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Only when the tide goes out do you discover who’s been swimming naked, as Warren Buffett remarked. As far as EMs are concerned, we believe they are well positioned for tighter liquidity in 2017, i.e. greater external funding pressures and higher interest rates. This is due to strong fundamentals and because EMs have already adjusted a great deal to the new environment.
Historically, the probability of a recession starting in any given year has been independent of the length of the preceding expansion. That makes economic forecasting much more like rolling dice than looking after a guinea pig. Thinking that we are "overdue" a recession because the expansion is "long in the tooth" is an example of the gambler's fallacy and can lead to erroneous investment conclusions.
The consensus remains bullish on India even after, or perhaps because of, recent currency reforms. We beg to differ. While Modi’s reform efforts have been impressive, only rivalled by Mexico following the global financial crisis, India still faces significant cyclical headwinds.
Ahead of the Autumn Statement, media reports were circulating that the Prime Minister wanted it to be a “deadly dull” affair; in the end it wasn’t far off. The growth downgrade was predictable, the borrowing upward revisions were as expected and many of the measures had already been announced ahead of time. So you may be wondering: why I am even writing a blog post? Well, there are still a few things worth highlighting.