0Past Performance Is Not Necessarily Indicative Of Future Results.

McVEANTrading & Investments, LLC

CHINA OUTLOOK

Michael Drury

Chief EconomistMcVean Trading and Investments, LLC

ATLANTA, GA

AUGUST 28, 2019

U.S. NATIONAL ECONOMY CIRCA 1982

1Past Performance Is Not Necessarily Indicative Of Future Results.

SUNBELT

GLOBAL ECONOMY TODAY

2Past Performance Is Not Necessarily Indicative Of Future Results.

SUBURBS RUST BELT SUNBELT

2018 GLOBAL GDP

$86.0 TRILLION

3Past Performance Is Not Necessarily Indicative Of Future Results.

EUROPE

$19.2T

EUROZONE

$13.4T

NAFTA

$23.2T

US

$20.3T

JAPAN+SOUTH

KOREA+TAIWAN

$7.3T

HK +

MACAU+

OPEC+

BRAZIL+

RUSSIA+

AUSTRALIA+

ARGENTINA

$10.5T

CHINA

$13.4T

OTHER

$11.4T

Source: IMF/McVean

SHARES OF GLOBAL GDP

4Past Performance Is Not Necessarily Indicative Of Future Results.

Source: IMF/McVean

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1990 2000 2007 2017

SHARES OF GLOBAL GDP

US EU+JAPAN NEW ASIA OTHER

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16

Q2 2019

US TRADE BALANCE AS A % OF GDP

4 QTR AVERAGE

5Past Performance Is Not Necessarily Indicative Of Future Results.

DURABLES UNLIKELY TO CAUSE A RECESSION

6Past Performance Is Not Necessarily Indicative Of Future Results.

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

Jan-48 Jan-53 Jan-58 Jan-63 Jan-68 Jan-73 Jan-78 Jan-83 Jan-88 Jan-93 Jan-98 Jan-03 Jan-08 Jan-13 Jan-18

DURABLES SHARE OF NOMINAL GROSS DOMESTIC PRODUCT

Q2 19

NAFTA AND WTO

HAD LITTLE EFFECT ON TRADE

7Past Performance Is Not Necessarily Indicative Of Future Results.

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

SHARE OF US IMPORTS

NAFTA WESTERN EUROPE PACIFIC RIM OTHER

CHEAPER IS WHAT DRIVES IMPORTS

8Past Performance Is Not Necessarily Indicative Of Future Results.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

SHARE OF US IMPORTS

CHINA & MEXICO CANADA, JAPAN & EUROPE

13%

18%

23%

28%

33%

38%

Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Mar-19

CHINESE EXPORTS VS IMPORTSAS A % OF GDP

EXPORTS IMPORTS

CHINA SHIFTS TO DOMESTIC FOCUS

9Past Performance Is Not Necessarily Indicative Of Future Results.

Q2 19

10Past Performance Is Not Necessarily Indicative Of Future Results.

PRIVATE SECTOR BEARS THE BURDEN

US FIRMS THAT DEPEND ON

FOREIGN SALES ARE ALREADY HURTING

11Past Performance Is Not Necessarily Indicative Of Future Results.

SOE PROFIT ARE CHINA’S SAFETY NET

12Past Performance Is Not Necessarily Indicative Of Future Results.

CHINA IS INTRODUCING RISK INTO THE SYSTEM

13Past Performance Is Not Necessarily Indicative Of Future Results.

Source: Wall Street Journal

2016 CHINA + HONG KONG EXPORT PIE

$2.0 TRILLION

14Past Performance Is Not Necessarily Indicative Of Future Results.

PAC RIM

EUROPE

NORTH AMERICA

SOUTH ASIA

MENA

LATIN AMERICA

OTHER

PACIFIC RIM

30%

EUROPE

24%

NORTH

AMERICA

22%

2016 US EXPORT PIE

$1.5 TRILLION

15Past Performance Is Not Necessarily Indicative Of Future Results.

NORTH AMERICA

WESTERN EUROPE

PACRIM

OTHER

NORTH

AMERICA

34%

OTHER

23%

PAC RIM

25%EUROPE

18%

THIS IS THE TARIFF ROUND

CHINA FEARED MOST

16Past Performance Is Not Necessarily Indicative Of Future Results.

SOLAR &

WASHING

MACHINES

STEEL &

ALUMINUM

25% ON $50 B

$36B, THEN $14B

INDUSTRIAL

PARTS & CHEMICALS

10% ON $200B

25% ON JAN 1

15% MORE ON THE

SAME $200B

YOU START WITH THE

LOW HANGING FRUIT

CHINA TIT FOR TAT RESPONSE 25% ON $50 B

MOSTLY

AGRICULTURE

10% TO 25%

ON $60 B5% TO 25% ON

ANOTHER $60B

FURTHER TARIFFS WILL LIFT US PRICES

17Past Performance Is Not Necessarily Indicative Of Future Results.

THE NEXT $325 B LANDS OUTSIDE CHINA

18Past Performance Is Not Necessarily Indicative Of Future Results.

CURRENT EXPORTERS OF INDUSTRY

19Past Performance Is Not Necessarily Indicative Of Future Results.

PER CAPITA POPULATION GDP

INCOME (MILLIONS) (BILLIONS)

US Northeast 70541 63948 4511.0

US West 67881 52704 3577.6

US Midwest 56477 58673 3313.7

US Resource 56042 63631 3566.0

Germany 48669 82439 4012.2

US South 48621 88340 4295.2

France 42930 65481 2811.1

U.K. 42260 66959 2829.7

Japan 40105 126855 5087.5

Italy 34349 59217 2034.0

South Korea 32046 51339 1645.2

Spain 31059 46441 1442.4

Taiwan 25535 23758 606.7

Saudi Arabia 23186 34141 791.6

CURRENT IMPORTERS OF INDUSTRY

20Past Performance Is Not Necessarily Indicative Of Future Results.

PER CAPITA POPULATION GDP

INCOME (MILLIONS) (BILLIONS)

Greater Shanghai 15567 159695 2485.9

Argentina 14462 45102 652.3

Southeast China 14160 155938 2208.0

Poland 13821 38028 525.6

Russia 10955 143896 1576.4

JinJingJi + SD 10889 211207 2299.9

Turkey 10537 82962 874.2

Brazil 9895 212393 2101.6

Malaysia 9755 32454 316.6

Mexico 9318 132328 1233.0

Chongqing+Hubei+Shaanxi 9087 127037 1154.4

Liaoning+Jilin 8159 71233 581.2

Hunan+Jiangxi 7212 113815 820.9

Venezuela 6890 32780 225.9

Henan+Anhui 6853 156758 1074.2

Peru 6731 32934 221.7

Sichuan 6654 82330 547.9

Thailand 6590 69306 456.7

Colombia 6379 49850 318.0

South Africa 6179 58065 358.8

West China 5860 65736 385.2

Guangxi+Guizhou+Yunnan 5701 131157 747.7

Iran 5289 82821 438.0

NEXT GENERATION FOR INDUSTRY

21Past Performance Is Not Necessarily Indicative Of Future Results.

PER CAPITA POPULATION GDP

INCOME (MILLIONS) (BILLIONS)

Indonesia 3876 269536 1044.7

Dehli & Haryana 3457 42139 146

Philippines 2976 108106 321.7

Egypt 2501 101169 253.0

Maharashtra 2500 112374 281

Telangana 2500 35287 88

Viet Nam 2354 97429 229.3

Karnataka 2400 61095 147

Tamil Nadu 2300 72147 166

Kerala 2300 33406 77

Gujarat 2200 60440 133

Andhra Pradesh 2000 84581 169

Nigeria 1994 200962 400.7

Kenya 1702 52215 88.9

Bangladesh 1602 168066 269.2

Pakistan 1541 204596 315.3

Myanmar 1264 54336 68.7

CHINA CREDIT LEADS THE WORLD ECONOMY

22Past Performance Is Not Necessarily Indicative Of Future Results.

35

40

45

50

55

60

0

250

500

750

1000

1250

1500

1750

2000

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

CHINA SOCIAL FINANCING VS US & EUROPEAN PMI

CHINA SOCIAL FINANCING (12 MO AVERAGE) AVERAGE OF EUROPE & US PMI (3MO AVG) July-19

CHINA FISCAL STIMULUS

IS BECOMING A FLOOD

23Past Performance Is Not Necessarily Indicative Of Future Results.

• Infrastructure -- mostly high speed rail -- raised by $80 billion

• Middle class income taxes and new deductions for key services

• Lowered interest rates and reserve requirements

• Pulled forward $220 billion in state government lending

• Small business loans increased

• Tariffs reduced (even for US) and export rebates increased

• Promised $300 billion in stimulus at National Congress

• Cut VAT from 1% to 3% depending on product

• $45 billion in new tax and fee reductions passed on April 15th

• Changed definition of prime rate to lower costs for SME

• Cumulative over 4% of GDP since mid-2018

CHINA LEADS THE GLOBAL MANUFACTURING

24Past Performance Is Not Necessarily Indicative Of Future Results.

48

49.5

51

52.5

54

45

50

55

60

65

7/1/2012 7/1/2013 7/1/2014 7/1/2015 7/1/2016 7/1/2017 7/1/2018 7/1/2019

China, Eurozone and US PMI

Eurozone US CHINA Jul-19

CHINA & US EQUITIES ARE REBOUNDING

25Past Performance Is Not Necessarily Indicative Of Future Results.

500

1000

1500

2000

2500

3000

1500

2000

2500

3000

3500

4000

4500

5000

1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019

SHANGHAI COMPOSITE S&P 500July 19

CHINESE RAILROAD FREIGHT VS ELECTRICITY PRODUCTION

3 MONTH AVERAGE % CHANGE FROM YEAR AGO 3 MONTH AVERAGE

26Past Performance Is Not Necessarily Indicative Of Future Results.

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

RAIL ELECTRICITY PRODUCTION June-19

CHINA EXPORTS VS IMPORTS

6 MONTH AVERAGE %CH FROM 6 MONTH AVERAGE YEAR AGO

27Past Performance Is Not Necessarily Indicative Of Future Results.

-33.0%

-16.5%

0.0%

16.5%

33.0%

49.5%

66.0%

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

EXPORTS IMPORTS Jul-19

CHINESE PPI IS BOTTOMING

28Past Performance Is Not Necessarily Indicative Of Future Results.

-10

-5

0

5

10

15

1/31/2002 1/31/2004 1/31/2006 1/31/2008 1/31/2010 1/31/2012 1/31/2014 1/31/2016 1/31/2018

CHINA PPICHANGE FROM SAME MONTH A YEAR AGO

Jul-19

MANAGING THE FREE FLOATING YUAN

29Past Performance Is Not Necessarily Indicative Of Future Results.

SCHUMER

RECESSION

PRE LEHMAN EU

CRISIS

CORRUPTION

CAMPAIGN

CURRENCY

BREAK

OOPS

CHINA NOMINAL GDP GROWTH IN US$

CURRENT QUARTER % CHANGE FROM YEAR AGO

30Past Performance Is Not Necessarily Indicative Of Future Results.

0%

4%

8%

12%

16%

20%

24%

28%

32%

36%

Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20

Q2 19

CRUDE OIL

31Past Performance Is Not Necessarily Indicative Of Future Results.

20

40

60

80

100

120

140

Jul-19

COPPER VS SOYBEANS

32Past Performance Is Not Necessarily Indicative Of Future Results.

400

600

800

1000

1200

1400

1600

1800

50

100

150

200

250

300

350

400

450

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Copper SoybeansJul-19