View
1
Download
0
Category
Preview:
Citation preview
Asianomics outlook: Stagflation in Asia?
Dr Jim Walker October 2011
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Asianomics Global Investment Strategy (2nd Half 2011)
2
Source: Asianomics Limited
Recommendation 13-‐May-‐11 30-‐Sep-‐11 Asianomics Performance
Short Spanish government bonds and equities
10-‐year bond at 5.21% 10-‐year bond at 5.14% +0.6% (including yield)
IBEX 35 at 10488 IBEX 35 at 8547 +18.5%
Short Aussie dollar and equities
US$1.0629/AUD1 US$0.9662/AUD1 +10.7%
S&P/ASX 200 at 4696 S&P/ASX 200 at 4009 +14.6%
Short the euro EUR 1.419/US$1 EUR 1.339/US$1 +5.7%
Short/underweight the Bovespa
Bovespa at 64003 Bovespa at 52324 +18.2%
Long 3-‐month Treasury 3-‐month T bill at 12.43% 3-‐month T bill at 11.18% +ve (no price data available)Long gold Short copper
GOLDS at US$1505/oz HGA at US$398/lb
GOLDS at US$1624/oz HGA at US$315/lb
+7.9% +20.9%
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
America and Eurozone round-up
� Efforts to shore up the eurozone periphery will fail. Greece, Ireland, Portugal, Spain and Italy are all in deep trouble
� The US labour market is looking more like a recession case than a year-three recovery patient
� The yield curve, the best indicator of future US growth prospects, looks in good shape but is badly distorted by Fed policy. The Trahan Curve looks terrible
� Monetary policy signals are confusing the private sector and leading to stagnating capex
3
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Without job growth the US will double-dip
This is a Year-Three recovery? 4
Source: Haver Analytics Source: Haver Analytics
-3
-2
-1
0
1
2
3
4
5
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
US Real Average Hourly Earning
(% YoY)
135000
140000
145000
150000
155000
160000
Jan-
01
Sep-
01
May
-02
Jan-
03
Sep-
03
May
-04
Jan-
05
Sep-
05
May
-06
Jan-
07
Sep-
07
May
-08
Jan-
09
Sep-
09
May
-10
Jan-
11
Sep-
11
Civilian EmploymentCLF with normal growthCivilian Labour Force
Official Ue = 9.1%
Ue = 11.7%(Thous)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
No official recession signal but the Trahan Curve says otherwise
The US yield curve revisited 5
0.98
0.99
1.00
1.01
1.02
1.03
Jan-
61Ja
n-63
Jan-
65Ja
n-67
Jan-
69Ja
n-71
Jan-
73Ja
n-75
Jan-
77Ja
n-79
Jan-
81Ja
n-83
Jan-
85Ja
n-87
Jan-
89Ja
n-91
Jan-
93Ja
n-95
Jan-
97Ja
n-99
Jan-
01Ja
n-03
Jan-
05Ja
n-07
Jan-
09Ja
n-11
5Yr - 1Yr Treasury Ratio
(Ratio)
Source: Asianomics Limited Source: Asianomics Limited
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
Jan-
61Ja
n-63
Jan-
65Ja
n-67
Jan-
69Ja
n-71
Jan-
73Ja
n-75
Jan-
77Ja
n-79
Jan-
81Ja
n-83
Jan-
85Ja
n-87
Jan-
89Ja
n-91
Jan-
93Ja
n-95
Jan-
97Ja
n-99
Jan-
01Ja
n-03
Jan-
05Ja
n-07
Jan-
09Ja
n-11
5Yr - 1Yr Treasury Ratio with inflation proxy
(Ratio)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Investment not responding to profits – an unnatural tale
EU and US profit margins peaked? 6
Source: Haver Analytics Source: Haver Analytics
6
7
8
9
10
11
12
13
Q1-
75
Q2-
77
Q3-
79
Q4-
81
Q1-
84
Q2-
86
Q3-
88
Q4-
90
Q1-
93
Q2-
95
Q3-
97
Q4-
99
Q1-
02
Q2-
04
Q3-
06
Q4-
08
Q1-
11
US Pretax Corporate Profit as a % of GDP
US Capital Equipment & Software as a % of GDP
(%)
39.0
39.5
40.0
40.5
41.0
41.5
13.5
14.0
14.5
15.0
15.5
16.0
Q1-
00
Q1-
01
Q1-
02
Q1-
03
Q1-
04
Q1-
05
Q1-
06
Q1-
07
Q1-
08
Q1-
09
Q1-
10
Q1-
11
EA 16: Non-residential Investment
EA 16: Gross Operating Surplus [RHS]
(% of GDP) (% of GDP)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Asianomics Asian investment strategy (2nd Half 2011)
7
Source: Asianomics Limited
Country Agg. PE Forensic Asia Recommendations 13-‐May-‐11 30-‐Sep-‐11 Asianomics Performance Score
China 13.3 5.7 Underweight CSI 300 at 3098 2581 Outperform(esp. consumer plays) -‐16.7%
Hong Kong 7.8 5.3 Upgrade to Overweight HSI at 22972 17592 Underperform(11 Oct 11) -‐23.4%
India 14.4 5.7 Upgrade to Neutral Sensex at 16677 16453 Outperform(6 Sep 11) (6 Sep 11) -‐1.3%
Indonesia 14.8 4.3 Neutral (underweight JCSE at 3822 3549 Outperformcommodity counters) -‐7.1%
Japan 16.0 4.4 Strong underweight Topix at 837 761 Underperform-‐9.1%
Korea 11.6 5.0 Downgrade to Neutral Kospi at 1880 1769 Outperform(6 Sep 11) (6 Sep 11) -‐5.9%
Malaysia 14.5 4.2 Overweight KLCI at 1538 1387 Outperform-‐9.8%
Philippines 13.3 5.1 Overweight PSE at 4292 4000 Outperform-‐6.8%
Singapore 7.3 5.4 Overweight STI at 3139 2675 Underperform-‐14.8%
Taiwan 13.4 4.5 Downgrade to Strong Taiex at 7741 7225 OutperformUnderweight (6 Sep 11) (6 Sep 11) -‐6.7%
Thailand 10.6 4.5 Overweight SET at 1088 916 Underperform-‐15.8%
Asian average 13 May -‐ 30 Sep -‐12.9%(Unweighted) 6 Sep -‐ 30 Sep -‐4.6%
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Asian round-up
� Asian PMIs are signaling that expansion is losing momentum
� Industrial production across the region has turned down decisively
� Inflation of money and credit is still an issue
� Asian interest rates have more upside
� Watch out for weakening growth in India and a fiscal blowout
8
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
China, Taiwan and Singapore manufacturing PMIs contracting as is Thai IP 9
Asian PMIs and industrial production indicate slower growth ahead
Source: Bloomberg & Haver Analytics Source: Haver Analytics
% YoY Sep Aug July June
Japan manufacturing 49.3 51.9 52.1 50.7
China Official manufacturing
51.6 50.9 50.7 50.9
HSBC China manufacturing
49.9 49.9 49.3 50.1
HSBC China services
53.0 50.6 53.5 57.0
India manufacturing 49.8 52.6 53.6 55.3
Taiwan manufacturing
44.5 45.2 46.1 49.9
Korea manufacturing 47.5 49.7 51.3 51.1
Hong Kong overall 45.9 47.8 51.4 50.3
Singapore overall 48.3 49.4 49.3 50.4
-35
-25
-15
-5
5
15
25
35
45
55
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Thailand IP Korea IP
Taiwan IP Malaysia IP
(% YoY)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
CPIs have barely peaked and real inflation is picking up
It is not such good news on the inflation front
10
Source: Haver Analytics Source: Haver Analytics
-6
-4
-2
0
2
4
6
8
10
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Thailand CPIKorea CPITaiwan CPIMalaysia CPI
(% YoY)
-3
0
3
6
9
12
15
18
21
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Taiwan Credit Malaysia Credit
Korea Credit Thailand Credit
(% YoY)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Easy money and policy minefield – no safe bets 11
Is stagflation a possibility?
Source: Haver Analytics, Bloomberg & Asianomics Limited
Notes: India average deposit rate; China 1-year deposit rate; Hong Kong savings deposit rate; Indonesia 3-month average deposit rate; Korea 91-day deposit rate; Malaysia 3-month CD; Philippines short-term deposit; Singapore 3-month deposit rate; Taiwan 3-month deposit rate; Thailand 3-month time deposit rate; US 3-month CD; Japan ordinary savings rate & Vietnam 3-month deposit rate.
Country Bank deposit rate Consumer price inflation (% YoY)
Real deposit rate Interest rate outlook Exchange rate outlook
Vietnam 14.0 22.6 (8.6) Up ++ Deval
Hong Kong 0.0 5.8 (5.8) Stable Stable
Singapore 0.2 5.7 (5.5) Stable App
United States 0.4 3.8 (3.4) Stable _
China 3.5 6.3 (2.8) Up +++ Slow App
India 8.5 10.9 (2.4) Up Dep
Thailand 2.1 4.0 (1.9) Up Stable
Philippines 3.1 4.8 (1.7) Up Slow App
Korea 3.6 4.3 (0.7) Up App
Taiwan 0.9 1.3 (0.4) Up Stable
Malaysia 3.0 3.3 (0.3) Stable Slow App
Japan 0.0 0.2 (0.2) Stable App
Indonesia 6.6 4.6 2.0 Up +++ Dep
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
The Fail of China 12
� China’s growth model is centred on state-owned enterprises and ‘authoritarian capitalism’
� In the last 20 years Beijing has succeeded in feeding the elites in Chinese society. Inequality is now reaching extremes
� Its response to the Global Financial Crisis has made rebalancing the economy even more difficult. Policy now backed into a corner
� Capital mispricing is at the heart of poor returns on investment and the malinvested nature of the economy
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Work to do: 250-450 basis points of rate rises in 2011 13
China’s monetary explosion (real inflation)
Source: Haver Analytics Source: Haver Analytics
0
2000
4000
6000
8000
10000
12000
14000
Jan-
00Au
g-00
Mar
-01
Oct
-01
May
-02
Dec-
02Ju
l-03
Feb-
04Se
p-04
Apr-0
5No
v-05
Jun-
06Ja
n-07
Aug-
07M
ar-0
8O
ct-0
8M
ay-0
9De
c-09
Jul-1
0Fe
b-11
Sep-
11
US M2
China M2
(US$ bn)
-6
-4
-2
0
2
4
6
Jan-
99
Sep-
99
May
-00
Jan-
01
Sep-
01
May
-02
Jan-
03
Sep-
03
May
-04
Jan-
05
Sep-
05
May
-06
Jan-
07
Sep-
07
May
-08
Jan-
09
Sep-
09
May
-10
Jan-
11
Sep-
11
China 1-Yr Real Deposit Rate
(%)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Too many liabilities, reliant on closed capital account
International reserve use is constrained 14
Source: Haver Analytics Source: Haver Analytics
-500
0
500
1000
1500
2000
2500
3000
00 01 02 03 04 05 06 07 08 09 10
China Foreign Reserves
Reserves less External Debt
'Free' Reserves
(US$ bn)
0
1250
2500
3750
5000
6250
7500
8750
10000
11250
12500
Jan-
00Au
g-00
Mar
-01
Oct
-01
May
-02
Dec-
02Ju
l-03
Feb-
04Se
p-04
Apr-0
5No
v-05
Jun-
06Ja
n-07
Aug-
07M
ar-0
8O
ct-0
8M
ay-0
9De
c-09
Jul-1
0Fe
b-11
Sep-
11
China M2 in US$
China Foreign Reserves
(US$ bn)
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Alternative credit measures suggest no easing any time soon
Has the inflation even been addressed? 15
-20
-10
0
10
20
95
100
105
110
115
120
125
130
00 01 02 03 04 05 06 07 08 09 10
Residual Actual Fitted
Res
idua
ls
Private C
redit as a % of G
DP
China Bank Credit Relative as a % of GDP, Jan 00 - Jun 11
Source: Asianomics Limited
Year Additional M2 (Rmb trn)
% of previous year’s GDP
Additional official credit (Rmb trn)
% of previous year’s GDP
Additional Fitch-‐adjusted total societal funding (Rmb trn)
% of previous year’s GDP
2008 7.3 27.5 4.0 15.0 6.5 24.5
2009 13.9 44.1 10.8 34.3 15.0 47.6
2010 12.1 35.0 8.8 25.5 16.5 47.8
2011* 7.2 17.9 8.1 20.2 18.0 44.9
Source: Haver Analytics & Fitch Ratings
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
India’s State of Confusion 16
� Inflation signals are not good despite significant RBI tightening. Growth signals now mixed too
� But fiscal policy is the real issue. The government is pursuing entitlement programmes rather than a growth strategy
� We expect real GDP growth to dip below 7% in fiscal year 2012. Central government budget deficit will rise from 4.8% to 6%+
� Ratings agencies likely to put India on watch list. Market is richly valued given the growth and policy outlook
Copyright © Asianomics Limited IMPORTANT: All information, advice and comments in this presentation are given in good faith but without legal responsibility. Our full disclaimer, privacy statement and terms of use are available on our website at www.asianom.com
Manufacturing WPI concerning, GDP growth softening 17
The RBI’s quandary – inflation or growth?
Source: Haver Analytics Source: Haver Analytics
-5
0
5
10
15
20
Q1-
00
Q4-
00
Q3-
01
Q2-
02
Q1-
03
Q4-
03
Q3-
04
Q2-
05
Q1-
06
Q4-
06
Q3-
07
Q2-
08
Q1-
09
Q4-
09
Q3-
10
Q2-
11
India Real GDP
India Real GFCF
(% YoY)
-2
0
2
4
6
8
10
12
Jan-
01
Sep-
01
May
-02
Jan-
03
Sep-
03
May
-04
Jan-
05
Sep-
05
May
-06
Jan-
07
Sep-
07
May
-08
Jan-
09
Sep-
09
May
-10
Jan-
11
Sep-
11
Wholesale Price: All Items
Wholesale Price: Manufactured Products
(% YoY)
Recommended