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The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 1
Proprietary and Confidential
Japan & ChinaChanging Investment Patterns
Berlin
27th September 2010
44
RuRuthenium101.07
76
OsOsmium190.23
78
PtPlatinum195.078
45
RhRhodium102.90550
77
IrIridium192.217
46
PdPalladium106.42
Matthew Turner Precious Metals Strategist
+44 (0)20 7025 3221
2
Opportunities: China savings rising dramatically
Source: Mitsubishi Corporation calculations. Note domestic saving only.
0
500
1,000
1,500
2,000
2,500
3,000
1970 1975 1980 1985 1990 1995 2000 2005
China
United States
Japan
$bn/year
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 2
3
(200)
(100)
0
100
200
300
400
1978 1983 1988 1993 1998 2003 2008
-2,000
-1,000
0
1,000
2,000
3,000
4,000
"Stock of gold"
Net imports
602t
-363t
Risks: Japan becomes exporter of gold
Net imports, tonnes/year
Source: Japanese Ministry of Finance
“Stock” of gold, tonnes
4
Japan – Why has net gold investment fallen?
• Disinvestment
– As gold price exceeding that during “bubble economy”
• A shortfall of new investment
– Rising gold price reduces affordability
– High level of Japanese savings declining
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 3
5
Japan - Yen gold price back to 1980s levels
Source: Bloomberg
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Aug-75 Aug-80 Aug-85 Aug-90 Aug-95 Aug-00 Aug-05 Aug-10
Yen/gram
Bubble years of peak gold investment
Disinvestment
6
Japan - other investments
Source: Mitsubishi Corporation, Bloomberg
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1980 1985 1990 1995 2000 2005
0
50
100
150
200
250
300
350
400
450Nikkei 225Tokyo land prices
Nikkei Tokyo land
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 4
7
Japan - Savings rate has fallen significantly
Source: Mitsubishi Corporation from national accounts data
Household savings, % personal income Household savings, $bn
0
2
4
6
8
10
12
14
16
18
20
1980 1985 1990 1995 2000 2005
0
100
200
300
400
500
600
1980 1985 1990 1995 2000 2005
8
Japan - Demographic outlook bleak
Source: Mitsubishi Corporation from UN data
% o
f p
op
ula
tio
n
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Forecasts
Aged 60+
Prime saving age
of 30-50
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 5
9
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1975 1985 1995 2005
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1980 1990 2000
J
Japan – assets set to decline?
Household assets, yen trillion Japan’s “Gold Stock”*, tonnes
Source: Bank of Japan, Ministry of Trade * Cumulative imports since 1978; ignores embedded exports, mine production
?
?
10
Japan – increasing gold’s market share
• Gold price recent history much better
• Outlook for other investments remains uncertain
• New products mean easier access to gold
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 6
11
0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010
Yen gold
Nikkei 225Consumer prices
JGBs
Japan - gold price much stronger
Source: Mitsubishi Corporation, Bloomberg
2005=100
12
Japan – innovation with ETFs
• First Japanese listed fund in 2007, first listing of physically-backed fund in 2008
• Mitsubishi UFJ Physical Gold ETF first physically-backed fund to be based in Tokyo
• Volumes for all ETFs relatively low at moment with only small amounts of gold held
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 7
13
0
2,000
4,000
6,000
8,000
10,000
12,000
May-10 Jun-10 Jul-10 Aug-10
SPDR NomuraMitsubishi
Japan – ETF trading volumes
Source: Company data, Bloomberg, Mitsubishi Corporation
Oz/day
14
Japan - ETFs expanding the market
• Small investors, especially younger investors used to buying equities
• Investment/Pension funds
• Marketing/Advertising
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 8
15
Japan ETFs: promotion
16
China: similarities and differences
• Gold market liberalising after tight controls
• Large and growing economy
• High savings rate but conservative investors
• Demographic challenges but some years away
• Appreciating currency could be an issue but market expanding in era of gold bull run
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 9
17
China - Gold market liberalisation
• Bar hoarding (gold investment) was illegal
• Market liberalisation from late 1990s
• Shanghai Gold Exchange launched in 2002
• Investment products through banks only available in last few years
• Further reforms announced in 2010
18
China - gold investment market growing
Source: GFMS Limited
Tonnes/year
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 10
19
China - High household savings rate
0
5
10
15
20
25
30
35
40
1992 1995 1998 2001 2004 2007
0
200
400
600
800
1,000
1,200% $bn
Source: Mitsubishi Corporation, IMF, NBS
20
China - stock of savings remains smaller
Source: Mitsubishi Corporation calculations. Note household savings.
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1980 1985 1990 1995 2000 2005
Japan
China
$bn
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 11
21
China - Demographics good…for now
0%
5%
10%
15%
20%
25%
30%
35%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Aged 60+
Prime saving age
of 30-50
Source: Mitsubishi Corporation from UN data
22
2
3
4
5
6
7
8
9
10
1985 1990 1995 2000 2005 2010
China - Yuan strength a problem?
PPP=4 yuan = $1?
Source: Bloomberg
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 12
23
Conclusions
• Gold follows the money
• Japan: aging population, declining yen savings & current gold stock seems adequate
History of innovation (GAP) and growth from ETFs
• China: young population, high savings & low gold stock
Gold investment growth not inevitable, needs products investors want.
24
Japan background – 1970s/80s market expanding
1971: Ownership allowed
1973: Imports deregulated
1978: Exports deregulated
1982: Futures trading starts
1986-1990: “Bubble years”
Source: Japan Ministry of Finance
Imports, tonnes/year
0
100
200
300
400
500
600
700
1980 1983 1986 1989
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 13
25
Japan background – 1990s consolidation & GAP
• Economic bubble bursts and “lost decade” begins
• GAP dominates gold investment (launched in 1980 but expansion after 1990)
Source: Japan Ministry of Finance
Imports, tonnes/year
(50)
0
50
100
150
200
250
300
350
1990 1993 1996 1999
26
0
5
10
15
20
25
30
35
40
45
50
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
0
100
200
300
400
500
600
700
800
900
1000Tonnes/year '000 accounts
Japan background – Gold Accumulation Plans (GAP)
Source: World Gold Council
The LBMA Precious Metals Conference 27 September 2010
Session 4 – Matthew Turner 14
27
Japan background – 2000s net investment demand negative
• Since about 2004 investment flows reversed
• Decline in other areas of demand means Japan becomes net exporter of metal
Source: Japan Ministry of Finance
Tonnes/year
(400)
(350)
(300)
(250)
(200)
(150)
(100)
(50)
0
50
100
2000 2003 2006 2009
28
Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mitsubishi Corporation has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Mitsubishi Corporation makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Mitsubishi Corporation only and are subject to change without notice.
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© Mitsubishi Corporation International (Europe) Plc, 2010
