Jonathan Pain

Investing in the New Reality-Are

You Ready?

A Journey from West to East, via the Middle East

• A complex and volatile world

• Identify the key themes

• Volatility brings opportunity

Submerging versus emerging

• Submerging nations will spend less and save more

• Emerging nations will spend more and save less

• Yes, it is as simple as that

The New Reality of Frugality

Source: Ned Davis

Shop until you drop!

Source: Bloomberg Total U.S household debt

The great new divideSubmerging

• Iceland…go fishing• Ireland• Greece• Portugal• Spain• USA• U.K• Japan...Et tu Italy

Emerging• China• India• Brazil• Indonesia• Vietnam• Singapore...a

role model?

Super Mario Does it Again

• LTRO- A game changer

• 489 billion plus 529.53 billion= A lot!

• Fiscal and credit contraction= recession

• Euro to survive

• The winds of change• Autocratic and repressive regimes• Duplicity, democracy and stability• Israel and Iran• All eyes on the Straits of Hormuz

TurmOIL in the Middle East

It’s up to you New York, New York

• Over 3 billion consumers in Asia

• China new frontier-its own backyard

• High speed rail

• Mobile phone sales in India (20 million a month)

six million in 2002, eight hundred million in 2011

Chongqing Chongqing

When China sneezes the world catches a cold!

• 2007-2012 China GDP 56%,India 43% (IMF)

• High income countries just 2%

• “ The BRIC’s will add $12 trillion over next decade – double eurozone and U.S” (Goldman Sachs)

Rise of Asian middle classes

• 570 million > $3,000 disposable income a year• 945 million in 5 years• Discretionary spending $ 2.9 trillion to $ 5.0

trillion• Most significant economic phenomenon of

our lifetime

Source: CLSA

A maturing giant

• 10% average annual growth since 1978

• Second largest economy slows

• Composition and quality of growth to change

• 7% growth in 2012

The Lucky Country

• 75% of our exports go to Asia

• Political headwinds

• Some relief from the RBA

Vietnam-A Phoenix Rises

• Doi Moi 1986

• A young and literate nation

• Serves to illuminate the remarkable potential

• Is it not of imperial arrogance to assume...?

The adjustment we had to have

• Do you remember The Mother of All Crossroads?....2006

• “As we look to the West we see an economic giant that is in the first phase of a painful decline. As we look to the East we see a phenomenon that will shape and define our lives for

decades to come.”• 2008 was a defining moment in time which

accelerated the inevitable.

Investing in The New Reality

• The rise of Asia is the defining and determining factor in portfolio construction

• Companies with exposure to Asian middle classes

• MV=PT and the mother of all monetary experiments

• MSCI-Mainly Submerging Country Index!

The New Reality

• World divided between submerging and emerging

• In an age of globalisation...• In a digital age of technology ,transparency

and connectivity• A fusion of East and West• Welcome to The New Reality

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