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Marko PapicChief Strategist Geopolitical Strategy
A BCA DialogueApril – May 2013
WebcastApril 23, 2013
Ian MacFarlaneChief Strategist Global Asset Allocation
2
JAPAN: WEAK CURRENCY = EQUITY OUTPERFORMANCE
© BCA Research 2013
.2
0
-.2
-.4
70 80 90 2000 10
.2
0
-.2
-.4
JAPAN:5-YEAR MOVING CORRELATION BETWEEN TW AND TOTAL RETURN RELATIVE TO WORLD(Local Currency)
SOURCE: MSCI INC. (SEE LAST PAGE).
3
THE YEN IS LIKELY TO WEAKEN FURTHER
© BCA Research 2013
1.0
.5
0
-.5
1.0
.5
0
-.5
10
8
6
4
10
8
6
4
160140
120
100
160140
120
100
TRADE BALANCE***% ofGDP
JAPAN:EXPORTS RELATIVE TO GLOBAL EXPORTS**
% %
JAPANESE YEN VS. ASIAN CURRENCIES*
02 04 06 08 10 12
85 90 95 2000 05 10 * TRADE-WEIGHTED JAPANESE EXCHANGE RATE VERSUS CHINA, KOREA, TAIWAN, SINGAPORE AND THAILAND. REBASED TO JAN. 2002 = 100. ** SOURCE: IMF.*** SOURCE: MINISTRY OF FINANCE.
% ofGDP
4
LIQUIDITY: POSITIVE TRENDS SLOWING
© BCA Research 2013
400
300
200
100
08 09 10 11 12
400
300
200
100
CENTRAL BANK BALANCE SHEET:TOTAL ASSETS*
U.S.U.K.EURO AREAJAPAN
* REBASED TO JANUARY 2008 = 100; LOCAL CURRENCY.
5
BANK LENDING IS STILL ANEMIC
© BCA Research 2013
6
3
0
-3
-6
2000 02 04 06 08 10 12
6
3
0
-3
-6
JAPAN
M2 MONEY SUPPLYBANK LENDING
Ann%Chg
Ann%Chg
6
WILL JAPANESE CONTINUE TO GO OFFSHORE?
© BCA Research 2013
5
0
-5
88 92 96 2000 04 08 12
5
0
-5
4
3
2
1
4
3
2
1
BASIC BALANCE
% ofGDP
JAPAN:CURRENT ACCOUNT
% ofGDP
% ofGDP
% ofGDP
7
JAPANESE REAL RATES ARE MUCH HIGHER
© BCA Research 2013
6
4
2
0
-2
88 92 96 2000 04 08 12
6
4
2
0
-2
REAL* 10-YEAR GOVERNMENT BOND YIELD:JAPANU.S.
% %
* DEFLATED BY CPI.
IS THIS SUSTAINABLE?
0
-3
-6
-9
92 96 2000 04 08 12
0
-3
-6
-9
JAPAN:BUDGET BALANCE*
% ofGDP
% ofGDP
* SOURCE: OECD.
© BCA Research 2013
CAN JAPAN DO MICRO-ECONOMIC REFORM?
FIN
LA
ND
.
NE
TH
ER
LA
ND
S
SW
ED
EN
GE
RM
AN
Y
JAP
AN
NO
RW
AY75
80
85
90A
US
TR
AL
IA
NE
W Z
EA
LA
ND
SW
ITZ
ER
LA
ND
CA
NA
DA
U.S
.
IRE
LA
ND
U.K
.
SIN
GA
PO
RE
HO
NG
KO
NG
* SOURCE: THE HERITAGE FOUNDATION.
2013 INDEX OF ECONOMIC FREEDOM*
© BCA Research 2013
© BCA Research 2013
WORRIED ABOUT POLITICAL RISK IN FRANCE
10
© BCA Research 2013© BCA Research 2013
%
35
30
25
20
15
10
1981 1988 1995 2002 2007
* FOR THE ‘EUROSKEPTIC’ VOTE WE COMBINE SEVERAL LEFT AND RIGHT WING CANDIDATES WHOSE ELECTORAL PLATFORM WE DETERMINE WAS LIKELY IMCOMPATIBLE WITH TODAY’S EU MEMBERSHIP.
30
25
20
5 FR
AN
CE
%
SOURCES: TNS EMNID, OGM INSTITUTE, IPSOS-SYNOVATE, BCA RESEARCH.SHOWN AS A PERCENT OF TOTAL VOTE OF EUROSKEPTIC PARTIES IN LAST ELECTION, OR MOST RECENT POLLING DATA (GERMANY).
EUROSKEPTIC VOTE*NATIONAL FRONT
5
2012
10
15
FIN
LA
ND
ITA
LY
NE
TH
ER
LA
ND
S
GE
RM
AN
Y
COMBINED EUROSKEPTIC VOTE
2012-2013
11
© BCA Research 2013
CYPRUS IS ABOUT OFF-SHORING, NOT EURO AREA CRISIS
0.6
0.4
0.2
0.0
0.8
SOURCE: JOHANNESEN AND ZUCMAN, 2012.
-0.2
-0.4
-0.6
5 10 15 20
GR
OW
TH
RA
TE
OD
DE
PO
SIT
S B
ET
WE
EN
20
07
AN
D 2
01
1 S
1
NUMBER OF COMPLIANT TREATIES SIGNED WITH NON-HAVEN COUNTRIES BETWEEN JANUARY 2008 AND JUNE 2011
PANAMA
CYPRUS
HONG KONGMALAYSIA
AUSTRIAMACAO
SINGAPORE
CAYMAN ISLANDS
GUERNSEYLUXEMBOURG
ISLE OF MAN
JERSEY
NETHERLANDS ANTILLES
SWITZERLANDBAHRAIN
BELGIUM
BAHAMAS
12
U.S. BUDGET HURDLE CAN BE OVERCOME
© BCA Research 2013
SOURCE: WASHINGTON POST WONKBLOG.
BnUSD
1000
500
0
-500
-1000
-1500
-2000
-2500
BnUSD
1000
500
0
-500
-1000
-1500
-2000
-2500
SPENDING CUTS/INCREASES OVER 10 YEARS
REPUBLICAN – DEMOCRAT GAP
GOP BUDGETDEM BUDGET
DE
FE
NS
E
NO
N-D
EF
EN
SE
DIS
CR
ET
ION
AR
Y
SO
CIA
L
SE
UR
ITY
ME
DIC
AR
E
OT
HE
R
MA
ND
AT
OR
Y
RE
VE
NU
E
ME
DIC
AID
DE
FE
NS
E
NO
N-D
EF
EN
SE
DIS
CR
ET
ION
AR
Y
SO
CIA
L
SE
UR
ITY
ME
DIC
AR
E
OT
HE
R
MA
ND
AT
OR
Y
RE
VE
NU
E
ME
DIC
AID
Gap is bridgeable
Revenue is critical to a deal
© BCA Research 2013
13
WHY IS THE MEDIA OBSESSING ABOUT NORTH KOREA?
100
80
60
40
20
2010
100
80
60
40
20
GOOGLE NORTH KOREA REFERENCES*
* INDICATOR REPRESENTS NUMBER OF GOOGLE SEARCHES OF "NORTH KOREA" RELATIVE TO PAST SEARCHES OF THE TERM.THE INDICATOR IS NORMALIZED AND MEASURED ON A 0-100 SCALE.
2011 2012JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR
And Now What?
Third Nuclear Test
Failed Missile Launch
Kim Jong-Il Dies
Yeonpyeong ShellingCheonan
Sinking
© BCA Research 2013
