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05 March 2019

The mother of all election budgets 

China has been stimulating its economy through monetary and fiscal measures for over a year and strong loan growth in January suggests that the measures are starting to have an effect, despite Chinese statistics around the Chinese New Year being even more doubtful than in the remainder of the year. Chinese equity markets responded enthusiastically to recent progress on the US-China trade talks and are some of the bestperforming equity markets in 2019, with some indices rising close to 30%.

Conversely, India’s equity market is one of the worst performers year-to-date, with the Nifty 50 index basically flat for the year, in local currencies as well as in euros. The Indian economy is doing fine and would not seem to need stimulus, but with general elections coming up in April/May Prime Minister Modi still has come up with what is called ‘The Mother of all Election Budgets’, including showering INR 6,000 (EUR 75) per year on each of the country’s 120 million small farm owners. To pay for the gifts, the central bank has been urged to make an early transfer of part of its profits to the government in the amount of USD 4 billion. The bank also recently cut interest rates by 25 bps for the first time in 18 months. While India’s equity market does not amount to much, representing only 1% of the MSCI AC index, its population of close to 1.4 billion is about the same size as China’s and the stimulus should help to improve global economic growth later this year.