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TL;DR: Apple has taken Chat-GPT and made it into a small, easy-to-use tool for creating content. It's different from how Google does things.

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Ultra-cheap meals from China’s delivery giant are hugely popular. Drivers are bearing the costs - by Viola Zhou

Viola Zhou is a Rest of World reporter covering China. She previously covered Chinese politics, society and internet culture for VICE World News, and reported for the South China Morning Post from Hong Kong. She is based in New York City.

China's big food delivery company, Meituan, is getting more customers with less money by giving discounts when several people order from the same restaurant. However, delivery workers say they are working harder for less money when they deliver these group orders.

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2024 Commencement Address at Dartmouth - by Roger Federer

Last week, Roger Federer gave the commencement address for the class of 2024 at Dartmouth. This video has gone viral for a variety of reasons. So, this week’s long read is the full video of Federer’s 25 minute speech.

Two points that really stood out in the address. One of the most successful tennis players of all time, only managed to win 54% of the points he played. When playing a point, give it your all but once it has passed, it has passed. There is no merit in dwelling on it or regretting it - the best way is to just move forward and focus on the next point. Second point: effortless is a myth. Behind everything that looks effortless, is a mountain of hard work and sweat. The only way to make something look easy is to work incredibly hard at it. What was your biggest takeaway from this speech? Do hit reply to this email and let us know 🙂 

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Indian Government Bonds in J.P. Morgan's Bond Index: A Game Changer for India's Economy

In recent years, more and more Indians have become savvy stock market investors, with Systematic Investment Plans (SIPs) becoming a common financial tool. However, a significant transformation is occurring in India's government bond market that is less known but equally impactful. This change stems from the inclusion of Indian government bonds in J.P. Morgan's Emerging Market Bond Index, one of the largest global bond indices. This article delves into what this inclusion means for India's economy, the excitement it has generated, and the associated risks.

To understand the impact of J.P. Morgan's decision, it is essential to grasp the role of the government bond market. Governments, much like individuals, borrow money to finance developmental activities. They issue bonds, which are then purchased by banks, financial institutions, mutual funds, and foreign investors. In the current financial year, the Indian government plans to borrow over INR 14 lakh crore ($160 billion) through bonds on a gross basis.

The government is considered the most trustworthy borrower in the economy, given its sovereign status, meaning it is highly unlikely to default unless faced with severe economic collapse. The rate at which the government borrows is referred to as the risk-free rate. This rate serves as a benchmark for other entities in the economy when they borrow money through bonds.

J.P. Morgan's Decision and Its Implications

In September of last year, J.P. Morgan announced that it would include Indian sovereign bonds in its Emerging Market Bond Index. This decision followed a decade of negotiations with Indian authorities. The inclusion is set to commence on June 28th and promises significant implications for the Indian economy and global investors.

One of the primary benefits is the anticipated inflow of long-term foreign capital, estimated at around $20-40 billion, into Indian government bonds. This influx of funds can bring down the risk-free rate, making it cheaper for companies and other entities to raise capital. Moreover, as foreign investors take up a larger portion of sovereign borrowing, more room is freed for banks and other domestic players to invest in bonds issued by other entities.

Regulatory Perspective and Historical Context

Historically, Indian regulators have been cautious about foreign portfolio investments (FPI), often viewing them as volatile and unreliable. When discussions about index inclusion began a decade ago, the Reserve Bank of India (RBI), under Dr. Raghuram Rajan, was hesitant to remove limits on foreign investments in bonds. Over time, however, regulators have become more pragmatic, gradually opening up to more FPI while balancing the need for foreign direct investment (FDI).

In recent years, the RBI has introduced fully accessible securities, allowing foreign investors unlimited investment in certain government bonds. This move indicates a shift towards a more open and innovative regulatory approach.

Potential Risks and Volatility

While the inclusion in J.P. Morgan's index brings numerous benefits, it is not without risks. Foreign investors are highly sensitive to macroeconomic stability and financial system health. Any signs of instability could lead to sudden stops in inflows or rapid outflows, reminiscent of the 2013 taper tantrum.

Such volatility can significantly impact the exchange rate and interest rate markets. To mitigate these risks, the RBI must manage volatility carefully, providing a cushion against sudden shocks. Additionally, educating small exporters and importers about the importance of hedging against international risks is crucial.

Impact on the Exchange Rate

The potential inflow of foreign capital due to index inclusion could influence the exchange rate. Typically, a depreciating rupee helps maintain the competitiveness of Indian exports. However, the RBI intervenes in the currency market primarily to prevent excessive volatility rather than to maintain a specific exchange rate.

With the anticipated inflows, the rupee could appreciate, potentially impacting the RBI's monetary policy and inflation management. The central bank's ability to conduct open market operations and manage liquidity will be crucial in navigating these changes.

Future of the Indian Government Bond Market

The Indian government bond market, with an outstanding size of around $1.2 trillion, is relatively small compared to developed economies like the U.S. However, the focus should be on creating a deep, vibrant, and robust government securities market rather than merely increasing its size.

Currently, only a limited number of securities are actively traded in the secondary market. Enhancing market depth and liquidity by attracting more investors and issuers and fostering a culture of portfolio churn among banks is essential.

The RBI's Retail Direct program aims to attract retail investors to the government securities market. However, the success of this initiative depends on whether these investors actively trade their portfolios or adopt a buy-and-hold strategy.

Long-term Implications and Global Position

India's inclusion in J.P. Morgan's index is not only a milestone for the government bond market but also positions Indian bonds more prominently in global fixed-income discussions. With approximately $200 billion of assets under management (AUM) tracking the index, Indian bonds are set to receive significant attention from global investors.

While the share of foreign investment in Indian bonds will remain relatively small compared to other emerging markets, the steady inflow of foreign capital can enhance market stability and liquidity. Moreover, the buildup of foreign exchange reserves provides a buffer against potential outflows, ensuring long-term resilience.

Cascading Effects on Other Markets

The inclusion of Indian bonds in the index can have cascading effects on other asset classes, including the currency market and corporate bond market. The inflow of foreign capital could strengthen the rupee, while a reduction in government bond yields might lower borrowing costs for corporates.

Foreign banks, with their established global networks, are poised to benefit from increased activity in the currency and bond markets. The engagement of portfolio managers and economists in understanding the Indian macroeconomic story further underscores the growing interest in India's bond market.

Conclusion

The inclusion of Indian government bonds in J.P. Morgan's Emerging Market Bond Index marks a significant milestone for India's financial markets. It promises long-term foreign capital inflows, enhanced market stability, and reduced borrowing costs. However, managing associated risks and ensuring a vibrant and deep secondary market remain critical.

As India continues to open its markets and attract global investors, the focus should be on maintaining a stable regulatory environment and fostering market depth and liquidity. The journey of India's bond market from its nascent stages to global recognition is a testament to the country's evolving financial landscape. With careful management and strategic planning, India is well-positioned to leverage this inclusion for sustained economic growth.