a male boss, than older employees (aged 35-54).

Political partisanship is also a driver of attitudes toward the gender of one`s boss. Democrats essentially broke even in their preferences, while Republicans and independents opted for a male boss, the survey showed.

-By CNBC`s Ansuya Harjani; Follow her on Twitter: @Ansuya_H

 Copyright 2011 cnbc.com

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China flash HSBC PMI slows to 3-month low

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China’s manufacturing activity slowed to a three-month low in December, a survey from HSBC showed Monday.

The HSBC flash purchasing managers’ index (PMI) fell to 50.5 for the month, compared to 50.8 in November. Growth in new order and new export orders increased at a faster rate, while employment decreased at a faster rate.

Still, the figure has remained above the 50 mark, which demarcates expansion from contraction, for five months now.

“I think it’s still broadly optimistic. I think firms are still mildly on the expansionary side,” Alaistair Chan, economist at Moody’s Analytics, told CNBC.

“If you look at the official numbers for instance, I think both domestic and export-oriented firms are still seeing rising orders and rising production so through until the end of the year, I think they are in a fairly sweet spot. I don’t see much pressure coming from the demand side so I think firms will be quite happy heading into the holiday season,” he added.

The Australia dollar, which is highly sensitive to Chinese data because of its dependence on the mainland in exports, slipped 0.3 percent to inch closer to a new three-and-a-half month low against the greenback.

The benchmark Shanghai Composite extended losses, trading within sight of a new two-week low.

Hongbin Qu, chief China economist and co-head of Asian economic research at HSBC, said December’s flash reading stands above the average for the third quarter.

This implies that the recovery in the manufacturing sector remains in tact, Hongbin said, adding that he expects the country’s gross domestic product (GDP) growth to stabilize at 7.8 percent in the fourth quarter.

The survey covered a shortened period from December 5 to 12, given the upcoming holiday season. The final reading will be released on January 2.

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Fed’s dreaded ‘taper’ may not hurt after all

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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For all the hang-wringing on Wall Street about the Federal Reserve’s expected “taper,” you’d think the central bank was considering a ban on helicopter flights to the Hamptons.

Take a deep breath. For most of the rest of us, the Fed’s “tapering” of its massive money flows into the US economy could actually spell good news.

The “tapering” you may have heard about refers to a gradual easing up on the central bank’s response to the financial collapse of 2008. Beginning in November that year, the Fed began buying up hundreds of billions of dollars’ worth of Treasury bonds—along with dodgy mortgage debt—in exchange for cash that it conjured out of thin air.

Unlike you and me, the Fed can take a pile of debt, swap it for cash, and then hang onto that debt until it reverses the process later, which takes cash back out of the economy. The idea is to fine-tune how much cash is out there: More money makes it cheaper (interest rates go down) less money makes it more expansive (rates go up.)

It’s been doing this—routinely—for decades. But the scope of this buyback—close to $4 trillion and counting—was anything but routine. Now, more than four years after the Great Recession ended, the Fed wants to get back to a more routine interest rate policy.

(Read more: Will the Grim Taper be a body blow to the wealthy?)

hat’s a long time for an “emergency” policy. Why has it kept the money machine going for so long?

Unlike past rebounds that saw the economy snap back like a rubber band, the recovery from the Great Recession has been very different. This time, the rubber band snapped completely during the financial collapse of 2008.

None of the periodic banking and market calamities since the Great Depression has done anything like the 2008 damage to the global financial system. Even today, credit is still hard to get for many small businesses and potential home buyers, two major drivers of economic growth.

That’s another reason the Fed wants to wrap up its epic money-making policy: It may no longer be working. Despite the trillions it’s pushed into the system, much of it hasn’t reached the broader economy.

So where did all that money go? It had to go somewhere, right?

Much of it went to fill the giant crater left in the banking system’s books after the industry’s wildly reckless spree of bad mortgage lending. Today, U.S. banks’ balance sheets are in much better shape, and they’re sitting on big piles of reserves. (In Europe, where the central bank took a much more conventional approach to the crisis, banks are in much worse shape. So is the European economy.)

(Read more: Afraid of the taper? Here’s how you can beat it)

Some of the cash has helped push global stock prices higher but not directly: The Fed bought bonds, not stocks. This year’s 25 percent market rally has been fueled by the record low interest rates the Fed has engineered by soaking up so much debt.

Those low interest rates on relatively safe assets like bonds forced investors to look for higher returns in riskier places like the stock market. Now, if the Fed reverses course and interest rates start to rise again, a lot of the cash flowing into the stock market will likely find a happy home in the bond market. That could turn this year’s stock market rally into a next year’s market rout. Which is why Wall Street has so dreaded “The Taper.”

Who else loses if interest rates rise?

Home buyers—and sellers—could also lose. Earlier this year, after a brief mention by Fed Chairman Ben Bernanke that The Taper was probably coming in 2014, mortgage rates shot up by a full percentage point in a month. They’re still under 5 percent for most borrowers, but if they go much higher, the slow but steady recovery in the housing market could get a lot slower.

(Read more: Borrowers struggle to pay off home equity loans)

Higher rates aren’t good for business investment either. Small business owners, who generally get a loan from a banker to buy new equipment or open up a new office, would have to pay more on those loans. Bigger businesses would have to pay higher interest rates on the corporate bonds they sell top investors to raise cash.

Many of the biggest U.S. corporations, though, are already sitting on large piles of cash they raised when money was so cheap. Still, while they may be able to grow their business with their own money, their profits would still be under pressure if higher rates put a crimp in their customers’ spending plans.

So why would the Fed cut back on all this money if it puts the recovery at risk?

The job of the Federal Reserve has always been to take away the punch bowl when it felt like the party was in full swing. But since 2008, the Fed has replaced the punch in the bowl with grain alcohol. There’s little evidence this party is getting out of hand—yet—but Fed officials are eager to get back to serving more conventional refreshments.

The main worry is that the $4 trillion pile of newly created cash will feed another bubble—whether in the stock or housing markets—that leads to yet another collapse. Fed officials have said they don’t see evidence of that. But they’ve also conceded that financial bubbles are very difficult to spot until its too late to deflate them safely.

(Read more: Gold is just the tip of the ‘Taper Tantrum’)

 Bernanke and his colleagues have also made clear that “tapering” means just that: The flow of cash won’t end abruptly. If interest rates suddenly spike, or if there are signs the economy is slowing again, they can always open up the spigots and restore the flow of money.

Much of the impact likely will be psychological: The Fed figures if the policy change is gradual enough, the impact will be muted. That’s why it began signaling it’s timetable—pegged to the unemployment falling to 6.5 percent—late last year. With the jobless rate now at 7 percent, we’re getting close to that target.

And as long as inflation remains “anchored” at low levels, the Fed’s policymakers have said they’re inclined to use other more conventional means to keep interest rates low.

If their timing is right, the recovering job market will finally begin gathering more momentum on its own. Lower unemployment adds more steady paychecks to the economy, providing a much more sustainable flow of money into the economy than the Fed’s bond buying. As that added consumer spending feeds demand, more companies can expand and hire more workers, adding more paychecks—and the cycle continues.

Or at least that’s what the central bankers are hoping.

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Could this be the busiest week yet for Asia markets?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The year is rapidly drawing to a close but this is unlikely to be the week that Asia markets wind down – not with the Federal Reserve, Bank of Japan (BOJ) and Reserve Bank of India (RBI) all scheduled to meet.

In addition to major central bank meetings, Japan released its closely-watched Tankan business survey on Monday and HSBC released its flash purchasing managers’ index (PMI). The HSBC flash PMI slipped to a three-month low in December of 50.5.

Read more: Business sentiment in Japan hits a 6-year high

“This week could be one of the busiest, most market changing weeks of the year… and possibly the biggest FOMC [Federal Open Market Committee] meeting since the September 2012 when QE3 (third round of quantitative easing) was enacted,” said Evan Lucas, market strategist at trading firm IG, in a note.

The Fed concludes a two-day meeting on Wednesday amid heightened talk that it could use its final gathering of the year to start a widely-anticipated scaling back of its monetary stimulus program.

“I think they [Fed policymakers] are going to taper and I hope they will start to taper this week,” Richard Yetsenga, head of global markets research at ANZ, told CNBC Asia’s “Squawk Box.” “If the numbers stay healthy enough to suggest the economy is stabilizing, people will turn their minds to when the Fed will tighten interest rates.”

In Asia, the BOJ is expected to conclude a two-day meeting on Friday and the RBI holds a mid-quarter review on Wednesday.

Read more: Westpac’s contrarian view calls no taper in 2014

Analysts are not expecting any major policy announcements from the BOJ, although there is speculation that Japan’s central bank could step up its asset-purchase program, possibly in April to help offset the impact of a scheduled rise in the country’s sales tax on the economy.

In India, the RBI meeting is likely to be in focus after Governor Raghuram Rajan said last week the central bank would this week unveil steps to recognize financial distress and resolve it.

“The RBI will likely pause at its meeting on Wednesday after a cumulative 50 basis points [rate] hike since September,” analysts at Mizuho Corporate Bank said in a note.

“What’s more, with the RBI meeting scheduled ahead of the FOMC meeting, we think the central bank will likely wait for Fed’s decision before taking any action,” they added.

Economic data from Asia this week include India’s November wholesale price index later on Monday and Singapore export data on Tuesday.

Taiwan’s central bank is scheduled to meet on Wednesday, while in Australia, focus is likely to fall on the government’s mid-year budget review on Tuesday.

Read more: India market euphoria could end in disappointment

“The mid-year budget review on Tuesday will likely show a further blowout in the budget deficit for this financial year to around A$50 billion,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital, in a research note.

— By CNBC.Com’s Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

‘Sense of achievement’ as Ireland leaves bailout

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As Ireland gets ready to exit its bailout program this weekend, Finance Minister Michael Noonan tells CNBC that there is a sense of achievement that the economy is getting back on its feet.

He added that exports were likely to be the key driver of the economy going forward and expressed confidence in the government`s ability to bring down high debt levels.

(Read more: Ireland exits bailout: Mission not quite accomplished )

“There’s a great sense of achievement at having completed the task I set out to do almost three years ago,” Noonan said in an interview late Thursday. “We had a major economic and financial crisis that needed to be addressed. We addressed it by a series of progressive measures which we implemented on a timeframe.”

Ireland has relied on 85 billion euros ($114 billion) in international bailout loans and assistance from other euro zone countries, the International Monetary Fund and the European Central Bank for the past three years.

But this Sunday, the small euro zone state exits the aid program.

Dublin has put in place stiff austerity measures and overhauled the banking system. There are still areas of concern such as high government debt levels and a weak banking sector. A recently completed balance sheet assessment of Ireland`s three bailed-out banks concluded that all three have not made adequate provisions for bad loans.

(Read more: Ireland risk long-term pain for short-term gain )

Data from Eurostat released in October showed that Ireland had a debt-to-GDP ratio last year of 117.4 percent, the fourth highest in the euro zone after Greece, Italy and Portugal.

Debt woes

“Our debt is going to peak at 124 percent of GDP this year but then it will go down,” Noonan said. “We are at the highest point but it`s entirely sustainable. We are working on a series of initiatives to bring the debt back down.”

He said that there was no evidence that state banks required extra capital following a recent asset quality review.

“But we will be very cautious because we know bank credit is what we need to fuel a growing economy. Our policies are careful in approaching banking issues,” Noonan added.

Asked to address criticism that foreign companies were using Ireland as a tax base, Noonan said: “That simply isn`t true. Google is here, they have 3,500 people working here in Dublin.”

(Read more: Ireland`s latest austerity cut )

Noonan said he believed the next news on Ireland from Moody`s was likely to be positive. Ireland is currently ranked as non-investment grade by Moody`s ratings agency.

“In conversations with Moody`s, our National Treasury Management Agency, which manages the debt, is of the view that Moody`s adverse view is to do with having an adverse view on euro zone rather than particularly an adverse view of Ireland,” he said.

“But I`ve no doubt at all that the next time we hear Moody`s talking about Ireland it will be good news rather than bad news.”

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British over 40? Your partner may be keeping this secret

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Research from financial services firm Prudential has revealed than one out of every five British people in a relationship is keeping their debts a secret from their partners.

The survey, which interviewed couples aged over 40 living in the UK, found that couples are risking their financial futures by hiding not only debts, but savings, investments and even income from each other.

“These financial secrets could pose a serious risk to a couple`s future retirement income,” said Vince Smith-Hughes, retirement expert at Prudential.

“If a couple reach retirement with savings that are secret from one another they may have missed out on years of tax relief that they would have been entitled to if the money had been invested in a pension. Meanwhile, making repayments in retirement on an unexpected debt will have an obviously negative impact on a couple`s income,” he added.

According to the Prudential survey, 22 percent of those surveyed said they had concealed an average of £7,800 (USD 12,789) worth of debt from their partners. The reasons for hiding debt varied; for just over half of those hiding debt, the debt was the result of borrowing money to cover every day living expenses, while a third said they ran up debts due to overspending on an emotional event, such as the break-up of a previous relationship. A further 16 percent borrowed cash to make payments to an ex-partner, such as for child support.

And it wasn`t only debts that the survey respondents are telling white lies over – one in four admitted to keeping a stash of cash secret from their partner, with an average savings pot of £4,000 (USD 6,558). The survey found a fifth of those with a secret stash said they kept the money to pay for something specific in the future such as a car or a dream holiday, while 22 percent kept their money hidden to fund their retirement.

Furthermore, 13 percent of those surveyed claimed to have never told their partner how much they earned and one in ten claimed their partner has a false impression of their earnings.

Two fifths of those who withheld the truth about their income said their basic salary is higher than their partner thinks, and 31 percent have kept at least one bonus payment quiet. A further 31 percent keep quiet on additional income earned though overtime or `cash in hand` work.

The reasons for holding back information varied widely. For most (51 percent) the main incentive was to maintain independence. However a generous 29 percent do so to buy gifts for their other halves. More than a fifth said they didn`t trust their partner`s financial decision making, while 16 percent kept a secret stash to protect themselves financially in case of a split.

Smith-Hughes advised secretive couples to come clean with each other to avoid financial problems down the road.

“Having those potentially awkward conversations so that both partners get a full understanding of their joint financial circumstances is an important first step for a couple planning for a comfortable retirement,” he said.

The research was conducted by Consumer Intelligence from October 2-8, 2013 among 1,996 adults over 40 years of age who currently live with their spouse or partner.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Art auction to test India’s demand for luxury

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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After raising USD 25 million at its inaugural auction in China earlier this year, Christie`s will tackle another first next week: an auction in India.

The firm will become the first international auction house to hold an event in India, scheduled to take place at The Taj Mahal Palace Hotel in Mumbai on December 19.

The auction comes amid a drive to provide for the increasingly lavish tastes of Asia`s growing wealthy class. India, Asia`s third-largest economy, is home to 65 billionaires as of 2013, up from 61 a year earlier, according to Forbes. China, Asia`s largest economy, is home to 168 billionaires, up from 113 the previous year.

“You begin to see the tell-tale signs, when is it right to come into a market,” Paul Hewitt, head of Christie`s Growth Markets division, told Reuters last week.

“Strategically it is the elephant in the room, so we should be here. We`ve made significant progress in China over the last year so [we were] almost conspicuous by our absence of doing something in India,” Hewitt said.

Christie`s first-ever auction in China in September saw 39 of 40 lots sold – including jewelry, art and wine – and netted USD 25 million.

The Mumbai auction will feature 83 lots in total, with works from high-profile Indian artists including Ram Kumar and Syed Haider Raza. Among the highlights will be a 1994 painting by Tyeb Mehta titled Mahishasura. Christie`s estimates the piece will fetch between USD 1.2 and USD 1.52 million – the highest estimate among the lot.

“Christie`s entering India is a very positive sign in the Indian art market,” Tushar Sethi, director of The Arts Trust – a Mumbai-based gallery that has been promoting contemporary Indian art since 1990 – told CNBC via e-mail.

“It proves that Christie`s as a multinational company believes that India has a bright future and its entry into the market will definitely create a positive buzz,” he added.

“Christie`s intends to make this an annual event from my understanding and this will definitely increase prices and the [Indian] art market shall be at a better platform by the next year,” he said.

Will timing be a factor?

Internationally, the demand for Indian art is on the rise. In March, competing auction house Sotheby`s sold 43 works held by private collector Amrita Jhaveri for a total of USD 6.7 million in a New York auction which set four artist records.

Still, while foreign demand for Indian art is on the rise, Christie`s auction comes amid a downturn for the local market.

According to art market analysis firm ArtTactic, confidence among participants in India`s art market declined 13.6 percent over the six months to November. The November figure snapped 18 months of steady increases – a period many had hoped would bring India`s art market back to its 2008 pre-economic crisis boom levels.

The shift in sentiment is the result of the country`s worsening economic situation and a weaker currency, the report said. There are concerns the imminent tapering of the US Federal Reserve`s asset-purchase program, which sparked massive capital outflows out of India earlier this year, would roil sentiment again. The Indian rupee is down around 11 percent against the US dollar year to date.

However The Arts Trust `s Sethi does not see such concerns, or the uncertainty before next year`s general elections, as a headwind.

“The art buyers in India are primarily business families who have excess liquidity at their disposal,” Sethi said. “Artworks that have been presented at Christie`s are rare and buyers interested in acquiring these artworks will acquire them either ways.”

– By CNBC`s John Phillips. Follow him on Twitter @J_Phillips_CNBC

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

8.6% China growth? What’s Deutsche ‘smoking’?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Markets are underestimating China`s 2014 growth potential, say analysts at Deutsche Bank, whose forecast is far above consensus expectations.

Most analysts expect the world`s second-largest economy to expand at a rate of 7.5 percent in 2014, but Deutsche Bank sees much stronger growth at 8.6 percent.

When jokingly asked by CNBC`s anchors what the analysts were smoking at Deutsche Bank, because their forecast is so far above consensus, Taimur Baig, chief economist for Asia at Deutsche Bank replied: “We`re smoking reality.”

(Read more: Forget a slowdown, China`s economy set to accelerate )

“Of course, China is slowing, given adverse demographics and the ongoing shift from manufacturing to services, we all know that story. And of course we fully understand the drag coming from the financial sector,” said Baig.

“Our point is, on a cyclical basis, the market is underestimating the bounce that China will get in 2014,” he added.

2013 has been a volatile year for Chinese investors, who have attempted to navigate uncertainty over policy makers` agenda and fears over slowing growth. Meanwhile, a number of overhanging risks, such as worries over the bubbles forming in the nation`s property and credit markets, and concerns over shadow banking, have also put investors off.

(Read more: Behind China`s shadow banking system )

But according to Deutsche Bank there are a number of major drivers set to propel economic growth forward next year. One will be a strong pick-up in external demand for Chinese exports; another will be the boost the economy will get from deregulation, following the bold reforms announced following the Third Plenum in November.

(Read more: Breakthrough rally for Chinese stocks (finally) )

“Improvement in global demand, especially from G3, will boost demand for Chinese exports,” said Baig.

“[On] the deregulation side… that`s where we think the market is missing out. We see a post-plenum bounce of cutting capacity in industries that have excess, and building capacity in industries that don`t,” he said, adding that he expected healthcare and public housing to get a particular boost.

Furthermore, Baig added that the central bank`s expected financial regulation reform, which is said to involve the liberalization of interest rates and freer trading of the renminbi amongst other things, should also work to get the market “humming again.”

“It`s not just one or two tricks. We have a five pillar narrative that will drive this 8.6 percent growth, which is, yes, significantly above consensus,” he added.

(Read More: China 2014 growth target: To cut or not to cut? )

The Deutsche Bank chief economist acknowledged, however, that there were overhanging risks to the market, including the USD 6 trillion annual shadow banking industry in China, which has in the past led to taxpayers having to bailout mainstream banks, together with concerns about the relationship between banks and SOEs.

“The shadow banking industry… and the unholy relationship between SOEs and the banks needs to be cleaned up. [But] in an economy that is broadly closed capital account wise, one can`t really have a massive capital outflow just because people are worried about the banks,” he added.

By contrast the Royal Bank of Scotland sees China growing 8.2 percent in 2014, while analysts at Nomura have a much more bearish forecast at 6.9 percent.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

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