DSGAsia. Macro (In)Stability and Markets. Simon Ogus Khazanah Megatrends Forum 2012 October,

Transcription

1 Macro (In)Stability and Markets Simon Ogus Khazanah Megatrends Forum 2012 October,

2 The race to debase central bank balance sheets continues apace 2

3 This is using a bicycle pump to reflate a soufflé. Deleveraging following the greatest credit Ponzi scheme of all time will remain a multi-year process 14% % YoY Global Nominal Money and Credit Growth % YoY 14% 12% 12% 1 1 8% 8% 6% 6% 4% 2% Private Domestic Non-Financial Credit Broad Money 4% 2% -2% -4% Global includes US, Euroland, UK & Japan Broad Plus Shadow Money % -4% 3

4 The euro remains the biggest Ponzi scheme of them all. This is principally a European problem but how can it be cauterised? 35% 3 Target2 Balances as a Percentage of GDP ECB Contributors Supplicants 35% 3 12 Banking System Exposures to European Debt, December 2011 Percentage of GDP, ultimate risk basis PIGS Belgium Italy Other Europe 25% 25% % 15% % 5% 4-5% -5% % -2 Contributors: Germany, Netherlands, Finland, Luxembourg Supplicants: France, Belgium, Italy, Spain, Portugal, Greece, Ireland 06 A J O 07 A J O 08 A J O 09 A J O 10 A J O 11 A J O 12 A J -15% -2 Source: BIS UK France Germany Netherlands Switzerland Italy Spain Other Europe Europe Total USA Japan Rest of World A 2009 Rogoff-Reinhart study notes that if public debt exceeds 9, median growth rates fall by 1% and average growth rates by more 4

5 Japan is the champion government debtor but JGBs have a unique ownership pattern. It also has plenty of foreign assets to sell should the locals abandon ship Sectoral Holdings of Central Government Debt (March 2012) Japan International Assets 2011 (USD7,293 billion) Central Bank 9.5% ,981.0 Private Sector 43. General Government 9.4% (of which Foreign holdings 5.) Postal Savings 18.4% Direct Investment Equities Public Financial Institutions 0.2% Public Pension Funds and CMTs 8.9% Public Life Insurance 10.6% 1, ,638.4 Bonds Loans & Trade Credits Others Source: Japanese Government Flow of Funds Data 5

6 The real FX divergences remain within continents 1 Real Unit Labour Cost-Based Trade-Weighted Exchange Rates 1 1 Real Unit Labour Cost-Based Trade-Weighted Exchange Rates 1 January 1990 = 100 January 1990 = Japan Japan Euro Area Non-Germany Euro Area USA Germany Taiwan China 60 Asia ex China USA, Japan and Euroland IMF/Official Calculations; Asia* and China Calculations ex Japan * ULC-based where available, WPI-based otherwise Korea

7 200 1 Divergent exports are the result Export Volumes (National Accounts Basis) Japan Korea Eurozone Germany Eurozone ex-germany UK USA Index Q1 2004=

8 Where was the decoupling? An early 1990s earnings trajectory, at best, seems likely though this may not preclude market re-ratings at times of global calm Asia Exports and OECD Industrial Production OECD Industrial Production (RHS) Asia Ex-Japan Exports (LHS) 12% 9% 6% 3% Asia ex Japan Exports & EPS Growth and the US ISM Manufacturing PMI Exports USD %YoY, 3MMA, EPS market cap/msci weighted %YoY Asia ex-japan Exports (LHS) Index 3MMA % Asia Ex-Japan Export Volumes (LHS) USD %YoY, 3MMA %YoY, 3MMA % -9% -12% -15% -18% -1 US ISM Manufacturing PMI (RHS) -2 Asia ex-japan EPS Growth (LHS) E12F 13F

9 China s desire to shift from an investment-led to a consumption-led economy implies a profits recession. The A-share has market recognised this at least 3 %YoY, 3MMA China Real GDP Growth, Profits and the Li Keqiang Index %YoY, YTD 15 25% 2 LKQ Index, real credit (including shadow lending) growth % Real GDP % -5% Industrial Profits per Enterprise (RHS) LKQ Index: Equal weighted growth rates of real bank loans, railway freight volumes and electricity

10 China may well be cyclically over-invested but it remains structurally under-invested. India even more so. 5 45% 4 Fixed Investment as a % of GDP China Korea 5 45% 4 240, ,000 USD Capital Stock Per Capita, 2010 Prices India China Japan USA 35% 3 USA 35% 3 160,000 25% 25% 120, % 1 Japan India 15% 1,000 40,000 5% 5%