The art of inventing ourselves

For most of us, “I” is positional (“you” are there and “I” am here), a location in time and space, a point of view that accumulates all previous experiences and points of view. Does this “I” presume a substantial entity located inside our bodies, or is it located in our minds, our families, job titles, Facebook profiles, bank accounts—those trappings that help us maintain the meanings and understandings that we have up ’til now considered ourselves to be?

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SIP with Purpose – Nice Article by Jayna Gandhi CFA

Whether you are a businessman or a woman, a working-class professional in mid thirty, a millennial just started getting your pay checks or to other extreme heading toward your sunset year and having desire to live a comfortable and respectful life, one commonality in your thinking and expectation setting is how to secure your financial future.

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CFA/ICAI Event – ‘Rethinking Financial Services for Millennials’ to be held on 21st April, 5:30 p.m. – FREE Registration

On behalf of CFA Society India, it is my great pleasure to invite my friends in Mumbai to our Putting Investors First (PIF) event ‘Rethinking Financial Services for Millennials’ to be held on 21st April, 5:30 p.m. onwards at the ICAI auditorium, Bandra Kurla Complex, Mumbai Click here for more details For registrations:


Biharilal Deora, CFA,

PIF Flyer w.o keynote-1.o keynote-1.o keynote-1.pdf

Market outlook – April 2017 by Navneet Munot

From: Navneet Munot
Sent: Monday, April 3, 2017 8:32 PM
To: All SBIFM Users
Subject: Market outlook

Please find attached herewith our monthly “Market Outlook”.



Navneet Munot, CFA

Chief Investment Officer

SBI Funds Management Private Limited
(A Joint Venture between State Bank of India & Amundi Asset Management)
9th Floor, Crescenzo,

G Block, Bandra Kurla Complex

Mumbai 400 051

April 2017.pdf

Market outlook by Navneet Munot CFA

Attached herewith is our monthly “Market outlook”.



Navneet Munot, CFA

Chief Investment Officer

SBI Funds Management Private Limited
(A Joint Venture between State Bank of India & Amundi Asset Management)
9th Floor, Crescenzo,

G Block, Bandra Kurla Complex

Mumbai 400 051

March 2017.pdf

On the Trump Rally; Animal Protein Versus Plant Protein!

From: aditya rana
Date: Sat, Feb 25, 2017 at 1:08 PM
Subject: On the Trump Rally; Animal Protein Versus Plant Protein!


The election of Donald Trump as president of the US has certainly kindled the market spirits – with the S&P 500 index up nearly 10% from its November lows, strong fourth-quarter corporate earnings and a surge in multiple business and investor sentiment surveys. While a “sugar-high” is certainly possible in the first year or two of the presidency, it is also important to keep a focus on the medium to longer term horizon, which does not bode well for the US economy, and by implication its stock market which is already trading at inflated levels. John Ross, senior fellow at Renmin University wrote an interesting piece on the longer-term outlook for the US economy. To summarise:

-The US is likely to experience a short-term acceleration of growth, following a 2016 growth rate which was significantly below its long-term trend. However, the long-term growth rate is unlikely to move higher without fundamental changes to the economy which are unlikely under the Trump presidency.

-Looking at the long-term trend in the growth rate of the US economy, by using a 20-year moving average to smooth out fluctuations due to the business cycle, the data clearly shows a slowing economy over 50 years (see chart below) , with successively lower peaks – 4.9% in 1969, 4.1% in 1978 , 3.5% in 2003 to a current level of 2.3%.

-Looking at the short-term fluctuations in US growth versus its long-term average (see chart below), as of the 3rd quarter 2016 the latest growth rate of the US economy was only 1.7% which was significantly below its long term trend. This makes it likely that growth will bounce back in 2017/2018 leading to the illusion that “Trump is improving the economy”.

-Analysing the reasons underlying the long-term slowdown of the US economy, at the basic fundamental level it has to do with the rate of capital accumulation in the economy – when the rate of capital accumulation is high the economy grows rapidly, when the rate of capital accumulation is low the economy slows down.

-Net capital accumulation is equivalent to net savings in an economy, and looking at the US savings/capital accumulation rate since 1929 (see chart below):

-During the beginning phase of the Great Depression (1929-1933), US capital accumulation was negative with an associated significant economic slowdown. Subsequently, US savings/captal accumulation rose during WW II and finally peaked in 1965 with an associated economic boom.

-After 1965, US saving/capital accumulation has been falling steadily until it became negative again during the Great Recession of 2008-2009. This long term trend explains the declining long-term trend in US growth.

-It is threfore clear, that Trump would have to increase the rate of capital accumulation to accelerate the long-term growth trend of the US economy, and without such a sharp rise in the rate of capital accumulation, the US economy is very unlikely to sustain a higher than the long-term average growth rate.

-However, an economy’s savings rate comprises the sum of household savings, corporate savings and government savings – and government savings in the US and most other economies are negative due to budget deficits. In addition, Trump has announced plans to introduce tax cuts and increased military spending, which will only increase the budget deficit further thereby reducing the savings rate in the economy as a whole.

-In the short-term the US could offset the low savings rate by borrowing from overseas which could boost economic growth temporarily. But historical experience shows that it’s domestic capital creation which is key to produce long term economic growth. So going forward, the key variable to monitor for the US economy is whether capital accumulation/savings is rising or falling.

Update based on latest US GDP data:

-The latest data shows that US GDP growth fell from 2.6% in 2015 to only 1.6% in 2016 – a decline of almost 40%. In addition, US per capita GDP growth fell fom 1.9% in 2015 to 0.9% in 2016 – a fall of just over 50%!

-This poor performance of the US economy is all the more stark when compared to the EU and China – the US was the slowest growing (1.6%), versus the EU (1.9%-projected as the latest data is not out) and China (6.7%).

-Of course the Western media played up the risks of a “hard landing” in China and “strong recovery” in the US. Yes- the Chinese economy did slow from 6.9% to 6.7% from 2015 to 2016, but the US underwent a major slowdown.

As argued in last week’s newsletter, EM countries like China offer significantly better long-term economic and stock markets prospects than developed markets like the the US. The 2010-2014 economic and stock market slowdown in EM is clearly over, and EM markets are currently in the early phase of a cyclical upturn. As the attached graph from Blackrock illustrates, EM, Japan and European corporate earnings are enojoying a robust rebound, outperforming the US by a wide margin.

-Looking ahead on a longer term basis, as Templeton points out – EM currently represent 10% of the world’s stock market-capitalization but global investors have much lower amounts allocated to EM – creating the potential for more upside as allocations rise to appropriate levels. In addition, EM represent 50% of the world’s GDP when measured in nominal terms and nearly 60% using PPP, and account for 80% of world growth which will result in a higher EM percentage of world stock-market capitalization in the future.

-Investors are also largely unaware of the strcutural changes going on in the EM world – over the last three decades emerging markets have fuelled their growth through exports – with commodities being a major component. However, commodity stocks have declined from 50% of the MSCI index in 2008 to 15% today. In addition, the index is increasingly geared towards the high growth IT and consumer sectors – which have each risen from 7% of the index in 2008 to 24% for IT and 17% for consumer stocks today. EM are no longer mainly a commodity play.

Animal protein versus Plant Protein:

-An interesting study conducted by the Massachusetts General Hospital showing a higher mortality rate from the intake of higher animal protein and a lower mortality rate from the intake of plant proteins.

Massachusetts General Hospital, August 1, 2016

-The largest study to examine the effects of different sources of dietary protein found that a high intake of proteins from animal sources — particularly processed and unprocessed red meats — was associated with a higher mortality rate, while a high intake of protein from plant sources was associated with a lower risk of death. Results from the study — which analyzed data from two long-term epidemiologic studies — appears in the August 1 issue of JAMA Internal Medicine.

-"Overall, our findings support the importance of the sources of dietary protein for long-term health outcomes. While previous studies have primarily focused on the overall amount of protein intake — which is important — from a broad dietary perspective, the particular foods that people consume to get protein are equally important. Our findings also have public health implications and can help refine current dietary recommendations about protein intake, in light of the fact that it is not only the amount of protein but the specific food sources that is critical for long-term health,” said the lead researcher of the study.

-While several studies have suggesting that substituting proteins for carbohydrates in the diet has several health benefits — including weight management, reducing blood pressure and other cardiovascular risk factors — the authors note, few studies have examined the specific sources of protein. Those that have were relatively small and based on one-time assessment of participants’ diets. The current study analyzes data from the Nurses’ Health Study (NHS) and the Health Professionals Follow-up Study (HPFS), which have compiled comprehensive health data on more than 170,000 participants since the 1980s.

-The researchers analyzed more than 30 years of data for NHS participants and 26 years of data for HPFS participants, totaling more than 3.5 million person-years. During those time periods more than 36,000 deaths were documented among study participants — almost 9,000 from cardiovascular disease, around 13,000 from cancer and about 14,000 from other causes. After adjustment for lifestyle and other dietary risk factors, a high consumption of protein from animal sources — any types of meat, eggs or dairy — was weakly associated with an increased rate of death, while high consumption of protein from plant sources — breads, cereals, pasta, beans, nuts and legumes — was associated with a lower mortality rate.

-More careful analysis revealed that the association of animal protein intake with an elevated mortality risk only applied to participants with at least one factor associated with an unhealthy lifestyle — being either obese or underweight, heavy alcohol consumption, a history of smoking, or physical inactivity. In fact, the association disappeared in participants with a healthy lifestyle. Analysis based on specific sources of protein indicated that the animal-protein-associated mortality risk applied primarily to processed and unprocessed red meats, which include both beef and pork products, and not to protein from fish or poultry.

-"While we expected we might find the associations to be weaker in the healthy lifestyle group, we did not expect them to completely disappear. But when we looked deeper into the data, we found that — at similar levels of animal protein intake — those in the unhealthy lifestyle group consumed more red meats, eggs and high-fat dairy, while the healthy lifestyle group consumed more fish and poultry. So we suspect the different sources of animal protein between the two groups may contribute to the stronger results in the unhealthy lifestyle group," said the lead reseracher.

-He adds, "Our findings suggest that people should consider eating more plant proteins than animal proteins, and when they do choose among sources of animal protein, fish and chicken are probably better choices. Future studies should examine the mechanisms underlying the different effects of plant and animal proteins — along with different sources of animal proteins — on overall health."

Here’s to replacing animal proteins with plant proteins in your diet!



On The Bullish Case for China; Why All Types of Saturated Fat Increase the Risk of Heart Disease!

From: aditya rana
Date: Sat, Feb 18, 2017 at 1:38 PM
Subject: On The Bullish Case for China; Why All Types of Saturated Fat Increase the Risk of Heart Disease!


A longer-term focus is of paramount importance for investors, so as not to be swayed by temporary market swings and allowing the fundamental factors supporting a particular investment thesis to play out. Morgan Stanley published an interesting research piece this past week titled “Why we are Bullish on China” which takes a long term view on China’s growth story, analysing its prospects and challenges, and why the MSCI China stock index is likely to continue its outperformance against the broader EM index. Some key highlights:

-The challenges facing China have been well publicised in recent years – a high debt to GDP ratio, excess capacity, over-reliance on investment to drive growth and increasing protectionism. Global investors fear that China could have a major financial shock, like the US is 2008 and Asian EMs in 1997, and are significantly underweight Chinese equities relative to the benchmark (see chart below).

-Morgan Stanley takes a positive view that China will be able to surmount these challenges based on :

1) The risks of a financial shock are low: a) as the debt has been funded by domestic savings and used for investment rather than consumption; b)China has a strong net asset position (and a positive net international investment position of 15% of GDP) which provides a buffer against shocks; c) a current surplus, high FX reserves and lack of high inflationary pressures allowing China to manage domestic liquidity conditions. However, high debt levels reflect borrowing from the future which implies lower growth in the future.

2) Despite lower growth in the years ahead, China is likely to reach high income status (defined as per capita income of $12,500) by 2027 from the current level of $8,100. Only 19 countries have been able to achieve this status over the last 30 years, with Korea and Poland being the only two with populations over 20 million.

-To achieve the above goal, China would need to focus on the following two factors:

1) Manage the debt cycle prudently and allow the economy to grow at its potential rather than at an unsustainable target. Policy makers seemed to have accepted lower growth rates, and have shifted focus on preventing financial risks and asset bubbles. Deflation risks are receding with policy makers directing lower investment in areas with excess capacity, shutting down unviable businesses and a recovery in external demand. Slower growth with easing of disinflationary pressures will reduce the pace of increase in the debt/GDP ratio.

-2) Policy makers will need to implement significant structural reforms in the form of a shift in focus towards consumption and services, further development of the high-value added manufacturing sector, reform of state-owned enterprises (SOEs) and cutting excess capacity.

-China has made significant progress in reorienting its economy towards consumption, which is expected to double over the next decade- rising from $4.4 trillion in 2016 to $ 9.7tn by 2030. China is already the world’s biggest consumer market in various areas (autos, mobile phones, on-line retail) and domestic players are driving the rapid growth is areas like sportswear, cosmetics, budget airlines and hotels.

-Mirroring the shift towards consumption, the service sector is expected to rise to 60% of GDP by 2030, from the current levels of 52%. The growth opportunities are likely to come from areas like business services, real estate, health care, education and personal services.

-Chinese firms are already formidable competitors in heavy industry sectors like telecom equipment, power infrastructure , railway infrastructure and ship construction. Levering the huge size of its domestic market, local firms have a dominant market share in areas like PCs and smartphones. The share of value-added exports has been steadily increasing and now accounts for over half of exports, with good progress made in medium to high technology areas like transistors and LCD screens.

-Reform of the SOE sector is paramount given the high leverage ratios and low ROAs and ROEs levels. Policy makers are focussed on reforms to improve performance – by strengthening the largest SOEs as “national champions”. Progress is also being made in reducing excess capacity in certain areas – with the steel and paper sectors likely being the most successful in reducing capacity.

-Chinese private firms already dominate the MSCI China index in areas like IT, consumer and healthcare sectors, and generate far higher returns than their SOE peers, and could reach 70% of the MSCI China index by 2020.

-Implication of China’s rise to high income status for the world economy:

-China’s move towards high income status will have profound implication for the world – with sectorss benefiting from the growth of domestic consumption and services fuelling opportunities for foreign firms in areas like tourism, healthcare and leisure services. At the same time, a move into higher value-added manufacturing areas, leveraging its huge domestic market and funding capacity for R&D will increasingly pose a threat to upstream manufacturing economies like Korea, Japan, Taiwan and Germany (see chart below).

-Domestic champions like Alibaba, Sinopec, Huawei and Fosun are well on their way to being global multinational companies, while companies like Tencent, Baosteel and Sinopharm have the capability to compete globally. These domestic champions and MNCs are having a significant impact on the overall economy through productivity gains, which will be a key to China’s long term development (see chart below).

-Implications for the stock market:

-If China is able to achieve high income-status in the next decade, it is very likely that MSCI China will continue its outperformance over MSCI EM – which has been 3.0% per annum over the last 15 years (even more against the S&P 500) resulting in a compounded return of 13% per annum versus 10% for MSCI EM (see chart below).

-With the ongoing transition of the Chinese economy, it is recommended to continue being overweight the “new economy” (IT, consumer and healthcare) versus the “old economy” sectors like energy, materials and industrials (see chart below).

-MSCI China has relatively attractive valuations when compared to EM, with a ROE (11.9%) which is 1.5% higher than that of MSCI EM, while its PBV multiple is almost exactly the same (see chart below). In addition, global investors are also about 5.0% underweight Chinese stocks which is close to an all-time low providing room for higher allocations if the investment thesis plays out.

-The onshore Shanghai (+38% from current levels) and Shenzhen markets are also expected to enter a new bull market driven by: a) improved earnings growth (+6%) , P/E ratios increasing to 22x (from 18x currently and a peak of 25x in mid-2015 – see first chart below); investor flows shifting into equities from property with property control measures taking effect (see second chart below).

A well analysed and persuasive case for adding China as a core long term position to a globally diversified portfolio – both from a short-to-medium term perspective (1-3yrs) as well as a long term perspective (10yrs+). There are various ETFs which give exposure to the MSCI global China index (MCHI, CN), China offshore internet (KWEB), Shanghai & Shenzhen CSI 300 index (ASHR), domestic small caps (ASHS), domestic tech (CNXT) and Chinese H shares listed in Hong Kong (2828).

Saturated fat, regardless of type, linked with increased heart disease risk:

An interesting note from Harvard University on new research which illustrates the dangers of saturated fat from all sources – included “healthy” oils like coconut oil:

Harvard School of Public Health, Dec, 2016:

-A study published in the November issue of the British Medical Journal revealed findings that, at first glance, are not that surprising: saturated fat in the diet is associated with an increased risk of heart disease. (1) However, the study offers a unique twist by teasing out the effects of different types of saturated fatty acids (SFAs). Recent articles have attempted to exonerate saturated fat from its long time connection with heart disease, questioning if certain types of SFAs may have a weaker effect on raising blood cholesterol.

-Butter, cheese, red meat, and full-fat dairy are high in saturated fat. Some plant-based fats like coconut and palm oil are also rich in saturated fat. However, all of these foods differ slightly in their relative proportions of individual SFAs. Commonly eaten SFAs include lauric, myristic, palmitic, and stearic. Coconut oil is richest in lauric acid, whereas butter is highest in palmitic acid; both contain smaller amounts of the other fatty acids.

-The BMJ study examined the associations of individual and combined SFA intake with heart disease risk in more than 73,000 women from the Nurses’ Health Study and 42,000 men from the Health Professionals Follow-Up Study. Additionally, the researchers estimated the effects of replacing 1% of daily calories from these fatty acids with the same amount of calories from polyunsaturated fat, monounsaturated fat, whole grain carbohydrates, and plant proteins. There was an 18% greater risk of heart disease in the group consuming the highest amounts of SFAs compared with the group consuming the least, with palmitic acid and stearic acid showing the highest risk. When replacing intake of individual SFAs, the greatest risk reduction was seen when replacing palmitic acid (found in palm oil, fatty cuts of red meat, and dairy fat) with plant proteins or polyunsaturated fat, with an 11% and 12% risk reduction, respectively.

-In the US diet, these SFAs are from some common food sources, such as full-fat dairy, red meats, animal fats, and tropical oils. Therefore, people can lower their intake of these individual SFAs by reducing consumption of those foods high in saturated fats. Our data showed the benefits of switching from saturated fats to healthy polyunsaturated fats, whole grain carbohydrates, and plant-based proteins.

-In diets of the participants, intake of lauric acid was much lower than palmitic acid and stearic acid. This could be the primary reason that they observe clear associations for this SFA. In other clinical trials, the effects of lauric acid on raising LDL are the strongest. Therefore, although small amounts of coconut oil are unlikely to be a problem, it is not desirable to include tropical oils such as coconut oil as a primary source of dietary fat.

Here’s to reducing the intake of saturated fats by cutting down animal protein, dairy, tropical oils and replacing them with plants, whole grains, healthy oils and fruits!