Global Market Data 30Jun2024 - vrk100 - 29Jun2024

Global Market Data 30Jun2024

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(This is for information and educational purposes only. This should not be construed as a recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

 

Quarter-to-date global market data, as on 30 June 2024, of stocks, bonds, currencies and commodities is as follows:
 
Table 1: (please click on the image to view better) 

 

The global stocks are a mixed bag during the Apr-Jun2024 quarter. While the Dow Jones Industrial Average (DJIA) is down 1.7 per cent for the quarter, Nasdaq Composite and S&P 500 are up 8.3 and 3.9 per cent respectively.

Of the major indices, Nasdaq Composite index has delivered the best performance as artificial intelligence-powered stocks, like NVIDIA, have done well. 

Hang Seng, FTSE 100 and Sensex have delivered positive results, but Nikkei 225, Shanghai Composite and Dax 30 indices delivered negative returns for the Apr-Jun2024 quarter.

India 10-year Government Bond yield is down 5 basis points (one percentage point equals 100 basis points), while the US 10-year Treasury yield is 18 up basis points for the quarter.

Crude oil is down slightly for the quarter. But silver has outperformed most commodities with a quarterly return of more than 17 per cent. Gold delivered 3.6 per cent with its price reaching all-time highs during the quarter.

 

 

(story continues below)

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After a stellar 66-per cent return in the first quarter, Bitcoin disappointed with a negative return of 13 per cent during the second quarter.

There is not much movement on the currency front, with the US dollar index gaining 1.3 per cent for the quarter -- all of the gain is due to severe weakness in Japanese Yen. The USD gained 6.3 per cent versus the JPY, while British Pound, Euro and Indian rupee remained stable during the second quarter.

 

 

 

Year-to-date (past 6-month returns) global market data as on 30Jun2024 are presented below:

Table 2: (please click on the image to view better)
 

 

 

Global stocks during the calendar year 2024 are generally positive, except for Shanghai Composite which declined by 0.3 per cent during the period.

 

Of the major indices, Nikkei 225 delivered the best returns of 18.3 per cent during the first half of 2024. Nasdaq Composite, S&P 500 and Nifty 50 indices are positive with 18.1, 14.5 and 10.5 per cent returns respectively.

 

Mid- and small-cap stocks continue to do well in India, with the BSE Mid cap index delivered a powerful 25 per cent return during the period. 

Major commodities are on the upswing with crude oil rising by 12 to 14 per cent; gold by 12.8 percent and silver by 22.6 per cent. Bloomberg commodity index is up 2.4 per cent for the quarter.

 

One could say silver is the best asset class in 2024, other than crypto currencies.

After giving one of the best performance in 2024 due to rising inflows into Bitcoin spot ETFs (exchange-traded funds), Bitcoin has cooled down a bit in the past one or two weeks. 

 

The US dollar index (DXY) gained 4.4 per cent during the first two quarters of 2024; most of the gain is due to sharp fall in JPY. Indian rupee is remarkably stable -- due to obvious foreign exchange intervention by Reserve Bank of India (RBI), India's central bank. 

At the start of 2024, it was expected the US Federal Reserve would resort to three or four federal funds rate cuts in 2024. But there has been no rate cut so far; and now market seems to be expecting only one rate cut for the rest of the year.

This has resulted in a bit of disappointment for the market with investors selling of US Treasury notes / bonds. The US 10-year Treasury yield rose by 52 basis points in 2024 (bond yields move in opposite direction to bond prices, meaning rising prices result in falling yields and vice versa). 

 

Wrap up

Most of the global stock indices, like in the US and India, are at all time highs or close to them. The outlook for the next quarter will depend on how the Federal Reserve will react to future data flow.

In second quarter, the European Central Bank, for the first time in five years, cut its interest rate by 25 basis points to 3.75 per cent; and the Swiss National Bank (SNB) cut its interest rate by 25 basis points to 1.25 per cent.

 

SNB's rate cut in Jun2024 followed a rate cut in Mar2024.

 

It remains to be seen whether the US Federal Reserve and Bank of England (BoE) will cut their interest rates too, following the example of SNB and ECB, in the third quarter. But market seems to be expecting rate cuts from the Fed and BoE.

 

The way currencies are debased across the globe; crypto currencies, like, Bitcoin and Ethereum, might do well in the next few years -- though their stomach-churning volatility is too big a pain to bear for most of the common investors.

The US presidential elections are due in less than five months and the presidential aspirants have shown no inclination to reduce the humoungous and ever-rising US government debt. Such unsustainable debts and fiscal profligacy in the US and Europe are likely to be positive, ceteris paribus, for crypt currencies.

(This should not be considered as a recommendation or investment advice -- investors should consult their own financial advisors before taking any investment decisions)

 

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The Reference Shelf:

Top image: AI-image from Google Gemini (ISS)

 

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Read more:

 

Blog of Blogs Theme-wise 

 

Indian Economy Data Bank 

India Forex Data Bank 

 

Brief History of India's 1991 Forex Crisis and Gold Pledge

 

You Can Boast About It!

 

Big Surge in Number of Shareholders in PSUs

 

Why RBI Won't Favour A Strong Rupee 

 

Currency Pairs: How to Calculate Depreciation or Appreciation

 

Sensex versus Gold Price

 

RBI's Record Surplus Transfer to Govt of India 

 

The Little Secret Behind Nifty Next 50 Index's Recent Success

 

Rapid Rise of India's PMS Industry 

 

NSE Indices Calendar Year Returns: 2006 to 2024

 

How to Buy Nifty Midcap Index 03May2024 

 

Understanding Real Sensex and Currency Debasement

 

Select Gilt Funds Performance 

Weblinks and Investing

-------------------

Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

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Brief History of India's 1991 Forex Crisis and Gold Pledge - vrk100 - 17Jun2024

Brief History of India's 1991 Forex Crisis and Gold Pledge  

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(Timeline of events, key players in the drama, book and other references, screenshots and sources of information for writing the blog are given at the end of blog).

 

India’s foreign exchange crisis of 1990/1991 had been brewing for some time and it was waiting to happen. Its origins could be traced back to loose fiscal policies adopted by Government of India in the 1980s.

Twin Deficits

 

India’s fiscal deficit had been extremely high in the 1980s. Fiscal deficit of the Central government rose from 5.4 per cent of GDP (gross domestic product or national income) in 1981-82 to 8.1 per cent by 1989-90.

If you combine Central and State governments, the fiscal deficit rose to as much as 10 per cent of GDP by the late 1980s and further rose to 12 per cent of GDP by 1990-91.

Moreover, India had seen four prime ministers and two Parliamentary elections between 1989 and 1991. Frequent leadership changes between 1989 and 1991 and unsustainable fiscal policies by successive governments in the 1980s had a negative impact on Indian economy.

For much of the late 1980s, India’s current account deficit was more than 2 per cent of GDP. It may be noted India was a completely closed economy in the 1980s though some feeble attempts were to open up the economy in mid-1980s.

The political leadership in New Delhi had ignored warnings, of fiscal profligacy and dwindling forex reserves, from Reserve Bank of India (RBI), India’s central bank.

The 1991 forex crisis is also known as Balance of Payments (BoP) crisis. Gulf War added fuel to India’s forex crisis, with Iraq invading Kuwait in August 1990. Crude oil prices shot up due to the Gulf War, making India’s import bill higher. India typically depends on imported oil for more than three-fourths of its needs.

Foreign remittances from Non-Resident Indians (NRIs) from the Gulf region plummeted adding to India’s woes in the external sector. In addition, NRIs were withdrawing money from their Indian accounts.

The actions and inaction of successive governments in the 1980s compounded the issues facing Indian economy. India’s exports suffered during the period. These have culminated with India facing serious forex crisis in 1990/1991.

India’s foreign exchange reserves were dwindling rapidly in 1990 and 1991. India had to take a loan from International Monetary Fund (IMF) under conditionalities imposed by IMF.

As of Mar1990, India's foreign exchange reserves were just enough to cover two months of India's imports.

The import cover of reserves further declined to three weeks of imports by the end of Dec1990.


Political crisis

In Feb1991, Rajiv Gandhi’s Congress (I) party withdrew support to Chandra Shekhar government. Chandra Shekhar formed a minority government only in Nov1990 with unconditional support from Congress (I), but the minority government had to go in a short period of time.

The government even could not present a full budget as the Chandra Shekhar’s party lacked majority in Lower House of India's Parliament. Finance minister Yashwant Sinha could only present an interim budget as Parliamentary elections were called.

It was a caretaker government, under prime minister Chandra Shekhar, that took the decision to mortgage India’s gold and raise foreign exchange, with a view to ameliorating the country’s foreign exchange position.

It was a political crisis combined with forex crisis that threatened to jeopardise India's economic future. 

Rating downgrade

Standard & Poor’s on 29May1991 downgraded India’s sovereign credit rating from BBB- (investment grade) to BB+ (below investment grade). Only in Jan2007 did S&P upgrade India from BB+ to BBB-.


IMF withdrawals

Amidst the crisis, RBI was not sitting quiet. RBI tried to raise resources from abroad to tide over the forex crisis. They approached International Monetary Fund (IMF). Between Jul1990 and Sep1990, RBI withdrew balances it held with IMF in the form of Special Drawing Rights (SDRs). More withdrawals from IMF facilities were made by RBI in Jan1991 and Jul1991.

Gold revaluation

In Oct1990, RBI revalued the gold in its forex reserves to international market rates – with gold holdings rising from USD 520 million at the end of Sep1990 to USD 3.68 billion by the end of Oct1990. This revaluation enabled RBI to boost its forex reserves (gold is part of RBI’s forex reserves) from USD 3.51 billion at end-Sep1990 to USD 6.21 billion at end-Oct1990.

Till 16Oct1990, gold was valued by RBI at a fixed rate of Rs 84.39 per 10 grams – the revaluation of gold effective 17Oct1990 was done at a market price of Rs 1,991.64 per 10 grams.

Government of India had to issue an ordinance to facilitate RBI for the gold revaluation. All the gold revaluation and IMF withdrawals were not sufficient to keep India's external sector in order.

Under these dire circumstances on the external front, RBI has to take drastic steps in consultation with Government of India.

Among the measures taken during 1990 / 1991 was the decision to pledge gold holdings held by RBI in international market and raise valuable foreign exchange to meet India’s needs. Pledging of gold was a hard political decision, but Chadra Shekhar government took a bold decision to save India from the foreign exchange crisis.

Such tough actions were necessary because India’s credibility was at stake and tough actions were imperative. India could not afford to default on its foreign obligations. At that time, India was in desperate need of foreign exchange to make payments to foreign lenders and to import oil and other essentials.

RBI had undertaken two transactions of gold pledge during 1991 under two different Central Governments.

The first was during May1991 when Yashwant Sinha as finance minister authorised State Bank of India (SBI) to sell 20 tonnes of gold with an option to repurchase it later.

The second was to pledge 46.91 tonnes of gold during Jul1991, when Manmohan Singh was finance minister, in the international market.

First transaction – SBI sold confiscated gold and bought it back after six months

In May 1991, finance minister Yashwant Sinha, after consent from prime minister Chandra Shekhar, permitted State Bank of India (SBI) to sell 20 tonnes of gold on the condition that SBI should return the gold to the government within six months.

This was done as Parliamentary elections for Lower House were being held (May and June 1991).

The 20 tonnes of gold sold by SBI was confiscated gold. In those days, gold smuggling into India was rampant due to curbs on gold imports, which were restricted as India was short of precious foreign exchange. You may have to see Bollywood  movies of 1970s to appreciate the gold smuggling phenomenon. 😁

 

Customs authorities used to confiscate gold and the government used to keep the confiscated gold with SBI, which would sell the gold in the market.

A quantity of 20 tonnes, out of confiscated gold, was leased to State Bank of India (SBI) by Government of India for a period of six months on the condition the gold be returned to the government. SBI sold the gold with a repurchase option in the international market.

Against the 20 tonnes of gold, RBI received USD 200 million (or Rs 400 crore) of foreign exchange.

SBI repurchased the leased gold in Nov/Dec1991 and returned it to Government of India.


Second transaction – RBI pledged its own gold and bought it back six months later

After consultations with the Central government, RBI decided to pledge, with other central banks, a small part of its own gold.

 

A decision was made to lease 46.91 tonnes, out of RBI's gold reserves, with Bank of England (BoE) and Bank of Japan (BoJ), central banks of Great Britain and Japan respectively -- in order to raise the much needed foreign exchange.

But the central banks insisted on shipping the physical gold pledged to BoE in London. RBI had no choice but to arrange for airlifting the gold to BoE vaults in London.  

 

The gold was airlifted from Bombay to London in four consignments in Jul1991. The second transaction involving BoE and BoJ fetched RBI foreign exchange worth USD 405 million.

All these decisions about gold pledging were being done in great secrecy, because India had to protect its economic and strategic interests. But it was not to be.
 

During the shipment of gold from RBI’s vaults in South Bombay to Bombay airport, one intrepid Indian Express reporter Shankkar Aiyar got wind of it and broke the story. It was a headline story in all 16 editions of Indian Express on 08Jul1991.

It is a different story India pledging gold became a political hot potato in 1991 and finance minister Manmohan Singh had to defend the pledging of gold in Parliament against a tirade from opposition parties.

 

Turnaround
 

To the great relief of all, India successfully handled the 1991 forex crisis and there was a turnaround. India was able to augment its forex reserves by 1992.   

RBI repaid the loan between Sep1991 and Nov1991 and the pledged gold was released.

The gold was repurchased that was involved in both the transactions – one by SBI and the other by RBI.

But RBI took a decision to keep the gold involved in both the transactions, totaling 65.27 tonnes, abroad in Bank of England’s vaults ‘for the time being.’

(Note: the gold has since been in the safe custody of Bank of England vaults in London -- see also Chart 14 in Forex Data Bank)

To Sum Up

Continuity is the theme of India’s economic reforms. Various governments and personalities have played lead roles in India’s development over the years.

Despite political and ideological differences, all parties in power have contributed to India’s economic reforms in one way or other, though the 1991 Forex Crisis was a product of their own actions and inaction.

It was a combination of fiscal profligacy of the 1980s, Gulf War in 1990 and frequent leadership changes in the late 1980s that pushed Indian Economy to the brink. Luckily, the crisis was successfully handled and India is back in the reckoning.

Though governments in the 1980s messed up India’s finances and consequently India’s credit rating, India has overall done well subsequently.

Even a caretaker government like that of Chandra Shekhar took bold decisions to rescue India out of the forex crisis. And the biggest economic reforms India had ever seen were undertaken by a Congress (I) minority government of PV Narasimha Rao during 1991 and 1993.

Prime minister PV Narasimha Rao and finance minister Manmohan Singh took bold economic decisions to steady India’s economic ship. The economic reforms undertaken by them during 1991 to 1993 were unprecedented in India’s economic history and ultimately paved the way for strong economic growth later.

 

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Timeline of Events Leading to Gold Pledge by RBI:

1980s: India had high and unsustainable fiscal deficits

1986-1990: For much of the period, India's current account deficit (CAD) was more than 2 per cent of GDP

 

1989 to 1991: India had seen four prime ministers

Aug1990: Gulf War broke out with Saddam Hussein’s Iraq invading Kuwait

Oct1990: Gold was revalued to international prices

Nov1990: Chandra Shekhar formed the Central government with Congress (I) party’s outside support

Feb1991: Rajiv Gandhi's Congress (I) party withdrew support to Chandra Shekhar government based on some flippant allegations

Mar1991: Chandra Shekhar resigned as prime minister and his government became a caretaker government

Apr1991: Lower House of Parliament was dissolved and elections were called

Apr1991: India decided to pledge / sell 20 tonnes of confiscated gold

May1991: SBI sold 20 tonnes of confiscated gold with an option to repurchase it; raised USD 200 million

21May1991: Rajiv Gandhi was assassinated during an election rally

29May1991: S&P downgraded India to below Investment grade

21Jun1991: PV Narasimha Rao of Congress (I) took over as India’s prime minister

Jul1991: RBI pledged 46.91 tonnes of its own gold and the gold was shipped out of India in four consignments; raised USD 405 million

08Jul1991: Indian Express broke the story of gold moving from RBI vaults to Bombay airport

Sep1991 to Nov1991: the loan taken against gold pledge was repaid by RBI and the pledged gold was released

Nov/Dec1991: SBI repurchased the gold it sold in May1991

Dec1991: RBI decided to keep the 65.27 tonnes of gold abroad

 

1992: Forex crisis blows over

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Key players in the 1991 Forex Crisis and Gold Pledging drama:
 

R Venkataraman was India's president between 1987 and 1992

 

Chandra Shekhar was India’s prime minister from 10Nov1990 to 21Jun1991

Yashwant Sinha was India’s finance minister from 21Nov1990 to 21Jun1991

PV Narasimha Rao was India’s PM from 21Jun1991 to 16May1996

Manmohan Singh was India’s FM from 21Jun1991 to 16May1996

Ram N Malhotra was RBI governor between 04Feb1985 to 22Dec1990
 

S Venkitaramanan was RBI governor between 22Dec1990 and 21Dec1992

Deepak Nayyar was chief economic advisor to Govt of India from 1989 to 1991

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References and additional data:

  

Top image: AI image from Google Gemini

 

More references were given throughout the blog

 

Tweet thread (Post X) 17Jun2024 - 1991 Forex Crisis and Gold Pledge

 

RBI Annual Report 1990-91 - pages 107,117 & 118 - 1991 forex crisis and gold pledge

 

 

RBI Annual Report 1991-92 - page 73 - repayment of loan and release of gold pledged in Jul1991

 

RBI Annual Report 1990-91 - pages 107 & 195 - gold revaluation effective 17Oct1990

India sovereign credit rating downgraded by S&P to below investment grade in May1991 >

 

 

Yashwant Sinha article - The Hindu 29Jul2016 

C Rangarajan article - The Print 26Nov2022

C Rangarajan article - Indian Express 28Mar2016

Article 25Jul2016 in The Hindu by Deepak Nayyar

Article 04Feb2016 Indian Express

 

"Secret Sale of Gold by RBI Again" - On 08Jul1991, Shankkar Aiyar of Indian Express broke the story  

 

 

"Secret Sale of Gold by RBI Again" - this NDTV Profit article contains the Indian Express article screenshot

Book references:

"Confessions of A Swadeshi Reformer" by Yashwant Sinha

"Advice & Dissent: My Life in Public Service" By YV Reddy

"Backstage: The Story Behind India's High Growth Years" By Montek Singh Ahluwalia

"Who Moved My Interest Rate: Leading the RBI Through Five Turbulent Years" By D Subbarao

"Forks In The Road: My Days At RBI and Beyond" by C Rangarajan

 

 

-------------------

 

Read more:

 

Blog of Blogs Theme-wise 

 

Indian Economy Data Bank

 

You Can Boast About It! 

India Forex Data Bank

 

Big Surge in Number of Shareholders in PSUs

 

Why RBI Won't Favour A Strong Rupee 

 

Currency Pairs: How to Calculate Depreciation or Appreciation

 

Sensex versus Gold Price

 

RBI's Record Surplus Transfer to Govt of India 

 

The Little Secret Behind Nifty Next 50 Index's Recent Success

 

Rapid Rise of India's PMS Industry 

 

NSE Indices Calendar Year Returns: 2006 to 2024

 

How to Buy Nifty Midcap Index 03May2024 

 

NSE Emerging Indices Comparison 31Mar2024 

 

India Passive Funds and Their Asset Size 29Apr2024

 

Global Market Data 31Mar2024

 

Understanding Real Sensex and Currency Debasement

 

Select Gilt Funds Performance 

Weblinks and Investing

-------------------

Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

CFA Badge

  

Viewing Options for this blog in different formats:

 

Classic

Flipcard

Magazine

Mosaic

Sidebar

Snapshot

Timeslide

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

X (Twitter) @vrk100