Global Head of Official Institutions BNP Paribas Investment Partners - December 2011 FOR PROFESSIONAL INVESTORS
Reserve Management Puzzle Global Financial crisis creating an increased aversion to risk. Growing reserves highlighting the problem of negative carry Ratings downgrade on primary asset (US treasuries) + concern at long-term value of the US dollar. Need to reach for yield to combat financial and political pressure of low returns Source: BNP Paribas Investment Partners October 2011 2
Total Foreign Exchange Holdings for Central Banks 10,000,000 Trillion 9 Trillion 9,000,000 8 Trillion 8,000,000 US Dollars 7 Trillion 7,000,000 6 Trillion 6,000,000 5 Trillion 5,000,000 4 Trillion 4,000,000 Contrary to the consensus view in 2008/2009, there has been an astonishing re-acceleration of the pace of growth in global reserves. 3 Trillion 3,000,000 2005 I 2006 I 2007 I 2008 I 2009 I 2010 I 2011 Ip Source: IMF Statistics Department COFER database and International Financial Statistics 3
Basic Balance for Selected Nations 36 as a % of GDP, 2010 30 24 18 Net FDI Current Account Balance Basic Balance 12 6 0-6 Singapore Malaysia Taiwan Hong Kong China Thailand Philippines Asia ex-japan South Korea Asia ex-japan & China Indonesia India Vietnam Source: BNP Paribas, Reuters EcoWin Pro 4
Bigger Warchests - Change in Reserves 2008 to 2011 120 FX reserves, post-crisis peak less pre-crisis peak, % 100 80 60 40 20 0-20 India Source: BNP Paribas, Reuters EcoWin Pro S. Korea Taiwan Hong Kong 5 Singapore Thailand Malaysia Indonesia Philippines
There is a Tipping Point, where the insurance purpose of holding FX reserves is overwhelmed by a need to generate yield. Pressure to launch SWF Size of Reserves Source: BNP Paribas Investment Partners August 2011 6
PBoC s CNY Swap Lines Country Date Central Bank CNY Local currency Notional Amount Argentina 02-Apr-09 BCRA CNY 70bn ARS 38bn Belarus 11-Mar-09 NBRB CNY 20bn BYR 8000bn Iceland 09-June-10 Central Bank of Iceland CNY 3.5bn ISK 66bn Indonesia 23-Mar-09 BI CNY 100bn IDR 175tn Malaysia 08-Feb-09 BNM CNY 80bn MYR 40bn Singapore 23-Jul-10 MAS CNY 150bn SGD 30bn New Zealand 17-Apr-11 Reserve Bank of New Zealand CNY 25bn NZD 5bn Uzbekistan 18-Apr-11 Central Bank of the Republic of Uzbekistan CNY 700mn UZB 182bn Mongolia 06-May-11 Central Bank of the Peoples Republic of Mongolia CNY 5bn MNT 968bn South Korea* Nov 2011 Bank of Korea CNY 360bn KRW 64tn Hong Kong** 22 Nov 2011 HKMA CNY 400bn HKD 490bn Note: For all the above swap arrangements, the effective period of the arrangement will be three years, and could be extended by agreement between the two sides. * Original swap line announced Dec 2008 increased Nov 2011 - ** Original Swap line announced Jan 2009 increased Nov 2011 Source: BNP Paribas, PBoC 7
Claims in U.S. dollars & euros as a Percentage of Allocated Reserves 70 There has been a small shift away from the US dollar 60 % Allocated Reserves 50 40 30 20 10...Although the beneficiary is not the Euro... 0 2005 I 2006 I 2007 I 2008 I 2009 I 2010 I 2011 Ip Claims in US Dollars as a Percentage of Allocated Reserves Claims in euros as a Percentage of Allocated Reserves 8 Source: IMF Statistics Department COFER database and International Financial Statistics
Claims in pounds sterling, Japanese yen and other currencies a Percentage of Allocated Reserves 5.0 4.5 4.0 % Allocated Reserves 3.5 3.0 2.5 2.0 1.5 1.0 2005 I 2006 I 2007 I 2008 I 2009 I 2010 I 2011 Ip Claims in Other "other" currencies as a Percentage of Allocated Reserves Claims in pound sterling as a Percentage of Allocated Reserves Claims in Japanese yen as a Percentage of Allocated Reserves 9 Source: IMF International Financial Statistics November 2010
Rising and Falling levels of AUM; An Asymmetric Relationship Level of discomfort Level of comfort Decreasing AUM/reserves Increasing AUM/reserves Source: BNP Paribas Investment Partners 2009 10
Eurozone Current Accounts Source: Reuters EcoWin Pro 11
Training for Central Bank & Institutional Clients BNPP IP Investment Academy: providing training and knowledge transfer to our clients Dedicated team leveraging on the Investment Partners to offer a full suite of trainings Close collaboration with the Official Institutions team to design programmes to meet client requirements Broad experience with training programmes FFTW: Adviser/manager to central banks for over 30 years Work collaboratively with clients to ensure optimal relevance Multiple programme types General or topic-specific programs Junior to senior level trainees Several days to one week Training is an ongoing and interactive process Continued communication via telephone, e-mail, the Internet or video conference Client access to investment professionals for questions, discussions or larger projects 12
Services for Official Institutions Recent White Papers on the Management of National Wealth; Published in a variety of industry journals; Dedicated Followers of Fashion appeared in the Central Banking Journal (Aug 2010) Appear in the Central Banking Journal (Nov 2011) 13
Services for Official Institutions Weekly Newsletter; Thought Leadership for Official Institutions A best-of offering, which uses research from the wider BNP Paribas Group, and from outside sources. A review of key news events with interactive links to stories. An analysis of Central Bank market pricing, and an update of which Central Bank is doing what, with policy rates. 14
Biography - Global Head of Official Institutions After graduating from University College London, began his career in the economics department of Greenwell Montagu in 1986. He moved to the economics and fixed income research department of Merrill Lynch in 1989. In 1995 he joined Morgan Stanley as a fixed income salesman. He joined the BNP Paribas Group in 2004, and worked for four years within Fixed Income Sales, where he was responsible for a team covering Institutional clients including Central Banks. He joined BNP Paribas Investment Partners in 2008 as Head of Central Banks, SWF and Supranationals. He has global responsibility for relationships between these key customers and the various members of the BNP Paribas Investment Partners group. In 2010 after the merger between BNP Paribas Investment Partners and Fortis Investment Management, he was appointed Global Head of Official Institutions. Gary has written articles on the management of national wealth that have appeared in a variety of industry journals. He contributed a chapter on the subject to a book published by CPI Financial in 2009, (inside the GCC Financial Markets). Articles based on his papers have appeared in the Central Banking Journal in both August 2010, and in November 2011. Tel: +44 (0) 20 7063 7844 Email: gary.smith@bnpparibas.com 15
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