Olivier and Mann – Unexpected advice to investors looking to counter a strong dollar is to buy the Indian rupee and put the squabbling, long lines and hardships of Prime Minister Modi’s unpopular bank note cancellation in the rear view mirror.
Since the focus of most observers right now is still on the bank note cancellation, many investors overlook the fact that India still has a robust basic balance surplus which provides a shield against the rising greenback and also interest rates.
The stronger U.S. dollar and rising Treasury yields have resulted in capital flight from developing economies, thus weakening local currencies. Strong domestic consumption and one of the world’s fastest economic growth rates will make India a safer investment haven in 2017.
The basic surplus of India grew to a record $30 billion in the 12-month period as Modi lured direct investment from abroad, a complete rebound for India which has struggled with huge deficits of around $50 billion in 2012 to 2013.
Emerging markets with robust basic surpluses are in a better position to withstand risks of capital flight as opposed to Indonesia which has been experiencing huge fiscal and current account deficits.
With double deficits, the Indonesian Rupiah suffered capital outflows and recurring volatility and is also the reason why the Indonesia’s currency devaluated heavily after Trump’s victorious presidential bid last November.
According to the survey, India’s economy is projected to grow by 6.9% in 2017 through the end of Q3 as the bank note fiasco has caused India’s economy to slow.
Surveys showed a slower growth than the 7.3% shown in November and 2016’s 7.6% actual growth. Experts still see the impact to be temporary and projected India’s economy to grow by 7.6% in 2018.
The rupee weakened against the greenback by 2.6% in 2016.