China Troubles22 July 2015

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China 2015 Troubles

Scenario: China Slowdown

China Troubles

HiddenLevers

MARKET UPDATE

US Rate Hike in 2015

Market Update

Iran nuclear pact completesources: HiddenLevers,

1

3

Gold ticks down to 5y low

2

4

Dude!!

Tech partying like 1999

SPX +70%

NAS +140%

Market Update: Viva le DollarPost QE rise in USD set to repeat as Interest Rates rise

sources: HiddenLevers

Rate Hike =

strong USD

US economic picture

improving

Yuan is pegged to

USD

Yuan flat against USD

5

bullish patt

ern

HiddenLevers

CHINA 2015 TROUBLES

CHINA 2015: Global Context

sources: HiddenLevers, DailyMail, KraneShares, IMF

25%

15%

7%5%4%

45%

2014 Global Nominal GDP (IMF)

United States

China

Japan

Germany

United Kingdom

Rest of World

China GDP:- 15% of global GDP- Passes US, adjusted for purchasing power- Main contributor to global GDP growth

China2015: Triple Bubble

sources: HiddenLevers, Goldman Sachs, Forbes, Economist

According to Credit Suisse, China's "triple bubble" – a combination of the third biggest credit bubble, the biggest investment bubble and the second-biggest real estate bubble of all time – is the single biggest risk to the global economy.

China Total Debt/GDP

CHINA 2015: Wild Bull Market

sources: HiddenLevers, Forbes, Financial Times

+150%–32%

CHINA 2015: Looking for Tell Tails

sources: Gulf Times, Nat’l Bureau of Statistics of China

One of these things is not like the other.

It’s the Shanghai market.

CHINA 2015: Sino Evils (Govt Actions)

sources: HiddenLevers, Bloomberg

CHINA 2015: Impact on World

sources: HiddenLevers, Frontier Strategy Group, Economist

US captures 25% of a 1% decrease in Chinese GDP

VULNERABLEcommodities players

+Africa

HiddenLevers

SCENARIO: CHINA SLOWDOWN

Scenario Update

- HL introducing Shanghai Composite as a lever- Chinese market + economic cycles out of step- Copper losing its value as a key lever- USD post-QE rise hasn’t killed US rally

China Slowdown

Soft Landing 7% GDP Hard Landing 4-5% GDP China Recession

(long priced in) (headed there) (still alive)

GOOD: Double Happiness

source: HiddenLevers, Bloomberg, Financial Times

Allocations rise in line with China share of global GDP

hiccup in maturing market

govt action volatility

killer

GDP stays above 7%

2nd largest equity market

BAD: Shanghai Crash

foreign money no come back

China markets struggle but S+P in tact

source: HiddenLevers, WikInvest, Forbes, WSJ

negative wealth effect

RE + credit bubbles

don’t pop

69 P/E, above 2007

peak

Still holding!

margin calls allowed

-8

-32

UGLY: China Recession

triple bubble pop

source: HiddenLevers, Economist, ZeroHedge,

seismic economic changes

China posts negative GDP as a consumer nation

govt actionsfar exceed US

in 2008

China is world’s #2 consumer

government caught lying

Scenario: China Slowdown

Shanghai

1975 -50%

Shanghai

2950 -25%

Shanghai

5000 +25%

key lever

China’s equity market share rises to equal China’s share of world GDP – with positive spillover for all markets

China is unable to contain market volatility with government intervention, and sky-high valuations lead to a Shanghai crash, with limited global impact.

China enters its first full blown recession since 1980, dragging down global growth and commodities producers.

GoodDouble

Happiness

BadShanghai

Crash

UglyChina

Recession

China Troubles – Take Aways

China market + economic cycles out of step

US capture of China downside increases with magnitude

margin lending led to Shanghai rise + fall

Copper + Aussie Dollar good barometers for China GDP

risk questionnaire

for mobile

new LeverShanghai

Composite

Product Update

coming soon more global

indices coverage

internationalCanada Launch