Hey readers,
Uncertainties keep rising. That's what the new normal seems to be. But every country is trying to cope with them in its own way.
Stocking up on food and fuel, accumulating reserves and building cushions within the economy are some of the ways they are doing it. Every country wants to be resilient. No one wants its citizens to undergo massive shocks. But we cannot manage everything.
This week's stories reflect some of these efforts. There are steps that give us a sigh of relief. There are stories that give us some hope that we may be able to avoid grave situations. And for certain things, we need to wait and watch. But we still have some time to act, so that we don't end up in a worse situation.
Here's what I wrote this week.
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Take rice.
Asian countries are building stocks because they don't want to be caught unprepared if weather disrupts production or another crisis affects trade. India has more than enough rice for its own needs at the moment. The Philippines is importing aggressively. Thailand and Vietnam are seeing their own supply pressures.
It all sounds sensible.
But there is a problem with everyone preparing for the same shortage.
If importers buy more today because they are worried about tomorrow, and exporters restrict supplies because they are worried about their own consumers, less rice is available in the international market. That pushes prices higher, which makes everyone even more worried.
We have seen this movie before.
During the 2007–08 food crisis, rice prices tripled even though global production hit a record. The problem wasn't simply that there wasn't enough rice. It was fear of future shortages that changed behaviour. Unfortunately, that behaviour made the shortage worse.
That is what makes the current stockpiling interesting. That's what I write about in Everyone Is Preparing For A Food Shortage. That Could Cause One.
Let's move on to financial markets. I have written a lot about how bond yields are rising. I wrote about American and Japanese bonds before. But this time I wanted to write about how rising global yields are impacting Indian capital markets.
The US 10-year Treasury is close to 5%, while India's 10-year government bond is around 7%. At first glance, it seems great that investors can earn 2 percentage points more by investing in India than in the US. But at the end of 2023, this gap was over 3 percentage points. Now that advantage has narrowed.
That may still sound attractive. But an investor buying India is also taking currency risk, emerging-market risk and higher hedging costs. Compared with other markets, India doesn't seem attractive enough after accounting for these risks.
And this doesn't stop with bonds. Indian equities too have to compete with safer assets. The Nifty's earnings yield is around 5%. That's 2 percentage points lower than the government bond yields. That creates issues for the stock market.
So, either earnings have to grow, bond yields have to fall, or equity prices have to adjust. There's more to it too. Read more: Bond Yields Matter For India's Stock Market.
Which brings me to the third story.
India and Vietnam are both trying to attract more foreign capital through international financial centres. India has GIFT City. Vietnam is building financial centres in Ho Chi Minh City and Da Nang. GIFT City has already built a sizeable financial ecosystem. Vietnam is starting later and has the advantage of being able to design its system almost from scratch.
Both the countries want global capital to come closer to home, and they want to build the institutions that can attract and manage it. But these cities have to compete with each other, as well as already established cities such as Singapore, Dubai, and London.
In the article titled India And Vietnam Want More Of The World's Money, I compared Indian and Vietnamese financial centres, their policies and strategies.
All three stories are about protection. India is building rice buffers, markets are adjusting to rising risks, and GIFT City is creating another channel for global capital. That helps build resilience. But resilience comes at a cost — and sometimes, trying to protect ourselves from one risk can create another.
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That's the week.
If you made it this far, I'd love to hear from you.
Which of these stories stayed with you? What stories can you share around these topics?
And more importantly, what should I dig into next?
An everyday object, a policy, a price that suddenly changed, a trend that's growing around… send it my way. Just hit reply. I read everything.
See you next Saturday.
Cheers, Swapnil
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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