Date post: | 12-May-2015 |
Category: |
Economy & Finance |
Upload: | objective-capital-conferences |
View: | 1,231 times |
Download: | 2 times |
RARE EARTHS, SPECIALITY& STRATEGIC METALSINVESTMENT SUMMIT
IRONMONGERS’ HALL, CITY OF LONDON ● TUESDAY-WEDNESDAY, 13-14 MARCH 2012
www.ObjectiveCapitalConferences.com
The macro-economic implications of the strategic metal supplyChris Watling – CEO, Longview Economics
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
204/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
204/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
204/12/23 2222
The Macro PicturePresentation to Objective Capital conference
Chris Watling, CEO, Longview Economics13th March 2012
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
304/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
304/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
304/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
304/12/23
Contents
1. Kondratieff Long Cycles2. Western Deleveraging – judging the unwind3. Asia & Commodities4. China & Rare Earths5. Conclusion
1. The Kondratieff Long Cycles
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
504/12/23
‘Super Cycles’: BONDSUS 10 year bond yields
Source: Reuters EcoWin
00 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10
US
10
yea
r b
ond
yie
lds (
%)
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
May 1920 peak 5.58%
Trough 1941 - 49
Sept '81 peak 16.05%
8 yrs sideways move...
29 years Down trend (incl 8 yrs sideways)
32 yr uptrend
31 yrs so far
currently 1.94%
Long cycles: Bonds, Equities & Commodities
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
604/12/23
Secular US bond cycle
Length Equity bull Equity Bear CommodityBear
Commodity Bull
Falling yields
1920 - 1949 29 yrs 1920-29 1929-1951 1920-1932 1932-1951
Rising yields
1949-1981 32 yrs 1949-68 1968-82 1951-68 1968-80
Falling yields
1981- present
31 yrs (so far) 1982-2000 2000 - present
1980-2000 2000-present
Rising Yields
?
Table 1: Secular Long Cycles – Bonds, Equities & Commodities
Source: Longview Economics
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
704/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
704/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
704/12/23
Western Secular Bear Market - Ongoing
Evidence for 20 – 25 year long ‘super’ cycles exists in the history of equity markets in the Western economies
S&P500 (real terms) DJIA (Real terms)
Source: Reuters EcoWin
1920 1935 1950 1965 1980 1995 2010
reb
as
ed
to 1
00
(1
94
0)
25
50
100
200
400
800
1600 Long term secular BULL & BEAR cycles
bull
bull
bull
bear
bear
bear
S&P500 & Dow Jones Industrial Average (both in real terms) 1910 - present
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
804/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
804/12/23
Long term ‘Super Cycles’: COMMODITIES
World, CRB, Spot Index, End of Period, USD
CRB index long term Monthly
Source: CRB, Longview Economics, Reuters EcoWin
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
CR
B c
om
mod
ity
ind
ex (
loga
rith
mic
)
20
40
80
160
320
640
bear
bear
1920
1951
1968-71
1980
1999-2001
1932
bear
bull
bull
bull
The commodity super cycle (1910 – 2011, CRB index)
Commodity super cycles are ‘negatively’ correlated with Western Equity super cycles…
Secular De-rating Western Equities (based on Shiller PE ratio)
Table 1: Long term Secular trends – Equities & Commodities (& equity re-rating/de-rating periods)
Equity Trend
When? Commodity Trend
When? Equity valuation rerating/derating?
When? PE highs/lows Leveraging/Deleveraging*
Bear 1896 - 1920 Bull 1896 - 1920 derating 1901 - 1920 25.2x to 4.8x N/A
Bull 1920 - 1929 Bear 1920 – 1932 rerating 1920 - 1929 4.8x to 32.6 148% to 185%
Bear 1929 - 1932 or alternatively to
1949
Bull 1932 - 1951 derating 1929 - 1932 or alternatively to
1949
32.6x to 9.0x 185% to 167%**
Bull 1949 - 1968 Bear 1951 - 1968 rerating 1949 - 1965 9.0x to 23.9x **149% to 148%
Bear 1968 - 1982 Bull 1968 - 1980 derating 1965 - 1982 23.9x to 6.6x 148% to 174%
Bull 1982 - 2000 Bear 1980 - 1999/2001
rerating 1982 - 2000 6.6x to 44.2x 174% to 267%
Bear 2000 - present Bull 1999/2001 to present
derating 2000 – present 44.2x to 21.9x (current)
267% to 355%
Source: Longview Economics, Shiller, CRB commodities index – for further detailed analysis of the commodity super cycle see Longview Letter no 26 June 2008: “Commodity Super Cycle: Myth or Reality?”*Leveraging measured as total economy wide debt (excl financial debt) % of nominal GDP**NB different data sets pre 1949 & post 1949
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1004/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1004/12/23
Long term valuations suggest: Secular Bear continues
S&P500 PE ratio calculated by the Shiller method (i.e. based on 10 year rolling historical earnings)
Long term average
Source: Shiller, Reuters EcoWin
1890 1905 1920 1935 1950 1965 1980 1995 2010
PE
ra
tio (
cycl
ica
lly a
dju
ste
d)
0
5
10
15
20
25
30
35
40
45
2000 peak
5x
6x
6.6x
currently @ 21x - above long term average levels
1982
1932
1920
1929 Peak
1965 peak
1901 peak
1937 peak
Long term valuation ratios (US equities) – Shiller PE ratio
Secular bull markets start with widespread negative sentiment towards equities, structurally low equity ownership levels and Shiller PERs of sub 10 ratios (e.g. 1920 & 1982)
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1104/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1104/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1104/12/23
Contrasting Return Profiles:BEAR & BULL SUPER CYCLES
Investment approach shld be contrasted in each periodIn secular bears = important to trade on 3 – 6 month+ view
Period Bull/Bear
Returns (nominal
terms)
Returns (real terms)
Real DJIA index numbers (start to
finish)
Approx compound
annual rates
Average real GDP growth
1920 -29 BULL +429% +495% 35.5 to 210.3 +21.9% N/A
1929 – 1949/51
BEAR -56% -68% 210.3 to 67.2 -5.5% 3.9% p.a.
1949/51 – 1966
BULL +487% +426% 67.2 to 295.8 +9.1% 4.2% p.a.
1966 – 1982 BEAR -17.8% -73.1% 295.8 to 79.4 -7.9% 3.2% p.a.
1982 – 2000 BULL 1,322% +724.2% 79.4 to 654.4 +12.4% 3.7% p.a.
2000 - current
BEAR FLAT -18.4% (so far) 654.4 to present (currently 533.8)
n/k 1.6% p.a.
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1204/12/23
Real Yields – negative (bubble valuation)
Constant Maturity Inflation-indexed, Breakeven Inflation
Constant Maturity Inflation-indexed, Yield
Bid, Yield
0
Source: Reuters EcoWin
Feb
09
May Aug Nov
10
Feb May Aug Nov
11
Feb May Aug Nov
12
Feb
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Implied deflation
US 5 year, real, break-even & nominal yields
UK 10 year & 2016, real, break-even yields
UK 10 year index linked real yield series UK 2016 index linked real yields 0
Source: Reuters EcoWin
Feb
2009
May Aug Nov
2010
Feb May Aug Nov
2011
Feb May Aug Nov
2012
Feb
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
McKinsey Country Debt totals
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1304/12/23
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1404/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1404/12/23
2. Western Secular Bear Market – Ongoing until:
Overarching theme: Bubbles need to be fully deflated – Excess removed/cleaned out of System – i.e. System needs to be reset, including:
1. Full deflation of Western Housing Bubbles (growth headwind)2. Government finances – back on (path) to sound footing (growth headwind)3. Households deleveraged (back to pre-bubble levels) – (growth headwind)4. Financial sector – Fixed/deleveraged/profit as % of GDP downsized – (growth
headwind)
2a. Western Housing bubbles: many still deflating
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1604/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1604/12/23
2a. House Bubble DeflationAdjustment rel to trend
(% complete)
Trend to lows (i.e. overshoot downside)
Fall from peak (real terms, %)
Fall from peak (nominal terms)
Peak Source Inventory adjustment
US - FHFA 91% 17.5% (further from
trend)
24 16% 2006q4 FHFA 7 months supply (normal range 4 –
6 mos) – peak 12.4
US – Case Shiller
83.5% 17.5% (from trend)
39 32% Jun 2006 Case Shiller
As above
UK - Halifax
72.9% 44.4% (from trend)
26 20 2007 Q3 Halifax/HBOS
N/A (shortage of rental property)
UK – Nationwide
45.1% 49.1% (from trend)
18 10 2007 Q3 Nationwide N/A (as above)
Spain 72.7% 58.2% (from trend)
23 18 2007 Q3 Ministry of Housing
Ireland n/a n/a 46 45 Feb 2007 TSB/CSO
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1704/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1704/12/23
US real house price index (rebased to 100 @ 1 Jan 1975)
Source: Reuters EcoWin
1975 1980 1985 1990 1995 2000 2005 2010
US
re
al
hou
se p
ric
e in
dex
90
100
110
120
130
140
150
160
170
Peak '79
Trough '82Trough '75
Peak '89
Trough '95
Peak '06
+16% rise
14% fall
+16% rise
+58% rise
8% fall
Trend?
24.3% fall (real terms)
S&P composite 10 cities Case Shiller index in real terms (rebased to 100 in 1987)
Source: Case Shiller/S&P, Reuters EcoWin
86 88 90 92 94 96 98 00 02 04 06 08 10 12
Reb
ase
d to
100
I J
an 1
987 (
10 C
ities c
om
posite)
80
90
100
110
120
130
140
150
160
170
180
190
200
peak of 199.1 in '06
Currently 120.5
Current real terms fall from peak = 39.5%
Aug '89 peak
Feb 97 trough
Total fall 35% peak to trough in real terms
latest 120.5
US House price index (real terms, FHFA) US House price index (real terms, Case-Shiller)
Structural western economic growth headwinds: 2a. US Housing bubble – continues to deflate
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1804/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1804/12/23
1. UK House prices – Bubble deflation
Real House prices index (using Halifax & GDP deflator, rebased to 100 1 Jan 1983)
Real House prices index (using Nationwide & GDP deflator, rebased to 100 1 Jan 1974)
Source: Reuters EcoWin, HBOS, Nationwide, Longview Economics
1975 1980 1985 1990 1995 2000 2005 2010 2015
Re
al h
ouse
pric
e in
dic
es (
Reb
ase
d to
10
0 @
1 J
an
198
3)
75
100
125
150
175
200
225
250
275
300
Trough '82
Peak '89
Trough '96
2007 peak
76% trough to peak 80s boom
38% bust
167% trough to peak boom - 1996 thro to 2007
+26% boom in 70s
Peak '79
Trough '77
15% fall
UK Real house prices London (real) house prices)
London house prices (N'wide) - inflation adjusted
London house prices (Halifax) - inflation adjusted
Source: Reuters EcoWin
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Lond
on h
ouse
pric
es in
dex
(rea
l & r
ebas
ed t
o 10
0 19
84)
50
100
150
200
250
300
350
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
1904/12/23
UK House price adjustment
Source: Longview Economics, Reuters EcoWin
Annual house price falls
ZERO -3% -5%
Wage inflation (Y-o-Y
%)
1.00% 35.0 9.9 5.3
2.50% 14.3 7.1 4.6
4.00% 8.9 5.1 3.8
mean
1985 1990 1995 2000 2005 2010 2015 2020
Hou
se p
rices
to
aver
age
earn
ings
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Back to 3xs earnings?
Years for UK house price/earnings ratio to return to 3xs (under various assumptions for annual house price falls and wage inflation)
Source: Longview Economics, Reuters EcoWin
UK house prices to average earnings (xs)
2a. Irish House price bubble…still deflating
National house price average (EUR) - series Discontinued
Permanent tsb, national, 2003=100, Discontinued
Residential property prices, national, houses, 2005M1=100
Residential property prices, Dublin, all residential properties, 2005M1=100
Source: Reuters EcoWin
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Av
era
ge
pri
ce
(E
UR
) (th
ou
san
ds
)
75
100
125
150
175
200
225
250
275
300
325
Inde
x
30
40
50
60
70
80
90
100
110
120
130
140
Dublin (inflation adjusted - discontinued series)
National (inflation adjusted)
Real national hse prices
Dublin rebased (100 Jan 2007)
Source: Reuters EcoWin
1996 1998 2000 2002 2004 2006 2008 2010 2012
All
reb
as
ed
to
10
0 @
Jan 2
007
20
30
40
50
60
70
80
90
100
110
Peak @ 100
Irish house prices – still declining in real terms ….and nominal terms
2a. Spanish House price bubble…still deflating/Housing still expensive
Source: Reuters EcoWin
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
EU
R/S
qu
are
me
tre
250
500
750
1000
1250
1500
1750
2000
2250
19% off highs
????
2095 high...
latest 1701
Source: Reuters EcoWin
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
mu
ltip
le (
x)
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Spain, House Prices, Appraised housing, totalSpain, Housing Market Indicators: Price of housing/gross household income
2b. Households deleveraging
2. Deleveraging Studies
1. “Another important driver of the cycle is the leverage of the private sector. In the decade prior to a crisis, domestic credit/GDP climbs about 38 percent and external indebtedness soars. Credit/GDP declines by an amount comparable to the surge (38 percent) after the crisis (our emphasis). However, deleveraging is often delayed and is a lengthy process lasting about seven years. The decade that preceded the onset of the 2007 crisis fits the historic pattern. If deleveraging of private debt follows the tracks of previous crises as well, credit restraint will damp employment and growth for some time to come.” Reinhart & Reinhart (R&R), August 2010 :‘After The Fall’
- R&R analysis of “fifteen severe post-World War II financial crises in advanced and emerging economies and three synchronous global contractions”.
2. “the UK and Spain have made less progress (than the US) and could be a decade away from reducing their private sector debt to pre-bubble levels”. McKinsey Global Institute Jan 2012 Debt & Deleveraging
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2304/12/23
The Swedish Comparison
2b. Western Household Indebtedness – deleveraging has begun
US total household debt as % of GDP
Source: Federal Reserve flow of funds, Reuters EcoWin
1950 1960 1970 1980 1990 2000 2010
Tota
l US
ho
use
hold
deb
t as
% o
f G
DP
10
20
30
40
50
60
70
80
90
100
20 year sideways trend
25 year rising trend
with an acceleration
since 2000
13 year rising trend
??
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2404/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2404/12/23
US Household debt as % of GDP
UK Household debt as % of GDP
Source: Reuters EcoWin
94 96 98 00 02 04 06 08 10 12 14 16 18 20
H'h
old
de
bt
as
% o
f G
DP
60
65
70
75
80
85
90
95
100
105
?????
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2504/12/23
2b. UK Household deleveraging
Source: Longview Economics, Reuters EcoWin
90%
92%
94%
96%
98%
100%
102%
104%
106%
2006 Q32006 Q42007 Q12007 Q22007 Q32007 Q42008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q32009 Q42010 Q12010 Q22010 Q32010 Q42011 Q12011 Q22011 Q32011 Q4
Debt to nominal GDP Debt to real GDP
Peak in debt/GDP (@105%)
101%
96%
Debt repayment (annual %)
ZERO 1% 3%
GDP deflator (Y-o-Y)
2.00% 11.3 8.5 6.0
3.50% 7.8 6.5 4.8
5.00% 6.0 5.3 4.0
Years of household deleveraging (under various assumptions for inflation & debt repayment)* to achieve a 65% debt/GDP ratio
Source: Longview Economics*NB we assume real GDP growth of 1.50% p.a.
Debt to GDP ratio (%, nominal GDP vs. real GDP since Q4 2009)
2c. Financial sector - downsizing
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2704/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2704/12/23
Asset growth – various Western BanksEuropean Total assets, US$bn 1998
US$bn2000
US$bn2005
US$bn2010
US$bnLatestUS$bn
when published
German Deutsche Bank
French 1 BNP PARIBAS 407 654 1,490 2,673 2,793 Q211
GB 2 HSBC 483 674 1,502 2,455 2,716 Q311
GB 3 BARCLAYS 363 473 1,591 2,324 2,396 Q211
GB 4 RBS GROUP 132 479 1,337 2,267 2,505 Q311
French 5 CREDIT AGRICOLE n/a n/a 1,386 2,315 2,530 Q311
Spanish 6 BANCO SANTANDER 301 329 958 1,629 1,673 Q311
French 7 SOCIETE GENERALE 449 429 1,004 1,514 1,669 Q311
GB 8 LLOYDS 278 326 533 1,547 1,534 Q311
Swiss 9 UBS AG 687 675 1,569 1,411 1,594 Q311
US banks
US 1 JP Morgan 366 715 1,199 2,118 2,289 Q311
US 2 BoA 618 642 1,292 2,265 2,220 Q311
US 3 Goldmans 217 290 707 911 949 Q311
US 4 Morgan Stanley 318 427 899 808 795 Q311
US 5 Wells Fargo 208 250 482 1,258 1,281 Q311
US 6 Citi 740 902 1,494 1,914 1,936 Q311
Example: RBS’s B-S….
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2804/12/23
RBS’s Funded & unfunded B/S
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2904/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2904/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
2904/12/23
2c. Leveraged US (&UK) financial system (now deleveraging)
Source: Longview Economics, Federal Reserve flow of funds, Reuters EcoWin
1950 1960 1970 1980 1990 2000 2010
Fin
anc
ial
sec
tor
deb
t a
s %
of
GD
P
0
10
20
30
40
50
60
70
80
90
100
110
120
130
accelerating rate of financial sector indebtedness (in recent decades) in particular since the Asian crisis in 1997
122% of GDP peak q109
1997 @ 62%
1952 2.7% of GDP
1950s - heavily regulated banking & financial system - banks stuck to core intermediary business - taking in deposits and lending them onwards
Beginning of financial deregulation 1970s & early 80s
now 88%
US financial sector debt as a % of GDP
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3004/12/23
2c. Rapid growth of Western financial sector rel to GDP
US commercial banks assets as a % of GDP
Source: Reuters EcoWin
1975 1980 1985 1990 1995 2000 2005 2010
% o
f G
DP
50
55
60
65
70
75
80
85
90
Asian cris is - s tart of easy money & widening of US current a/c defic it
US commercial bank assets as % of GDP
Source: Reuters EcoWin
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
EZ
Ban
king
Ass
ets
as %
of
GD
P
200
225
250
275
300
325
350
deleveraging?
347% GDP peak 2010q2
Euro zone bank assets as % of GDP
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3104/12/23
3. Why BUY Commodities?- The Demand drivers
12/04/2332www.longvieweconomics.com
12/04/23
Demand Drivers:Developing (& industrialising) Asia: A 3 billion elephant
Asia (Population rank in size relative to RoW)
GDP ($bn 2008)
GDP per capita (US$2010)
population(bn; % of ASIAN total)
Long term Real growth rates
Asia (23) (a) $7,239bn 4,070 3.60 (100.0%)
China (1st) $3,206bn 3,999 1.33 (36.9%) 9.1% (1997-2007)
India (2nd) $1,200bn 1,124 1.13 (31.4%) 9.7% (1997-2007)
Indonesia (4th) $433bn 2,858 0.23 (6.4%) 5.9% (2001-2010)
Pakistan (6th) $143bn 1,067 0.164 (4.6%) 4.8% (2000-2009)
Bangladesh (7th) $68.4bn 624 0.147(4.1%) 7.4 % (1997-2007)
Vietnam (12th) $68.6bn 1,168 0.086 (2.4%) 10.0% (1997-2007)
a: excludes HK, Japan, Singapore, South Korea & Taiwan
NB USA = 3rd 304mn pop; Brazil =5th 191mn; Russia = 8th 142mn; Nigeria = 9th 137mn; Japan = 10th 128mn; Mexico = 11th 110mn
Largest non developed Asian economies
Emerging Markets & Say’s Law(i.e. supply creates its own demand)
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3304/12/23
y = 0.2398x - 0.5613
R2 = 0.6148
0
2
4
6
8
10
12
0 10 20 30 40 50
Investment Rate of GDP (2000-2011)
Re
al
GD
P g
row
th (
20
00
-20
11
)
China
S Korea in 80s
VietnamIndia
Mexico
Russia
Turkey
A cross section of 24 Asian, Latam & Middle Eastern emerging market economies shows a clear relationship between higher investment rates of GDP & higher trend GDP growth.
Investment rates (i.e. as % of GDP) vs. Real average GDP growth rates (2000-2011)
Source: Longview Economics, IMF
Funding higher Investment rates
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3404/12/23
Gross national savings Investment
Source: Reuters EcoWin
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Inve
stm
ent &
sav
ings
rate
as
% o
f GD
P
15
20
25
30
35
40
45
India – Investment and Savings rate (as % of GDP)
Both India’s saving and investment rates have accelerated upwards since 2001 – reflecting the accumulated reform momentum (beginning with Manmohan Singh’s reform budget of 1991)
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3504/12/23Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
04/12/23
China’s Coming Car growth
0100200300400500600700800900
- 10,000 20,000 30,000 40,000 50,000
Real GDP per head
Motor
vehic
les pe
r 100
0 peo
ple
JapanChinaFranceSpainUSMexicoSouth KoreaItalyNorwayChileGermanyNetherlandsUKCanadaRussiaBrazilIndia
Industrialisation & vehicles per 1000 people
Source: Longview Economics, Reuters EcoWin
The number of vehicles per 1,000 people in China is relatively low (32) - NB India (15), Brazil (198), Canada (597) & US (820)
If China industrialises with the same vehicle intensity of GDP growth as other emerging markets the number of vehicles per 1,000 people in 2030 should still be at low levels (at 170 vehicles)
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3604/12/23Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3604/12/23
China’s share of world energy reserves
1.2 1.0
6.3
0.52.4
1.30.2 0.6
3.6
13.9
0.9
19.0
7.1
23.4
28.9
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
China Brazil Russia India USA
% o
f wor
ld to
tal p
rove
n re
serv
es
Oil Gas Coal
Energy resources: Share of proven world reserves (%) – key countries
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3704/12/23Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3704/12/23
China’s Strategic Overseas Investments (2005 – 2011)
Summary by Sector
Outward Chinese Investment
Sector Total Invested (2005 - 2011) Share of total (%)
US$bn
Agriculture 7.0 2.7%
Energy 114.6 43.6%
Finance 34.3 13.1%
Industry 5.1 2.0%
Metals 69.4 26.4%
Power 8.1 3.1%
Real Estate 11.2 4.2%
Technology 4.5 1.7%
Transport 8.4 3.2%
Total 262.7Source: Heritage Foundation, China Global Investment Tracker
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3804/12/23Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
04/12/23
China - Expanding Trade RelationshipsChina’s global reach has expanded significantly in the last decade
Share of selected countries'/regions' trade (imports plus exports) with China
2000 2009last 12
months* 2000 2009last 12
months* 2000 2009last 12
months*G20 Other Significant trading partners Other Significant trading partnersSouth Korea 9% 20% 23% Mongolia 33% 48% 61% Africa 3% 12% 14%Australia 7% 20% 21% Kyrgyz Republic 8% 64% 57% Ghana 3% 13% 14%Japan 10% 20% 21% North Korea 17% 42% 46% Bangladesh 5% 10% 13%United States 6% 14% 15% Sudan 27% 39% 45% Iraq 5% 8% 13%Brazil 2% 13% 14% Angola 18% 30% 37% Thailand 5% 12% 12%South Africa 3% 14% 14% Tajikistan 1% 19% 33% Zimbabwe 2% 7% 11%Indonesia 5% 12% 13% Myanmar 13% 24% 29% Middle East 4% 10% 11%Saudi Arabia 3% 12% 13% Congo 5% 20% 25% Singapore 5% 10% 11%India 2% 9% 11% Kazakhstan 6% 21% 24% Sri Lanka 2% 10% 10%Argentina 4% 9% 11% Uzbekistan 1% 15% 18% CIS and Mongolia 4% 10% 10%Russia 5% 9% 9% Nepal 5% 12% 18% Venezuela 0% 7% 8%Canada 2% 7% 7% Malaysia 3% 13% 17% Syrian Arab Republic 2% 7% 7%Turkey 2% 6% 7% Iran 5% 15% 17% Nigeria 1% 7% 7%UK 2% 6% 6% Zambia 1% 8% 17% Somalia 0% 5% 5%Germany 2% 6% 6% Philippines 2% 8% 15% Spain 2% 4% 4%Italy 2% 4% 5% Turkmenistan 1% 11% 15% Qatar 3% 3% 4%EU-25 2% 4% 5% Pakistan 4% 10% 15% Azerbaijan 1% 3% 3%Mexico 1% 8% 5% APEC 7% 14% 14% Afghanistan 4% 3% 2%France 2% 3% 4% * from Dec 2009 to Nov 2010. Calculated as each country's total exports to China + total imports from China / the country's total exports + total imports
Source: Longview Economics, Reuters Ecowin
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3904/12/23Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
3904/12/23
China’s Tentacles (EurAsia, Africa & beyond)
Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4004/12/2304/12/23
China – Geopolitics & rare earths as a political tool
Global trade chokepoints/bottlenecks
China & Rare Earths
1. Rare earth deposits approx 35% of world total2. China = 90% of global output of 17 rare earth metals3. Miao Wei (minister for industray and IT) – China to retain
limits on rare earth export quotas (2012 = 2011)4. Miao: Domestic industry value: $6.4bn5. Japan – providing ¥5bn in subsidies for R-E projects (Feb
statement MITI)6. Chinese Industry Rare Earth Association expected soon
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4104/12/23
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4204/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4204/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4204/12/23
Conclusion – Overview (Long term)
• Western Equities – in secular bear market– Driven by:a) Ongoing housing bubble deflationb) Financial system deleveragingc) Fiscal austerity
• Emerging equities – in secular bull market– Driven by:a) Industrialisationb) Income catch-up/rapid productivituy developmentc) Economic Liberalisation/Opening up of/deregulation of economiesd) Financial liberalisation (after decades of financial respression)e) Commodity wealth
• Commodities – in secular super bull cycle – but facing some near term cyclical challenges – related primarily to China’s housing market– Long term supply shortages – with emergence of China & India (amongst others)
• Western equities – rally possible through into Q2 2012 – based on excess pessimism @ lows…(indicators) – dependent on nr term EURO sol’n/patch (which is now in place)
• Key Long Term issue: Inflation or Deflation• UK Dire Decade – adjustment approx half way through
Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4304/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4304/12/23Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome Website: www.longvieweconomics.com
4304/12/23
Disclosure: This Publication is protected by U.K. and International Copyright laws.
All rights are reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted, or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means, except with prior written permission from Longview Economics Ltd.
This publication is proprietary and limited to the sole use of Longview Economics’ clients and trial subscribers. Each reproduction of any part of this publication or its contents must contain notice of Longview Economics’ copyright. This agreement shall be governed and construed in accordance with U.K. Copyright law and the parties hereto irrevocably submit to the exclusive jurisdiction of the English courts in respect of any dispute or matter arising out of or connected with this Agreement.
Any disclosure or use, distribution, dissemination or copying of any information received from Longview Economics Ltd. is strictly prohibited, whether derived from the reports or from any oral or written communication by way of opinion, advice, or otherwise with a principal of the company; is not warranted in any manner whatsoever; and is for the use of our clients and trial subscribers only. Longview Economics Limited will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law.
This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to the accuracy or completeness. All information and opinions as well as any prices indicated are current as of the date of this report, and are subject to change without notice. Some investments may not be readily realisable since the market in securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in values and on realisation you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein.
Longview Economics Ltd. is not authorised nor regulated by the Financial Services Authority.
If you have received this communication in error, please notify us immediately by electronic mail to [email protected] or by telephone at (0044) 0870 225 1388