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Where is India headed?

April 22, 2011

India’s economy is going great guns. Among the world’s major nations, its growth is second only to China’s.

Yet in recent months, the mood in the planet’s most-populous democracy has soured badly—to the point where even some of India’s richest people have begun to complain that things are seriously amiss.

No one is disputing that the boom has created huge wealth for the business elite and much better lives for hundreds of millions of people. But the benefits of growth still haven’t spread widely among India’s 1.2 billion residents. And a string of corruption scandals has exposed an embarrassing lack of effective governance.

Recently, Azim Premji, chairman of software-services giant Wipro Ltd., described the situation as a “national calamity.”

Mr. Premji and 13 others—business leaders, retired Supreme Court justices and former governors of India’s central bank—laid out their complaints in January in an open letter to “our leaders.” “It is widely acknowledged that the benefits of growth are not reaching the poor and marginalized sections adequately due to impediments to economic development,” they wrote.

This wasn’t supposed to be the picture 20 years after India abandoned its Soviet-style, centrally planned economic model, embraced capitalism and jump-started economic growth. Historic reforms begun in 1991 held out the promise of transforming the country from an agrarian backwater into an industrial powerhouse, lifting almost everyone’s standard of living in the process. Other Asian nations, including China and South Korea, have traveled that path successfully.

India enjoyed years of heady growth, despite problems its East Asian peers didn’t share, such as its deep caste divisions. Now, though, a host of problems has stalled the transformation.

The public-education system is a shambles. No significant publicly owned businesses have been privatized in years. The promised modernization of the financial system has happened only in fits and starts. Land reform needed to stimulate industrialization has been a political nonstarter. And malnutrition remains widespread.

India’s fate is vital to the U.S. and other Western powers, which view the nation as an important and growing export market, a stabilizing force in a dangerous region, and a counterweight to a surging China

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IMF reports new threats to global recovery

April 11, 2011

Soaring oil prices and inflation in the emerging economies that were a welcome source of stability during the financial crisis pose dangerous new risks to the world economy, the International Monetary Fund said on Monday.

The global lender’s latest assessment of global economic prospects marked a departure from recent years when its focus was on the potential peril from a near-financial meltdown and recession in advanced countries.

The fastest growth in recent years has come from emerging markets like China, Brazil and India, which helped offset the deep downturns in the United States and other rich nations touched off by burst housing bubbles.

Now, the IMF warns those very economies risk asset bubbles akin to the ones that sparked the 2007-2009 financial crisis.

“The challenge for many emerging and some developing economies is to ensure that present boom-like conditions do not develop into overheating over the coming year,” the IMF said in its World Economic Outlook report.

The IMF highlighted the searing impact that rising food and commodity prices posed to poorer countries.

Soaring costs for basic stapes stoked the social and economic tensions that have roiled the Arab world. Street protests have toppled dictatorships in Egypt and Tunisia, and left leaders in Yemen and Libya fighting to cling to power.

The fund said inflation pressures were likely to build in developing countries as people pushed for higher wages in the face of pricier food and fuel.

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Nasdad jilted, NYSE goes with Deutsche Boerse AG

April 10, 2011

The NYSE board’s decision on Sunday came as a complete surprise for Nasdaq, which with partner IntercontinentalExchange Inc. And now the only options in front of them are to appeal directly to NYSE shareholders, raise the $11.3 billion bid, or walk away.

Perhaps setting the tone for what could be a drawn-out bidding process, NYSE Euronext Chief Executive Duncan Niederauer criticized Nasdaq’s unsolicited bid as hollow and undefined, saying it would unacceptably carve up his transatlantic exchange operator.

“It’s hard to call it an offer because it’s a loosely worded proposal that was, in our minds, an empty vessel,” he said in an interview.

“We had a strategy. The combination with Deutsche Boerse is consistent with that strategy. A dismantling of the company is not. End of story,” added Niederauer, who would take the reins of a combined Deutsche Boerse-NYSE Euronext.

The formal rejection comes nine days after Nasdaq and ICE unveiled their plan, arguing it would strengthen the United States’ hand as the world’s bourses scramble to band together to fend off smaller rivals and find new profits.

On Sunday, Nasdaq said the NYSE board’s decision “does not reflect the best interests of their shareholders.”

But NYSE Euronext’s directors, which oversee the Big Board and a handful of European exchanges, found the bid from Nasdaq and ICE “strategically unattractive, with unacceptable execution risk” — a reference to the antitrust concerns that could come between NYSE and Nasdaq, the top two U.S. exchanges.

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Risk of a bubble just beginning in China

April 7, 2011

Wordle: China Bubble

Beijing . China’s latest interest rate increase puts it near the end of a sustained campaign of monetary tightening, a shift in policy stance that will support economic growth this year but lay the groundwork for asset bubbles down the road. Read more.

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Nasdaq & IntercontinentalExchange team up to buy NYSE Euronext

April 1, 2011

 

 

 

 

 

 

Nasdaq is teaming up with IntercontinentalExchange to make an $11.3 billion counteroffer for the parent of the New York Stock Exchange.

The joint bid is a challenge to Deutsche Boerse, the owner of the Frankfurt stock exchange, which has said it will buy NYSE Euronext for about $10 billion. Nasdaq and derivatives market IntercontinentalExchange Inc. said Friday that their offer is a 19 percent premium to Deutsche Boerse’s bid.
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Shares of the NYSE Euronext jumped $3.93, or 11.2 percent, to $39.10 in Friday premarket trading. Nasdaq OMX Group Inc.’s stock fell $1, or 3.9 percent, to $24.84, while shares of ICE dropped $3.50, or 2.8 percent, to $120.04.

The joint bid of $42.50 in cash and stock was not a complete surprise, as reports surfaced last month that Nasdaq OMX, parent of the Nasdaq Stock Market, was moving closer to making a competing offer.

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Reversing the process: Developing countries leading the world

March 30, 2011

The world’s biggest economies are recovering from the Great Recession at troublesome speeds: too fast or too slow.

China, India and other major developing countries quickly returned to breakneck rates of growth after escaping the worst of the economic downturn in 2008 and 2009. Their rapid recoveries showed for the first time that emerging economies have grown big and strong enough to thrive independently while the United States and other rich countries struggle.

And today, to an unprecedented degree, the developing world is driving the global recovery, instead of relying on the United States for economic leadership as it used to. This picture emerges from The Associated Press’ new Global Economy Tracker, a quarterly analysis of 22 countries that account for more than 80 percent of the world’s economic output.

The shakeup in the world’s economic order has taken 30 years. The developing world’s share of global economic output has risen from 18 percent in 1980 to 26 percent last year, the World Bank says. So growth in emerging markets now has a far bigger effect on the world’s economic performance.

Leading the transformation is China, an economic backwater three decades ago that last year replaced Japan as the world’s second-biggest economy. Japan, after more than a decade of stagnation, is struggling again in the aftermath of the earthquake and nuclear disaster that struck earlier this month.

Rapid growth in emerging economies has lifted hundreds of millions of people out of poverty and created vast consumer markets for US goods and services. At the same time, “this two-track world poses some unusual risks,” warns Nobel Prize-winning economist Joseph Stiglitz of Columbia University. He and others fear that too much money flowing to developing economies is driving up commodity prices and inflating dangerous bubbles in emerging market stocks and housing prices.

Rapid growth in the developing world is also pulling jobs and investment from the United States and other rich countries. And it’s fanning international disputes over trade and currencies.

The fastest-growing countries _ Argentina, China, India _ are all in the developing world. The slowest are all European: Spain, Britain, France. The United States ranks 12th among the 20 largest economies plus Argentina and South Africa.

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Japan’s earthquake & the economic impact

March 11, 2011

The  8.9 magnitude earthquake that hit Japan triggering a 30-feet high tsunami has caused irreparable damage. While the rescue operations have begun, there is little known about the human and property damage caused by this natural catastrophe. This has also had far reaching effects on the world markets, with the Indian markets closing down early on Friday. Many investors were wary of taking fresh positions ahead of the long weekend.

The most direct impact is likely to be seen in Japanese exporters, like Honda, Toyota and Sony, whose production facilities will face disruption in the coming days. Additionally, Japanese insurance companies are likely to see large losses as a result of the claims associated with the earthquake.

The timing of the current quake could be more significant, however, because the global recovery is so fragile. Just yesterday, U.S. stocks tumbled nearly 2 percent on continued concerns over Middle East unrest. Today, Japanese stocks were down 1.7 percent; other Asian markets were lower; European stocks traded to three-month lows and US stock futures are pointing to a lower opening.

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