Nordea.%20Hong%20Kong,%20Singapore,%20Bangkok%20

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Nordea. Hong Kong, Singapore, Bangkok October
2005. The Outlook for 2006 Any good investment
ideas left?

• By Adjunct Professor at CBS, Visiting Senior
  Research Fellow at ISEAS, J. Ørstrøm Møller.
• www.oerstroemmoeller.com

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Prelude

• Potential versus reality.
• - The potential is an unprecedented shift in
  power structure.
• - The reality is whether it will be allowed to
  happen and if so the circumstances.
• The bad news. All the ingredients known from the
  world wide depression in 1929 are smiling at us
  like the Cheshire cat in Alice in wonderland. Too
  much liquidity chasing assets instead of
  productive investment. The bubble(s) will burst.
• Japanese stockmarket. Then Japanese property
  market. Third Nasdaq/IT bubble. Fourth property
  bubble (US, UK).

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Prelude

• Three rules of thumps announcing a melt down.
• - Liquidity chases fast profits trading assets.
• - Anyone can make money in the market.
• - Exponential rise in asset prices.
• All three are here right now.
• The good news
• Anyone got a hearing aide!
• - May be China and India. If the US allows them
  to step in.
• - US policy vis-à-vis China. Preventive and
  pre-emptive economic strike?

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1. Current Trends

• Business cycle. Global growth peaked in summer
  2004. Falling since.
• Electronic cycle does not look promising.
• Economic policies in major countries (primarily
  US) is not any longer expansive.
• Profit outlook for US discouraging.
• Oil price impoverish the global economy.
• Key word Business cycle not promising.
• Main culprit US economy with strong and
  persistent imbalances.
• Deficit on balance of payment about (?) 5 and
  rising in the phase of the businesscycle when it
  should be falling. What does it tell us about
  competitiveness and growth disparity.

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1. Current Trends

• Deficit on public finances about 4 and rising.
• For the fun Website US National Debt Clock. Debt
  calculated continously. Fx September 30, 2005 at
  07.06.37 AM GMT 7,244,360,930,45. Not so fun
  It rises with 1,6 billion USdollar.every day.
  8.78 of US GNP per year 239 of DKs GNP!
  http//brillig.com/debt_clock/
• Imbalances in Japan. Almost the opposite of US.
  Japanese recovery? Monetary policy?
• Europe? Nothing much happens there.
• China and India revert later

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2) The global economy is a roller coaster having
derailed in a curve continuing out in the free
airspace!

• What makes the global economy ticks US consume.
  China (and India) produces. Low costs in Asia
  keep global inflation down. FED is splashing out
  liquidity. The whole dump show is financed by
  Japan and China /Greater China accumulating
  USdollars as a substitute for consumption but how
  long can you live eating greenbacks? Come and buy
  a chunk of the wild west!

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• Keywords Under-consumption in Asia,
  over-consumption in US. Over-production in Asia,
  under-production in USA.
• 71 of US GNP consumption ctr trend 67. EU
  58, Japan 55, China 42. US personal
  savings are negative. EU 14, Japan 8, China
  35. (per cent of GNP).

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• Adjustment must and will take place. Transfer of
  purchasing power/economic strength from US to
  Asia. It can be done in one of the following
  ways
• - Economic policies primarily in US. Fiscal
  policy. Monetary policy.
• - Currency rate changes.
• - Protectionism
• - Let the market do it not knowing what will
  happen.
• Where are we right now? Tighten your safety
  belts.

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• Which factors will stop it
• - Until now the job market and private incomes
  are still holding but how long?
• - Asian unwillingness to produce without being
  paid a change of preferences production/consumpt
  ion in China. Jobs in China ? New cohorts,
  restructuring, immigration etc.
• US real interest rate gets to a level
  corresponding to the trend growth of US (approx
  3-3,5 ). Now short term 3,75 after 11
  consecutive increases. Long term steady at 6
• Can the world function with savings surplus in
  developing (poor) nations and dis-savings in
  developed (rich) nations?

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3) The shift from US to China and India

• a)
• China is the factory of the world, pricesetter
  for industrial goods and offer technology. PPP
  second largest economy, largest recipient of
  Foreign Direct Investment (FDI).
• India Measured in official exchange rates Chinas
  share of global GNP is about 3, India about
  1,4. BUT PPP gives about 13 respectively about
  7. China and India 80 of US GNP. Add in Japan,
  Korea an Southeast Asia equals 125.
• India is the servicecenter for the world, price
  setter for service goods and offers solutions.
  Fourth largest economy (PPP).

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3) The shift from US to China and India

• Total communication. Nomads.
• China 402 mio subscribers on mobile phones end
  2005. Fixed line 360 mio. About 103 mio on
  internet. Broadband user 2005 US 39 mio, China
  34 mio. Prognosis for 2007. China 57 mio US 54
  mio. SMS China 6 billion in ONE DAY! New language
  emerges.
• India 60 million subscribers on mobile phones. 2
  million more every month.
• Prognoses 2010. China globally number one PCs
  178 mio. India 80 mio.
• Cernet2, IPv6. 3G technology.

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4) What makes the Asian economy tick

• The Asian economy has changed completely. Not an
  annex to the US economy or the global economy.
  Self sustained and integrated.
• Two flywheels. Production outsourcing- supply
  chain. Consumption middle class urbanization
  - branding- young YOUNG consumer.
• Outsourcing computercontrolled container
  transport Free Trade areas (FTAs) 90 of all
  intra-Asia trade less than 5 tariffs air
  freight 1 of volume but 35 of value VOUW!
• First half 2005. 24 increase in bilateral trade
  China-Asean to a total of 60 billion Usdollars.

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4) What makes the Asian economy tick

• China is the spider in the center of the net.

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4) What makes the Asian economy tick

• But the coin has two sides
• Decreasing growth in Chinas import (from a
• monthly average growth of 35 in 2004 to 15 in
• 2005.) puts a squeeze on the economic growth in
  the
• rest of South East Asia from 5,5 in 2004 to
  4,4
• in 2005

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5) The strength of the Asian economies

• A) Positive Scenarium.
• China and India keeps growing. Economic center
  moves across the Pacific.
• The international system adjusts to this new
  situation. The world sees a peaceful and orderly
  transformation from an American dominated economy
  to a global economy with China and India in the
  drivers seat.
• New technology paves the way for a new
  investment cycle.
• The demographic and environmental problems is
  under control. Terrorism, international crime,
  infectious diseases are not allowed to derail the
  global economy.social and infrastructure
  investment repercussion.

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5) The strength of

• B) Negative scenarium.
• The ice cream gateau slides too fast. China and
  India cannot make up for the vacuum created by
  the weakening US economy.
• The global economy comes under pressure. US is
  not strong enough any longer to exercise control
  and no one else in sight. Rising egoism and
  rising threat of protectionism heralds the day.
• NOIC appears just over the horizon. Gradually we
  move away from a global model towards a more
  national model. A more destructive world emerges
  breaking with may of the hitherto unchallenged
  ideas.
• The decisive factor will be private consumption
  in Asia primarily China.

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6) Conclusion and Forecast.

• Shift from US to Asia.
• American decline
• Lower global growth
• Rising global interest rates
• Falling USdollar. Euro? Asian currencies?
  Interest rate gab makes a forecasts difficult
  but..
• A word about US-China and the Yuan-USdollar.
• Stock market.
• - US ?p/e trend 15 but now 19.
• - Asia ??
• - Europe?Restructuring Mergers Acquisitions.

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6) Cont Conclusion and Forecast.

• Keywords. Trends
• - Asian economic integration
• - US decline
• J. Ørstrøm Møller
• www.oerstroemmoeller.com