Cover Story Higher stakes for Abenomics Outlook Pound Stats Interim Budget 2014-15 Emerging Country Morocco In Focus What’s app at Facebook?

1. Investeurs Chronicle
February 2014, Volume: 89

2. Cover
Story
The Japanese economy grew at the tepid rate of 1 percent in the final quarter of 2013, falling short of analysts’ expectations and heightening concerns that the
country’s recovery might not be strong enough to weather an impending sales tax increase, a worsening trade balance and other problems expected this year.
Japan’s economy grew at a much slower pace than expected at the end of last year, posing a challenge to policymakers as massive government stimulus efforts
showed few signs of sparking momentum in consumption and exports. The economy grew 0.3% in the fourth quarter, well below the median estimate for a 0.7%
increase and followed 0.3% growth in July-September. Capital expenditure, a weak link in Japan's rebound so far, rose 1.3% in October-December. This marked
the quickest growth in two years but was still less than the median forecast for a 1.9% gain. In the fourth quarter private consumption, which makes up about
60% of the economy, grew 0.5% from the third quarter. That was less that the median estimate for 0.7% in October-December, suggesting that a spurt in demand
ahead of the sales tax hike is not as strong as anticipated.
The data showing disappointing private consumption, business investment and shipments came as the Bank of Japan met to review its ultra-easy policy, with
markets widely expecting the central bank to hold firm to the current pace of bond-buying stimulus. However, pressure is likely to mount on the BOJ and the
government to do more in coming months, especially if a planned sales tax hike in April proves more damaging to growth than expected. The government will
increase the sales tax in April to 8% from 5%, and consumers have been buying cars, homes and durable goods before the tax increase.
Economists still expect that growth will accelerate in the current quarter as shoppers buy more goods before the tax hike, but any further disappointments could
increase the need for further fiscal and monetary stimulus.
Achilles’s Heel
What's actually worrying is sluggish exports despite long-expected impact of a weak yen on boosting external demand. Export growth has remained sluggish over
recent quarters, partly reflecting softer demand in Asian markets though some of it also underlined the shift by Japanese companies of their manufacturing plants
to offshore centres. The weak external sector is a worry for Japan especially as the initial burst of momentum created by Prime Minister Shinzo Abe's
unprecedented monetary and fiscal expansionary policies start to fade. External demand subtracted 0.5%age point from growth, versus the median estimate for a
0.4%age point subtraction. The negative contribution is due partly to Japan's expanding domestic demand, which is boosting imports. This in turn called into
question one of the main planks of Mr Abe's economic plan, the devaluation of the yen.
A shutdown of the country’s nuclear power plants and the higher cost of extra imported energy due to a weak yen partly explain the worsening trade deficit. It
rose to ¥2.79 trillion in January ($22.4 billion), the highest level since records began, and our third bit of gloomy news. The Japanese are buying more foreign
gadgets in preference to domestic electronics, which is part of the story. According to the Nikkei newspaper, the economy ministry calculates that the success of
foreign smartphones has worsened Japan’s trade balance by as much as ¥2.3 trillion or a fifth of the overall trade deficit in 2013. Apple’s iPhones made up nearly
70% of all smartphone sales in the fourth quarter of 2013.
Higher stakes for Abenomics

3. Cover
Story
Then there is the phenomenon of “hollowing out”, whereby local firms set up facilities overseas. Japanese firms have moved to “offshore” production to cheaper
locations; to be closer to overseas customers; and to escape the pressure of a yen that used to be costly. They had stood by loyally for years before following the
example set by American and European companies, but now the trend is in full swing. With production costs measured in other currencies, the yen’s
devaluation has not been able to boost export volumes direct from Japan in the way it used to.
After decades of lacklustre growth, during which time China overtook Japan as the world's second-biggest economy, Abe swept to power in December 2012
with a bold plan to end deflation and strengthen economic reforms. Stock markets rose by over 50 percent last year in response to Mr. Abe’s first so-called
arrow — aggressive monetary stimulus that has flooded the Japanese economy with money and helped weaken the yen. But while the weaker currency has
brought record overseas earnings for Japanese exporters, it has yet to translate into significantly higher export volumes or a rebound in wages and investment
at home.
His policies, dubbed Abenomics, helped Japan's economy speed past many of its Group of seven counterparts in the first half of last year, but the latest data will
raise doubts about Abe's strategy.
Some companies have indicated they are willing to raise salaries during annual wage negotiations with labour unions held in the spring, which is an important
barometer of whether Abe's economic policies are working. Still, some economists worry wage gains will not be strong enough to support consumer spending
after the tax hike takes effect.
For the time being, investors are shrugging off the bad news. That is mainly because a second round of monetary easing by the Bank of Japan (BOJ) is expected
soon, and the disappointing news about the fourth quarter’s GDP should, if anything, bring it forward. This week the BOJ said it would double and extend its
loan-support programme for banks, which the governor, Haruhiko Kuroda, said would increase the “ripple” effects of its monetary easing. The effect is likely to
be limited, but markets took the announcement as a sign that the BOJ is ready and waiting to do far more.BOJ Governor Haruhiko Kuroda has dismissed the
need for additional monetary easing as consumer prices are headed toward its 2% inflation target and as overseas economies recover.
Yet with exports weak, the economy will rely heavily on the engine of domestic consumer demand, which is vulnerable to the coming consumption-tax hike. The
structural-reform part of Mr Abe’s agenda, which should help spur growth in the longer term, is unlikely to take large steps forward before the summer. The
government has now turned its attention to Mr Abe’s national-security agenda, while the economy sits back on the burners.

4. GBP has been a noteworthy exception to USD strength during H2 13, rallying close to 10% against the USD. The GBP has had a strong start to the year, trading to a
new multi-year high in mid-January. Technically, the upward trend is strong but sentiment is mixed.
The GBP/USD eased after a disappointed CBI Industrial Trends Orders print. The pound is trading at 1.6650 (as on Feb 20, 2014). It has been buoyant since the
BoE raised its forecast last week for economic growth this year to 3.4 per cent from 2.8 per cent. The bank also said in its inflation report that market pricing that
assumed a rate hike in the second quarter of next year was consistent with keeping inflation on target.
On the other hand, U.S. economic growth forecast is down to 1.0% from 1.5-2.0% due to negative impacts from the bad weather, which may still dampen the U.S.
economic data. The rebound may not be visible until Q2 and investors may consider buying currencies with strong fundamentals such as GBP. GBP/ USD may test
higher to 1.6878-1.7042.
Stats
Outlook-Pound
Gloss
Protectionism
Government actions and policies
that restrict or restrain
international trade, often done with
the intent of protecting local
businesses and jobs from foreign
competition. Typical methods of
protectionism are import tariffs,
quotas, subsidies or tax cuts to local
businesses and direct state
intervention.

5. Emerging Country- Morocco
Morocco, officially the Kingdom of Morocco, is a country in the Maghreb region of North Africa. It is one of only three
nations (along with Spain and France) to have both Atlantic and Mediterranean coastlines. Geographically, Morocco is
characterized by rugged mountainous interior and large portions of desert. Morocco's economy is considered a
relatively liberal economy governed by the law of supply and demand. Economic growth is far more diversified, with new
service and industrial poles, like Casablanca and Tangier, developing. The services sector made up of mining,
construction and manufacturing is an additional quarter. The sectors who recorded the highest growth are the tourism,
telecoms and textile sectors. Morocco, however, still depends to an inordinate degree on agriculture.
The Moroccan economy grew at 4.4 percent in 2013, a rebound from 2.7 percent in 2012, which was also caused by a
poor harvest. Despite the development in other sectors, agriculture remains a key employer in this nation of 34 million
and the economy remains at the mercy of the rains. Morocco expects its gross domestic product growth to slow to 2.5
percent in 2014 the High Planning Commission said. Morocco's trade deficit narrowed by 2.8 percent last year compared
with 2012 as the economic slowdown reduced demand for imports. The 2013 deficit came to 196.38 billion Moroccan
dirhams ($23.80 billion). Imports fell 2 percent from a year earlier, with energy imports down 4 percent and wheat
imports dropping by 31.7 percent as the national harvest hit record levels.
Morocco has become one of Africa’s top business destinations, FDI accounted for 9.2% of Morocco’s gross fixed capital
formation in 2012, up from 8.2% in the previous year. Separate figures published by Morocco's Ministry of Industry,
Trade and New Technologies indicate that of the Dh32bn (US$3.8bn) of FDI that the kingdom attracted in 2012, 26%
went to the industrial sector. Manufacturing has continued to increase sharply this year; in June the industrial sector
alone attracted 59% of incoming FDI, compared with 14% for the construction sector and 2% for tourism.
The balance of trade has been in favour of Morocco because of imports of phosphoric acid and rock phosphate by India.
The quantum of bilateral trade, which was US$ 1.63 billion in 2010, reached US$ 2.04 billion in 2011 (including India’s
exports to Morocco at US$ 587.2 million and India’s imports from Morocco at US$1.45 billion). The trade turnover
between the two countries stood at US$1.61 billion in 2012 (including India’s exports to Morocco at US$ 517.7 million
and imports at US$1,101.6 million); the slight decline in trade vis-a-vis 2011 could be attributed to the global economic
meltdown. Main items of export to India are metallic ores and metal scrap, semi-finished products and inorganic
chemicals. The main items of India’s exports to Morocco are cotton yarn, synthetic fiber, transport equipment,
pharmaceuticals, agricultural implements, chemicals, spices and manufactured metals. The balance of trade has been in
favour of Morocco because of imports of phosphoric acid and rock phosphate by India.
Vital Economic Statistics of Morocco
Economy
Particulars Details
GDP (nominal) $107.1 billion (2013
estimate)
GDP growth
rate
4.4% (2013)
Currency Moroccan Dirham
(MAD)
Credit Rating BBB+ (S&P)
BBB-(Fitch)
Ba1 (Moody’s)
Fiscal Surplus 7.6 % of GDP (2012)
Current
account deficit
6.5% of GDP (2014)

6. In FocusForex
Whats app at Facebook?
On the face of it, Facebook’s $19 billion acquisition of WhatsApp has all the ingredients that
have market mavens crying “bubble”. With no hard assets and no visible revenue model,
the instant messaging service defies valuation by any conventional metrics. Nor does
WhatsApp boast of a business model that is difficult to replicate. It owes its phenomenal
popularity mainly to two things — the service comes practically free and works seamlessly
across borders and smartphones, whether i-Phones, Blackberrys and Android-based
devices. Facebook’s interest in WhatsApp’s numbers lies almost wholly in its user base,
which stands at 450 million and is growing rapidly. At $19 billion, Facebook is paying a
modest $42 per user to add WhatsApp to its fold. Facebook itself sports a market value of
about $180 billion for 1.2 billion users; a price tag of about $150 per user. No doubt purists
will argue that paying hard cash (or stock) for footfalls or eyeballs is the kind of foolishness
that led to the dotcom bust of 2000. But this is the only metric on which the success of any
social media company rests today. Facebook, Twitter, Instagram all operate on just one
premise; if you manage to capture a good portion of the world population as your
audience, it will be only a matter of time before revenues pour in either by subscription or
by bagging a large slice of the $550 billion global advertising market. One, the social media
is a fickle space and yesterday’s fad could be passé today. Although it has a user base of
over a billion, Facebook — which went in for an IPO in 2012 — is aware of the slowing
pace at which it is gathering new subscribers, thanks to interest in other platforms such as
Twitter. WhatsApp, in contrast, has been wildly popular with a rapidly expanding user
base among the under-30s. This large audience in Europe and emerging markets such as
India also gives Facebook a readymade footprint in these under-penetrated markets. Two,
while Facebook is unlikely to pepper messages with ads to ‘monetise’ WhatsApp, it
probably recognises the commercial potential in mining data about WhatsApp users.
Overall, it is not Facebook, but technology firms in other businesses which need to worry
about this deal and the social site’s growing clout. Twitter and Google, apart from a host of
other internet ventures, compete with Facebook for a share of the global advertising
market that’s not growing very fast. And telecom and technology firms, which are
dependent on charging fairly steep rates to connect people, may have a lot to worry about
too.
Data from 10th
February 2014 to 22nd
February 2014
Sensex Nifty
20,334
.27
20,700
.75
6053.4
5
6155.4
5
Gold (10 gm) Silver (1 Kg)
28960
29844
44670
47467
Crude Oil ($/barrel) Dollar/INR
107.96
109.85
62.19
62.16

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Team Chronicle
Akanksha Srivastava akanksha@investeurs.com
Nidhi Gogia nidhi@investeurs.com
Harpreet Kaur harpreet@investeurs.com
Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The
information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.
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