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VictoriousChina

In 2008, China presented a balance sheet that was relati-

vely better than that of emerging countries but also than

the rest of the world. China has not experienced a real

liquidity crisis. In fact, if in the United States, it were possible

to obtain a mortgage of more than 100% of the propertys real

value, Chinese banks according to The Economist, demanded

a 20 to 30% deposit. Thus, this policy enabled the country

to protect itself from a market volte-face, by accumulating

monetary protection. To this we add the fact that Chinese

banks unlike Western banks, obtain their liquidity from depo-sits, the two-thirds of which are allocated to loans at a lower

rate than in the West. The Chinese usually get into debt up

to 13% of the GDP, against 100% in the United States. As a

result, the population was able to exhibit delightful purcha-

sing power for retail sales. Faced with slowing global growth,

China should cope well, as the crisis is beneficial for it in terms

of reducing the threat of economic overheating, which it was

seeking to solve.

For 2009, the World Bank reviewed its estimate of an initial

growth of the Chinese economy by 9.2% to 7.5%, according

to information from the AFP. The Bank estimates that this

reduction would sever the countrys GDP by somewhat lessthan one point, but that the Chinese economy has become

moderate in order to reach a more viable pace. By the end of

the year, China should thus, pass below 10%, against 11.9%

for the previous year.

These projections have been thwarted by the announcement

of the New China agency, which presents a gure of 10% for

2009. In a AFP press release, Zhang Liqun, an economist at

the research Center for Development, an advisory board of the

Chinese government, argues that the dynamism reected by

this rate is linked to the countrys internal impulsion capacity:

Although the weak global economic climate has led to a

weakening in external demand, the important potential of

the countrys development will enable the Chinese economy

to maintain a high growth rate. According to Mr. Zhang, the

rural exodus of millions of Chinese to the various cities across

the country and the increased individual earnings will lead to

keeping-up a certain economic dynamism. Thus, the strong

demand for housing and cars would also contribute to the

assurance of a certain stability. Despite these claims, it seemsthat the 9% growth recorded in the third trimester shows the

lowest rate experienced by the Asian giant for more than ve

years, which could raise doubts concerning the optimism of Mr.

Zhang for the year 2009. The government, however, predicts a

growth of 8 to 9% during the following year, agure conrmed

by the Central Bank governor Zhou Xiaochuan. The World

Bank claims to this eect that Beijing has drawn up an action

plan from the previous summer, aiming to revive its economy

over a period of two years by injecting the equivalent of 586

billion dollars. Enforced two weeks ago, it should contribute to

support growth, with China focusing on an increase in invest-

ments and a strengthening of macroeconomic strategies.

If the World Bank estimates were to be accurate, in 2009, China

would suer its lowest growth for 19 years. However, thanks

to its tax plan, it should be able to compensate the losses from

the decline in exports. Let us emphasize that loans represent

0.7 times the banks savings, putting the country in a favorable

position, in opposition to Russia, for example, where the ratio

is of 1.6, or to Korea, where it is yet at 1.4.

Joseph Allimann

34 Market500.eu | winter 2008 -2009

D IST INCT ION

china

Distinction


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Herms, anexception onthe luxury market

Luxury market

From 1st January

to 13th November 2008.

Distinction

W

hile the global market for luxury products

seemed to have been spared by theeconomic crisis, most prestigious brands are

beginning to suffer the effects of the global slowdown.

However, on the European luxury landscape, the

Hermes International company is well and truly withs-

tanding the stock-market turmoil.

For therst nine months of 2008, Hermes turnover was

set at 1.22 billion Euros up by 9.7% at current exchange

or 14% at constant exchange. By mid-November,

while all the values of European luxury such as LVMH,

Richemont or Burberry displayed decreases comprised

between 30% and 80% since January 1, Hermes showed

an increase of 31% (see chart). In a completely boomingluxury market, the growth of Hermes never appeared as

exceptional. It is only in slowdown phase that it unveils

its strength, which results from various aspects.

This year, six new family members were appointed

to the management committee, demonstrating the

commitment of the founders descendants to the brand.

Despite the repeated denials pertaining to a possible

change in the shareholding of the group, of which 73%

are family shareholders, the evaluation of the Hermes

International title is unanimously considered excessive

by analysts. Another of the brands assets is that Hermes

bene

ts from its status of defensive security of luxury.Its products are ranked in the very high-end and waiting

lists for its famous Kelly and Birkin bags ensure a

certain income. In connection with the brands notoriety,

Hermes ability to raise prices and withstand the eects

of fashion also plays an important part.

At the end of 2008, however, Patrick Thomas, antici-

pated a slight decrease in the growth of the group,

bringing agure initially estimated at 12,% down to 9 or

10% for the whole year.

Aurlie Despont

35Market500.eu | winter 2008 -2009

D IST INCT ION

company


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company

Omaha,the superhero

Nicknamed the Oracle of Omaha, Warren

Buffet, is known for his businessmans skill, for

his Berkshire Hathaway investment fund and

his generous donations to charity. He mainly concen-

trates his investments in undervalued companies with

good growth potential in the long term. His formula is

thus summed up: acquiring easy-to-understand busi-

nesses, at fair prices in a perspective of evaluation in

the long term.

According to him, emerging from the nancial crisis

is slow and painful. However, having become the

richest man in the world in 2008, he a

rmed his faithin the future of the U.S. economy. Despite the current

crisis, and thanks to a fortune amounting up to 62

billion dollars, he has increased his investment on the

markets as it is when the stock market is at its lowest

that one must take advantage . Indeed, last September,

when the credit market was frozen and shares were

collapsing, he invested 3 billion dollars in the conglom-

erate of General Electrics, which in his view, is the very

symbol of America. His preferred shares in GE yielded

him a 10% dividend.

In addition, he injected 5 billion dollars in the Goldman

Sachs investment bank. To these are added negotiationsabout the U.S. group Constellation Energy. In addition,

last October, he stated in an interview to CNBC, that

he was ready to participate up to 1%, in the prots and

losses of the Paulson plan which must be funded with

700 billion in order to stabilize the American nancial

sector. Thus, Warren Buet was not overshadowed by

the crisis, but has been conferred the status of incompa-

rable businessman.

Florine Allimann

Distinction

D IST INCT ION

investment


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consumers, faced with the halting of loans by their banks, used their

credit cards but at reimbursement rates that can only be described

as usury, at 25 to 30%. Millions of Americans will

nd themselveswithout a home, car or a credit card, which will generate a very rest-

less market, where volatility will become even more important and

the amounts pledged for the Paulson plan will not be sucient. The

English have reacted very well during this crisis by using the 90s

Swedish model, the crisis of Sweden in 1995-96 being very similar

to the current one. In 1995, Sweden experienced anancial deregu-

lation, a real-estate bubble, a decrease in household savings which

reached a negative level and the near-bankruptcy of major banks. It

took three negative years before experiencing a recovery.

We must expect 2009 to be a very tough year, where the winners

will be the Chinese and Japanese, rolling in cash and who will be

tempted to do their shopping in Eu-rope and the United States. They know

their targets and will buy the right

companies at the best price without

overestimating them, as was the case

of the Japanese in the 1980-90. The

Chinese have a great advantage: that

of being able to rely on sound public

nances and large cultivated and intel-

ligent communities, based in Europe

and the United States. China will act

as a shrewd industrial treasurer, while

respecting the social morality of the concerned countries. It under-stood that it could win ten years of industrial technology with this

crisis. It demonstrated, through its Olympic Games, that it is a great

nation, able to listen, to adapt itself and to succeed. Especially since

the next decade will be African. The new continent that will exhibit

a spectacular growth will be Africa. China has wonderfully succeed-

ed in its implantation. For China, this is an interesting growth relay

and a gateway to Europe.

It should succeed in its investment in its domestic economy by inject-

ing massive sums of money in urbanization projects, new energy,

such as solar energy, where, in a short period of time, groups such

as Suntech will become leaders. The Gulf States have realized the

benets of investing in China, with these major groups that provide

a visibility as well as a steadily-increasing domestic consumption.

We should witness industrial alliances between sovereign fundsof Qatar or the UAE, and Chinese mining, banking and industrial

groups. This nancial power will open signicant opportunities in

Europe and the United States.

The latter, who should announce a Marshall Plan of the green econ-

omy will experience a dicult year 2009. But thanks to their open-

ing-up on China and Japan and to their ability to bounce back rapidly,

they should emerge from the crisis faster than Europe.

The latter is facing several challenges: protecting its banks, its in-

dustrial tool and its currency, curbing ination and controlling un-

employment. All this with onits doorstep, formerly East-

ern countries in a state of

implosion, and needing to be

nanced and the challenge

of accepting Russia within

its union: the only answer

to a current Russia which is,

authoritarian, expansionist,

with a backward industrial

level, living on its natural

resources, contemptuous of

its people and whose nuclear nuisance is important. Being short ofcash, will they not be tempted, to sell nuclear weapons to Iran, the

mullahs of which have become wealthy during this oil speculation?

In 2009, the danger, in terms of geopolitics, will concern Russia and

how Europe will manage it.

In this new year, there will be many opportunities in the real estate

eld in the United States and Europe, where gold will change hands

and prots will be considerable. Banks such as Morgan Stanley and

Goldman Sachs are expected to experience a signicant success. Pri-

ority will be given to investment in new energy and in the pharma-

ceutical industry.


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