a member of the firstrand group 2010 - a bumpy road ahead? speakers tristan hanson jonathan schiessl...
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A member of the FirstRand Group
2010 - a bumpy road ahead?
SpeakersTristan HansonJonathan SchiesslCraig Farley
Investment Presentation Jersey – February 2010
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Climate changeTristan HansonCrisis, Recovery…What Next?Investing in an Uncertain World
May 2010
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A stronger than anticipated recovery
Source: IMF
IMF growth forecasts: 2010
-2
0
2
4
6
8
10
12
EU Japan USA Asian
NICs
Brazil India China
%
Apr '09 forecast
Apr '10 forecast
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Agenda
Three Issues:
Sovereign debt in developed countries
Is China’s growth sustainable?
US unemployment & consumer spending
Implications for asset allocation
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Why Greece?
Loss of credibility
Persistent budget deficits
Unsustainable debt dynamics
debt outstanding
size of budget deficit
demography
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Greek finances: worst of a bad bunch
Budget Surplus/Deficit (% of GDP)
Avg: 2006-08 2009 2010
Germany -0.5 -3.3 -5.0
Greece -5.5 -13.6 -9.3
Ireland -1.4 -14.3 -11.7
Italy -2.5 -5.3 -5.3
Portugal -3.1 -9.4 -8.5
Spain -0.1 -11.2 -9.8
UK -3.5 -11.5 -12.0
US -2.1 -9.9 -9.4
Source: EC, CBO, IMF, Barclays Capital
Gross Public Debt (% of GDP)
0
20
40
60
80
100
120
140
US
UK
Ger
man
yFr
ance
Gre
ece
Spai
n
Italy
Irela
ndPo
rtuga
l
2007
2010
48 44
65 64
95
36
103
25
64
7670
7885
125
66
117
75
84
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Euro periphery compared
Source: Bloomberg
Debt (€m) Credit Rating% debt
external Debt Issuance (€bn)
S&P Fitch 2010 2011
Greece 273 BB+ BBB- 75 55 40
Portugal 126 A- AA- 72 21 21
Ireland 105 AA AA- 86 25 24
Spain 560 AA AAA 60 97 122
Italy 1,761 A+ A+ 55 250 220
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Greek contagion: how serious is it?
Source: Bloomberg
European 10yr bond yields
May'10 Change YTD (bps)
Germany 2.9 -53
Netherlands 3.1 -50
France 3.2 -44
Italy 4.1 -7
Spain 4.2 20
Ireland 5.6 73
Portugal 5.8 174
Greece 10.2 440
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No contagion to core of Euro-area
Source: Bloomberg
German & French 10yr bond yields
2.5
3.0
3.5
4.0
4.5
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Germany
France
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Scepticism merited when price drives opinion
Oct. 16 (Bloomberg) – “The dollar will extend its drop versus the euro over the next two to five years, falling as much as 20% to an all-time low under a widening budget deficit, Harvard University’s Professor Niall Ferguson said.”
Source: Bloomberg
US dollar strength
1.25
1.30
1.35
1.40
1.45
1.50
1.55May-09 Aug-09 Nov-09 Feb-10 May-10
€/$
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Conclusion: “nothing to fear but fear itself?”
Europe’s Achilles heel: one currency, 16 finance ministers
EU/IMF deal should ringfence Greece into 2012
Spain & Italy: too big to save = too big to fail?
Austerity packages are deflationary
Printing money can eliminate default risk in low inflation world (US, UK)
Behavioural Perspective: the legacy of the 2008 financial crisis is still with us…are we now preconditioned to fear the worst in any shock/contagion event?
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China: stimulus-led recovery
Source: World Bank
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Chinese property: bubble territory?
Source: World Bank
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China’s growth potential remains huge
Source: PWT, WB
GDP per capita (US$, PPP terms)
Brazil 10,080
South Africa 9,790
Colombia 8,430
Ecuador 7,780
Jamaica 7,370
Namibia 6,250
China 6,010
Sri Lanka 4,460
India 2,930
Sierra Leone 770
GDP per capita relative to the USAPPP terms
0
10
20
30
40
50
60
70
80
90
100
19
52
19
57
19
62
19
67
19
72
19
77
19
82
19
87
19
92
19
97
20
02
20
07
%
Japan
Taiwan
Korea
China
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China: industrial profitability has improved
Source: Macquarie
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US household balance sheet
Source: Federal Reserve, Bloomberg
0
100
200
300
400
500
600
700
800
19
52
19
57
19
62
19
67
19
72
19
77
19
82
19
87
19
92
19
97
20
02
20
07
% o
f d
isp
osa
ble
inc
om
e
Assets
Net Worth
Debt
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Debt remains high; service cost declining
Source: Federal Reserve
9
10
11
12
13
14
Mar
-80
Mar
-83
Mar
-86
Mar
-89
Mar
-92
Mar
-95
Mar
-98
Mar
-01
Mar
-04
Mar
-07
% o
f d
isp
os
ab
le i
nc
om
e Debt Service Ratio
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US: job losses vs GDP declines
Source: Bloomberg, Barclays Capital
Declines in US GDP & Employment compared
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
Avg: 1950-2000 2001/02 2008/09
GDP Employment
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Replica Asset Management: asset allocation
Source: Ashburton
Replica Asset ManagementAsset Allocation (28/04/10)
33
16105
32
11
5
15Equities*Govt/quasi-govtInflation-protectedDM - IG corporateDM - High Yield corporateEM - IG corporateEM - govt/quasi-govtFRNsEffective Cash
*net of put optionsDM=developed marketsEM=emerging markets
Currency Weightings (%) – 30/04/10
£ $ €
EU - - 72
US - 90 5
UK 95 - 8
JPN - - -
ASIA 4 9 14
Other 1 1 1
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Replica Asset Management: performance
Source: Lipper
Ashburton Replica Sterling Asset Management
MSCI World TR LC
Percentage Growth Total Return, Tax Default, In LC
3 Years From 30/03/2007 To 31/03/2010
PercentageGrowth
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
04/2007 07/2007 10/2007 01/2008 04/2008 07/2008 10/2008 01/2009 04/2009 07/2009 10/2009 01/2010
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