While the bonfire which is the European economy continues to burn we have seen amazing growth in the Indian economy over recent times. In many ways, similar to the Chinese economy, India does seem to be detached from the worldwide economic outlook and is going from strength to strength. Therefore it will be no surprise to learn that expats are now looking towards India as a potential new home for the future with its amazing prospects and a strong economy. But what do expats in India think about the ongoing issues within Europe?
Even if India has a history which few other countries in the world can match it does have relatively strong connections with Europe and especially the UK. So while many Indian businesses, entrepreneurs and individuals may cast only a fleeting glance in the direction of Europe the truth is that a European collapse would have an impact around the world including India. It may well be insulated in some small way from the current ongoing issues but in reality the problems within Europe are potential problems for the worldwide economy.
Expat Forum has conducted a survey on behalf of Barclays Wealth and Investment Management to clarify how worried are expats in India about the euro collapsing. Main findings of this study are that they are hardly concerned about the potential fail of the European common currency (50%) but they are aware of the impact of this failure might have on their money back home (31.25%).
No, it would never happen (50%)
It will probably not surprise too many people to learn that 50% of expats living in India who took part in our online poll believe that the euro will not collapse. The worrying thing about this relatively highly percentage is the fact that a growing number of people around the world appear not even prepared to contemplate a potential collapse in the euro. This is despite the fact that we see talk of a €1 trillion bailout fund for the future and a Greek economy which is literally lurching from one disaster to another.
While there has been relatively good cooperation between the various Eurozone members in relation to publicising positive comments about the euro and its future, is this really a true reflection of the scenario today. The problem we have is that a relatively small band of Eurozone members, as well as the UK which is not actually in the Eurozone, are being left to fund bailout packages and bailout funds today and tomorrow. It is sometimes easy to forget that these member states also have their own challenging economic situations and should in a perfect world be concentrating upon their own individual circumstances. It is very easy to take your eye off the ball and then suddenly turn around and the whole situation has changed, fires need to be fought and finances need to be raised.
If you ask 10 different economic experts about the potential collapse of the euro it is likely you will get 10 very different answers and 10 very different scenarios. In reality each day that the euro survives increases the likelihood of a medium to long-term survival but there are still many hurdles ahead. Whether or not the potential collapse in the euro is a 50/50 argument is very debatable and again it would depend upon who you talk to as to what percentages they would attach to each scenario.
One of the issues which is never really addressed is the fact that with a growing number of people automatically assuming that the euro will survive, what would happen if we saw major problems in the short term? The potential shock reaction to a further lurch in the value of the euro may actually lead to problems which may not have arisen if a more balanced argument had been presented?
Yes, it would affect my savings back home (31.25%)
A significant 31.25% of those who answered our online poll are concerned that a collapse in the euro would impact on their savings back home. It should be fairly safe to assume that “back home” is a European country where the euro is very much the name of the day. Such are the attractions of the Indian economy and the Indian country as a whole at this point in time that expats are literally flocking from all round the world. The 31.25% vote is very much higher than the average overall poll vote at 20.59% although it is difficult to know exactly what additional information we can glean from this figure without confirming the “back home” question. There is concern, there is confusion but there is in many cases blind faith that the issue will resolve itself.
The reality for expats who have moved from Europe to India and left the vast majority of their investments and their income in euros is very hard to face. If the euro was to collapse then the exchange rate with the Indian currency would move against them and effectively increase the cost of living. We would then move into a scenario whereby many expats would be hit by a significant reduction in their income and their savings and their lifetime plans for a new start in India would be dealt a severe blow.
Sympathy for those trapped within the European debacle may well be fairly high from those on the outside looking in but how would they feel and how would it affect them if the euro did collapse? The reality is that a collapse in the euro would cause a monumental knock-on effect to the worldwide financial arena which would literally bring down banks and bring down economies. When you take into account the fact that many economies are literally on the brink as it is, one more significant lurch down by the euro could tip the likes of Spain and even France over the edge. This would then lead to a worldwide economic downturn; interest rates would remain as close to zero as possible and savers would be the ones who are penalised. If there is one damning indictment with regards to the ongoing European issue, and worldwide economic downturn, it is the fact that savers are the ones who are being penalised with the value of their funds lurching further downwards in relative terms.
No, I use a FX tool of any kind to make the most of currency volatility (0%)
It seems that there is little interest in the use of foreign exchange tools to take advantage of currency volatility amongst expats living in India. Whether or not they see little use for such tools bearing in mind the buoyancy of the Indian economy or indeed many expats see little reason to speculate remains to be seen. In these difficult markets it may well be sensible to take a step back from currency market volatility or at least refrain before taking professional financial advice. But are foreign exchange tools only available for speculators?
The answers above would suggest that a number of Europeans are now living in India and indeed it is inconceivable that none of them will have any exposure to the euro. As a consequence perhaps many are missing a “trick” with regards to potential protection of their assets, at least their euro assets, via the use of foreign exchange instruments. Foreign exchange instruments can also be used as a form of insurance and a form of protection for assets in a foreign currency. It is the ability to literally underwrite and limit the downside of your euro assets which is attracting the attention of professional investors although it is probably something which private investors have yet to consider.
Relatively simple activities on the foreign exchange markets can offer a form of insurance against a collapse in the euro and a collapse in your wealth. In many ways if you think about “hedging” positions using foreign exchange tools it is very similar to the use of insurance policies for cars and houses to ensure that you are not left out of pocket in the event of unforeseen circumstances. If you use your insurance policy then it will be worth its weight in gold but if you don’t then at least, for a relatively small expense, you will have protected yourself and given yourself peace of mind. The basic actions required to protect your funds via foreign exchange tools are fairly simple but it is more the strategy which is a little more difficult to plan. Therefore, if you’re looking to speculate or insure your assets via the foreign exchange markets it is imperative that you take professional financial advice from day one. It is also imperative that you heed this advice!
Yes, it would affect my purchasing power (18.75%)
The question as to whether a collapse in the euro would affect an individual’s purchasing power will depend largely upon how their assets are held and in what currency. As we touched on above, if your assets are held in euros and you need to convert these on a regular basis to cover the cost of living in India then you are at the beck and call of the currency markets. Therefore, if the euro was to collapse then the exchange rate would be impacted and this would affect your immediate wealth. This is perhaps one reason why more expats should be looking towards potentially hedging their positions via foreign exchange instruments, in tandem with their professional financial advisers, in times of great volatility.
One issue which we have not yet covered is the problems presented by austerity measures which are now very much the name of the day around the world. You may sit back and ask yourself how austerity measures could affect your purchasing power but in reality it could play a major role. The vast majority of businesses around the world tend to associate their cost bases and wage rises with those in the public sector. As we all know, governments around the world are now looking to reign in as much spending as possible and in many cases public sector investment has come to a standstill and many pay freezes have been instigated. A pay freeze in the public sector would put pressure on those in the private sector to also accept such a move to protect the long-term viability of their employer.
If your salary does not increase by at least as much as the rate of inflation at the time then effectively your spending power is being curtailed and your purchasing power is being affected. This is a very subtle way which many expats and consumers around the world tend to forget and tend to overlook. If your income is not rising at or above the rate of inflation at the time then effectively your finances are going backwards. If your finances are going backwards then this would place pressure upon your household budget and could in many cases ruin your long-term expat relocation plans. Watch out for the subtle economic news around the world because these are the ones which tend to creep up on you and catch you unawares.
There are some who will quite rightly comment that this worldwide economic situation will not last forever but the reality is that we are likely to see a period of restrained economic growth for at best the next 10 years. Could you afford to see your income moving backwards in real terms for the next decade?
Nothing better to get you started with this and other lifestyle issues than starting to plan as much in advance as possible for your international life.
A bright future in India
China and India are by far and away the most powerful economies at the moment with each registering economic growth in recent times. Many people expect China for example to overtake the US as the largest economy in the world over the next 10 years and indeed India will not be too far behind. As a consequence it seems expats in India feel as though they are in some way insulated from the ongoing problems within Europe but in reality this is not the case.
If the worldwide economy was to take a downward lurch because of a collapse in the euro this would have a massive impact upon overall worldwide growth. Countries such as China and India may well be able to hold back the tide in the short term but a collapse in the euro would cause something of a tsunami to sweep around financial seas. This would have an impact upon worldwide demand, worldwide finances and worldwide economies – no economy would be safe!
If the European issue can be resolved in the short to medium term then this will further strengthen the position of the likes of China and India in the medium term. These are two countries which are literally hitting the ground running and economies which are growing at rates which their European counterparts can only dream of. They are more streamlined than ever before, there is more productivity than they have ever seen and investors are falling over themselves to shower them with cash. As a consequence, the number of expats looking to places such as India is likely to increase in the short to medium term especially set against a very depressed economic background elsewhere.
It is becoming more and more evident that the vast majority of people questioned overseas, i.e. out of Europe, believe that the euro will survive and a collapse is not even worth thinking about. This growing majority may well be correct about the future of the euro but it is somewhat concerning to find that many people will not even contemplate further problems. In reality the euro is nowhere near out of the woods yet and there will certainly be further issues in the short to medium term. How the authorities tackle these issues will determine the future of the currency, the future of the Eurozone and the future direction of the worldwide economy.
The expat market in India has been very healthy for some time now and due to the relative strength of the local economy demand is likely to increase looking forward. It seems bizarre to be talking about potential overheating of an economy set against a backdrop which we see today but the Indian government will need to micromanage the economy to ensure there are no shocks and no sudden movements in the future. This is not an easy challenge but it is one that the Indian authorities have tackled very well so far, which is why investors are looking on India as some kind of safe haven and expats are looking for a strong economy around which they can build their future lives.
For some reason there were no other additional comments regarding our online poll at the expat forum which is interesting when you bear in mind the number of comments we have had from other countries. The sad truth about the current economic situation within Europe and around the world is the fact that nobody in living memory has been down this road and therefore nobody alive at the moment has any idea which way the situation may or may not lurch.
Trying to second-guess the movement of European economies and the European currency is a game which many people have played over the last few years but very few have found success. Just when we think the situation is coming under control somebody throws a spanner into the works and we move backwards again. When will it all end?