Korea and Australia in a globalised world November 7 Amy Auster Head of International Economics Economics@ANZ
Globalisation is the structural change of our time 7,, 5,, 3,, 1, Global merchandise trade US$ bn Trade % GDP Source: IMF, Economics@ANZ % GDP Forecast 1991 199 1997 3 9 1 15 1 9 8 7 5 3 1 Global portfolio investment flows 9, 8, 7,, 5,, 3,, 1, US$ bn Investment % GDP % GDP Forecast 1 3 5 7 9 11 13 15 17 1 9 8 7 5 3 1
Bilateral trade between Korea and Australia has doubled over the past five years 3 Korea s reported trade with Australia Australia s reported trade with Korea 1 US$ bn 1 US$ bn 1 1 Imports Exports 1 1 Imports Exports 1 1 8 8 1988 199 199 199 199 1998 Source: Datastream, ABS, Economics@ANZ 1988 199 199 199 199 1998
On the whole, trade growth is up to speed with region Australia s trade partners Korea s trade partners 1 1.8 5.9 (+.5%) USA 53.5 China 118. (+7%) USA.8 China 5.3 (+15%) 3.1 78. (+81.8%) China 19.8 USA 7. (+.3%) China 31.5 USA 7.8 (+3.3%) UK 19. UK.8 (+19.5%) Hong Kong 1.7 Taiwan. (+119%) New Zealand 15.9 Singapore. (+.%) Taiwan 1.1 Germany 1. (+13%) Korea 15.5 Korea 1.1 (+3.5%) Germany 8.8 Hong Kong 1.1 (+97.3%) Singapore 13.8 New Zealand 19.8 (+.8%) Indonesia 7.8 Australia 1. (+17%) Germany 1.3 Germany 1.5 (+1.%) Australia 7.7 Singapore 15.3 (+11%) Source: Datastream, ABS, Economics@ANZ
5 Growth in our largest export markets will remain strong Real GDP growth forecasts (PPP basis) % change in real GDP from previous year 7 8 1- United States Euro area Australia New Zealand China Korea Taiwan Indonesia Thailand Hong Kong Vietnam East Asia excl World.9...7 1.5 1.7 5.. 5. 5..8 8. 9.3 5.1. 1..3.3. 11.3.8...3.3 8.5 1.1..9. 1.9 3.9 1. 1.3...5 5. 5.7 9. 9.7..9 1.8. 3..5 9.... 5.. 8. 8.7.1 Source: IMF, Economics@ANZ
Investment flows are far weaker between the countries Bilateral investment flows,5 US$ mn Korea to Australia, Australia to Korea 1,5 - - - -8 US$ mn 199- Australia FDI Outward Inward 3 5 1, 5 1 3 5 1 1 1 1 8 Korea FDI US$ mn 199- Outward Inward 3 5 Source: IMF Coordinated Portfolio Investment Survey, UNCTAD, Economics@ANZ
7 As both are still investing in traditional trade partners Australia outbound investment Korea outbound investment Country Rank Investment value US$ mn Country Rank Investment value US$ mn United States 1 93, United States 1 19,8 United Kingdom 17,53 Luxembourg,81 3 1,8 Cayman Islands 3 3,8 Netherlands 11,557 United Kingdom,1 France 5 7,9 France 5 1,5 Germany 7,335 1,3 Korea 11 1,89 Australia 1 91 Source: IMF Coordinated Portfolio Investment Survey, Economics@ANZ
8 Korea is less open to capital flows than Australia 7 Australia investment flows US$ bn 7 Korea trade investment flows US$ bn Inbound Inbound 5 Outbound 5 Outbound 3 3 1 1 1 3 5 1 3 5 Source: IMF, Economics@ANZ
9 But this will change as Korea s economy matures Structure of economy Main exports Sector Manufacturing Wholesale and retail trade Construction Financial intermediation Transport, storage and comms Agriculture and forestry % of total, 33.5 9.3 7. 7.5 8.3 3. Sector Electrical and electronic products Machinery and equipment Passenger cars Chemicals US$ bn, 91. 3.5 31. 8.9 Outbound foreign direct investment 3 1 US$ bn Source: Datastream, Economist Intelligence Unit, Economics@ANZ 5 7
1 And growth of Asia markets outpaces that of US and EU Equity market capitalisation Size of financial stock, 5, US$ mn US$ bn, at constant 5 FX rates 3,5 3, +98% +9% Sep- Sep-7 35 3 Other financial assets Equities securities,5 5, 1,5 1, +51% 15 5 +7% +% 1 5 Hong Kong S Korea China Singapore Indonesia Source: McKinsey Global Institute, Bloomberg, Economics@ANZ UK USA EM Eurozone
11 A word on exchange rates ANZ Fair Value model for the Australian dollar AUD: Actual/ANZ & Model 1.1 1. AUD/USD.9.8.7..5. Actual Model.3 91 9 93 9 95 9 97 98 99 1 3 5 7 8 9 Source: Economics@ANZ
1 US$ weakness a theme for 3- months USD broad currency index hits new lows 95 Index 9 85 8 75 Jan- Nov- Sep-7 AUD and NZD rallying 1. ANZAC/USD.9 AUD.8.7. NZD.5 Jan- Nov- Sep-7 EUR climbing higher 1.5 EUR/USD 1. 1. 1.3 1.3 1. 1. 1.1 Jan- Nov- Sep-7 15 11 115 1 Per USD As is JPY 15 Jan- Nov- Sep-7 Source: Bloomberg and Economics@ANZ
13 As is higher market volatility Exchange rate volatility 1 Realised 3-day volatility 1 1 1 8 5 7 Australia Exchange rate volatility 3 Realised 3-day volatility 5 15 1 5 5 7 Korea IDR 1 Realised 3-day volatility 5 Realised 3-day volatility 1 8 15 1 5 5 7 Source: Bloomberg, Economics@ANZ 5 7 Source: Bloomberg, Datastream, CEIC
1 Regional financial market forecasts Sept 7 Oct 7 Dec 7 June 8 Dec 8 US Fed funds rate.75.75.5.5.5 RBA cash rate.5.5.75 7.5 7.5 Bank of call rate.5.5.5.75 1. European Central Bank refi rate....5.5 US 1-year bond yield.59..5.75 5.35 US$ - 11.8 11.5 11 11 18 -US$ 1.7 1.3 1.5 1. 1.39 -US$.7.5..5 1.99 US$ - KRW 915 915 9 88 87 AUD US$.8879.9.9.9.9 NZD US$.7579.7.77.7.8 Source: Economics@ANZ
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