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Hello people, welcome to the latest issue of Markets and Macros by TradingQnA. In today’s issue, we take a look at;
Ian Bremmer on the state of the world in 2022
What does India’s Green GDP look like
Masterclass on factor investing and more…
Written by Abhinav, Bhuvan, Esha, Meher, Shruthi and Shubham
Weekly Market Wrap
A quick recap of what the markets were up to;
Ian Bremmer: State of the World 2022
Ian Bremmer is one of the more sensible geopolitical strategists. Niels Bohr once said, “prediction is very difficult, especially if it's about the future.” Predicting things is hard, but we live in an uncertain world, and having some sense of the different possibilities can be helpful at times. He recently gave a talk on the state of the world at the GZero Summit. Here are a few interesting highlights:
Three big trends that could change the global economy and the geopolitical order:
Separation of Russia from the West:
In the short run, Russia is not entirely isolated given its natural resources.
In the long run, Russian industries will be crippled because they are cut off from western technologies. “The result of all of this is a new Cold War, with elements of a Hot War.”
Separation of the West and Global South:
Broken supply chains, rising interest rates, surging inflation, falling growth and fewer remittances could lead to a debt crisis in developing countries.
Countries such as India, Brazil, South Africa and Indonesia can’t afford to completely break away from the west, but at the same can’t be fully aligned as well. Increasingly, they will have to resort to protectionism and populism to retain support at home.
Decoupling between the United States and China:
Democrats and Republicans don’t agree on much, but both consider China as America’s most important adversary.
The economic relationship between China and America was profitable for both for decades, but there’s distrust and acrimony now.
While Russia has been completely alienated by the west, America can’t afford to do that with China. Moreover, both countries have enough problems at home to focus on.
There’s agreement in the US that a strong Chinese economy is needed for trade to flourish. Also, a dangerously destabilized China means mutually assured economic destruction.
The Chinese Communist Party’s power depends on it improving the living standard of the Chinese people. For this, they need robust trade relations with Japan, the EU and the USA, which together buy 40% of China’s exports.
What does it all mean for the future of the global order?
The world will increasingly become multipolar with multiple power blocks with their own agendas.
Global Security Order
The global security order will remain American-led and will be bolstered by both Russian aggression and rising anxiety in Asia over the expansion of China’s international influence.
Global Economic Order
Bremmer predicts 2 outcomes based on China’s trajectory.
If China becomes the world’s largest economy and keeps growing, Chinese investments abroad and international demand for access to the Chinese market “will ensure a more multilateral trade order, with America’s push for strategic competition tempered by the hedging of European and Asian allies and a Chinese alignment for most of the developing world.”
China’s poor demographics, growing debt, growing inequality and protectionism in the developed and developing worlds can stall Chinese growth. Dominant regional powers around the world will then become important players in the trade.
The Climate Order
The climate order will be determined by a more diverse set of actors i.e. countries and non-states. Europe has set the pace on rulemaking and model-setting, and China and India will play the largest role in determining the level of carbon emissions in the coming decades.
Digital Order
The US and China are the dominant players through the largest technology companies that have sovereignty and rule-making power in the virtual world. Ian calls this the technopolar world.
The evolution of this technopolar order depends on the governance models of these companies and how they interact with governments. There are 3 likely scenarios:
If the tech companies side with their respective governments, a US-China technology Cold War becomes likely.
If they continue to pursue global growth strategies and don't align with the governments, we’ll see a more multipolar globalist digital order.
If the digital space itself becomes the most important arena of great power competition, and if the power of governments erodes, relative to the power of tech companies, then the digital order itself will become the new dominant global order. In that case, we’ll have to consider the technology companies as central actors in 21st-century geopolitics.
You can listen to the full talk here 👇
Estimating India’s Green GDP
GDP-based growth accounting can't capture the impact of climate change. Green GDP takes this into account. This article attempts to provide estimates of Green GDP for India by using a comprehensive methodology of Green GDP estimation which includes environmental pollution cost, resource depletion cost and savings of resources and the environment.
Calculating the Green GDP
3 measures of Green GDPs- G1, G2 and G3 can be calculated depending on the availability of data. These measures are defined below:
G1 = GDP - (Carbon dioxide damage) - (Opportunity cost of energy depletion + mineral depletion + net forest depletion); Data availability: 1971-2019.
G2 = G1 - particulate emission damage; Data availability: 1990-2019.
G3 = G2 + Expenditure on environmental protection; Data availability: 2006-2019
Green GDP ratios GR1, GR2 and GR3 can be computed by dividing G1, G2 and G3 by GDP. These ratios help in analysing the trajectory of Green GDP with respect to GDP.
Green GDPs based on G1, G2 and G3 follows a rising trend.
G1 increased from Rs 13.2 lakh cr in 1971 to Rs 167.7 lakh cr in 2019
G2 increased from Rs 28.1 lakh cr in 1990 to Rs 165.8 lakh cr in 2019
G3 increased from Rs 72.1 lakh cr in 2006 to Rs 165.9 lakh cr in 2019.
Green GDP ratio GR1 for the period 1971 to 1989, GR2 for 1990 to 2005, and GR3 for 2006 to 2019, is plotted below:
In the first phase (1971-1989), GR1 follows a downward trend indicating that the focus was on higher economic growth than on environmental cost. The sudden fall noticed in the years 1989 and 1990 resulted from the incorporation of particulate emission damage data.
During the second phase (1990-2006) which saw the Earth Summit and Kyoto Protocol, the Green GDP ratio followed an upward trajectory as India focused on balancing between the objectives of higher economic growth and environmental sustainability.
The third phase (2006-2019) shows the trajectory of Green GDP with all available information. The sharp downturn in 2007 and subsequent improvement in 2008 are due to damages from energy and mineral depletions. Thereafter, this phase has seen upward movement with a steeper trend than earlier phases.
This improvement may be attributed to the increased efforts in recycling waste, energy efficiency standards and technological advances to reduce waste generation. These steps have reduced the wastage of resources and helped in recycling resources in one way or the other.
Thus we can say that India is progressing well so far as green growth is concerned, which if continued should contribute to improvements in the general well-being of its population.
Masterclass on factor investing (smart beta) with Sankaranarayanan Krishnan
Up until the 1990s, the Capital asset pricing model (CAPM) was the dominant model used to explain market returns. But in 1992 Nobel Laureate Eugene Fama and his partner, Ken French said that market returns can be explained by three factors namely:
1. Value: the tendency of cheap stocks to outperform costly stocks
2. Size: the tendency of small-cap stocks to outperform large-cap stocks
3. Market factor: the risk premium of the market over the risk-free rate, like a government bond.
Over a period of time, other factors like quality, momentum, and low volatility were added. Institutions were the first to adopt factor investing but with the popularity of ETFs, around 2010, factor ETFs also known as smart beta ETFs started becoming popular in the United States. Given that Indian markets are still very young compared to the US, we just had our first wave of factor or smart beta funds around 2017.
But in the last 3 years, there has been an explosion in factor ETFs and mutual funds. But investors often think of factor investing as a guaranteed way to generate higher returns than the market. They often look at the historical returns of factors like value, momentum, quality, and low volatility and think that these factor funds will always outperform Nifty, which isn’t true. Having said that, factor investing can play a very important role in your portfolio, and it’s important to know how to use these funds in your asset allocation.
In the latest episode of Zerodha Educate Podcast, we caught up with Sankaranarayanan Krishnan quant fund manager at Motilal Oswal AMC. In this conversation, we discuss;
1. What are factors & what drives their returns
2. Misconceptions about factors
3. Are factors free lunch?
4. Asset allocation & much more
🎧 Listen here 👇
Interesting bits from around the web


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📖 Reading Recommendations
Bear Market Opportunities For Every Generation of Investors - Ben Carlson
Bear markets are never any fun to live through but every stock market correction in history has been an opportunity if you’re able to zoom out a little bit.
But how you view the short-term risks involved in big market declines should be colored by where you reside in your investor lifecycle.
Legends of Market History: Tokushichi Nomura II - Jamie Catherwood
Tokushichi was the founder of financial services industry giant Nomura Holdings. Despite founding one of the world’s largest financial institutions still in operation today, very little is known about Tokushichi Nomura II.
This article dives into the ways that Tokushichi revolutionized financial services in Japan, and the world.
Engaging With History - Morgan Housel
History’s cast of characters changes but it’s the same movie over and over again.
People were dealing with greed and fear 100 years ago the same way they’re dealing with now and will be 100 years in the future. The more you see a behavior throughout history, the more you realize how ingrained it is in human behavior, which makes you more confident that it’ll be part of our future. It’s the only way to forecast with accuracy.
That’s it from us today. Hope you loved reading the latest issue, do like and share this with your friends and let us know your views in the comments section below. Have a great long weekend 😃
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