Wealthy Nations Daily Update - European stocks and Indian gold

It would appear that European CEOs are not at all optimistic regarding the outlook for European growth regardless of Mario Draghi’s efforts to bolster the European economy through QE and monetary policy. Analysts continue to cut estimates for capital expenditure in European companies according to a report on Bloomberg this morning.

Members of the Stoxx 600 index have kept investment plans at around the same level now for four years at just 18 million euros for each of the 600 member firms, the same level since mid-2012. Instead CEOs continue to favour stock buybacks or building cash reserves to attract income hungry investors rather than investing in future growth through investment in plants and equipment. Broadly, the 600 members are hoarding more cash than ever before at euro 2.3 trillion according to filings and with profits expected to contract in 2016 investment plans are again under pressure with cheap ECB funding again expected to be utilised for M&A and share buybacks rather than capex.

“And now for something totally different”

Gold is causing a big problem for Indian Prime Minister Narendra Modi as imports bolster the country’s current account deficit. Imports of gold came in at $35 billion last year equivalent to 43% of the country’s current account deficit in the September quarter last year. Modi has tried to lure private gold onto the market through a programme where banks offer interest on items deposited in vaults but this appears to miss the point, why not mine gold domestically.

India was the 6th largest gold producer in the world back at the start of the 20th century but production has since slipped because of government policy. Miners have to obtain a permit from State governments; basically they have to bid for the right to mine the deposits they find which has proved so onerous they just don’t bother. Deccan Gold Mines has not mined an ounce in 13 years according to a report out last week due to the government process of application. According to the Indian Mineral Federation only about 13% of the 575,000 square kilometres of land with mining potential has been explored in detail.

Could be the current account problem of Modi is not the real problem; the problem is the solution, which seems pretty obvious when the country really could be “sitting on a gold mine”.