A.) The market is rationally pricing in a “new normal” with low growth, high demand for long-term pension income, and relatively lower risk in low-cost / high-growth countries like Philippines vs. “entitlement expense”-burdened countries like Spain
B.) The bond bubble has reached an unsustainable peak, both in terms of long-term USD rates and credit spreads of EM sovereigns like the Philippines
C.) That financial institutions holding and managing USD for Filipino workers and HNW families (and so generally those that can easily take Phil sovereign risk) have more money than they know what to do with
I only recently heard of the new satellite launch center on China’s Hainan island, famous for tropical holiday spots 450 south-west of Hong Kong. One of my new year’s resolutions is to watch out for launches here and, if allowed as a foreigner, to hopefully go see some of these launches. I of course also like the retro space-race era look of this square cartoon showing its coordinates, but having missed our own Apollo launches by being a bit too young, this “Chinese Cape Canaveral” just might be where I see the next humans launched to the moon…?
For the past two years, I have said that the talk about the imminent rise in G7 interest rates, but especially US interest rates, reminds me of one of my favorite cartoons which I first saw in the 1990s, and found on this tweet to share below. There are of course many other examples of predictions which can end up being very expensive to wait for: a stock market crash, a recovery in the price of oil, a true debt crisis in the US, or the decline of the US dollar as a reserve currency.
In case you don’t recognize the faces in the cartoon, they are the US presidents Dwight Eisenhower (whose presidency started in 1953 and coincided with the Cuban revolution), JFK, LBJ, Richard Nixon, Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush and Bill Clinton, which at the time of the cartoon spanned just over 40 years of Castro in Cuba, and although Fidel passed the torch to his brother Raul in 2008, Fidel’s clock still seems to be ticking in 2015, roughly 60 years after Eisenhower.
ASEAN’s Facebook page occasionally posts statistics about how significant ASEAN as a bloc is in the scope of global emerging markets. Collectively, ASEAN houses over 600 million people with a PPP GDP of US$6.6 trillion, roughly the size of Brazil and Russia combined.
Today’s chart shows that unlike the BRICS or the “Greater RICs” charted in the last two posts, growth since 1980 in ASEAN has not been dominated by any one member but instead has swung back and forth and overall been relatively even. Visually, the Philippines has underperformed before the late 1990s and Thailand has underperformed since the late 1990s, with Vietnam and Myanmar doing a surprising catch-up in relative terms.
The last post pointed out how China economically (and to a far lesser extend, demographically) dominates the BRICS even more than the US dominates the G8 or the Anglosphere.
These days many business people and economists refer to “Greater China” when talking about the greater trading zone of the People’s Republic of China, Taiwan, Hong Kong and Macau without getting debating the politically correct names of each part.
While rarely talked about, one major similarity Russia and India share with China is that all three countries are simply the largest part of what, within the past century, was an even larger country. While no one calls it “Greater India”, one could think of the four countries that split off from the colony of British India (after it had already split off British Burma) as having just as much in common with each other as Xinjiang has with Tainan. Similarly, I don’t know anyone who calls the CIS / former Soviet states “Greater Russia”, but these many countries, for better or worse, still enjoy some benefits from being part of a larger Russian-speaking world (even if as a common second language) and inheriting, among other things, the USSR’s tax and other treaties.
Some notable numbers and observations:
The growth of communist China is striking when noting that Hong Kong and Taiwan used to be over 1/3 of the size of the PRC as recently as the 1980s, and together now add up to less than 8% of the PRC’s economy
While Taiwan is rarely compared with Pakistan, Taiwan’s economy is actually slightly larger than Pakistan’s, but Pakistan’s economy is a relatively larger share of India’s than Taiwan’s is of China’s. This is why it would be especially important to see greater trade between India and its Muslim neighbors in the same way that cross-straits trade has increased for China.
Hong Kong’s economy is about 25% smaller than that of Bangladesh, and 75% larger than that of Sri Lanka
Hong Kong’s economy is also only slightly smaller than that of Kazakhstan, the 2nd largest former Soviet republic, and larger than Ukraine’s.
Macau is the often overlooked part of Greater China, but its economy is larger than that of 5 of the former Soviet Republics: Georgia, Armenia, Tajikistan, Kyrgyz and Moldova.
Of these three groups, Russia is unique in that its economy has underperformed the smaller countries that split off from it. If growth is all you look at, there might be gems for frontier investments in Kazakhstan, Uzbekistan and Azerbaijan.
There are many more comparisons, tables and numbers that can be pulled form here, but this should be yet another wonderful piece of numerical perspective to begin your outlook for 2015…
As the previous post showed how the US economy still dominates both the G8 and the English-speaking world, today’s chart how China came to dominate the BRICs in the past two decades.
Some remarkable things to remember:
Back in 1992 (the first year we have data for Russia after the fall of the Soviet Union), Russia’s economy was slightly larger than China’s, which in term was only slightly larger than India’s and Brazil’s, all in the range of $1-1.5 trillion PPP dollars.
By 2015, China’s PPP GDP has grown to $19 trillion and India’s just under $8 trillion, with Russia and Brazil each just over $3 trillion.
South Africa’s growth has been as slow as Brazil’s and Russia’s, but is often left out of BRIC baskets because its economy is much, much smaller at still only about $700bio in 2015.
Population-wise, India’s and South Africa’s population increased by about 45% in that time, Brazil’s by 35% and China’s by only about 15% while Russia’s population actually declined.
BRIC is often summarized with BR being smaller commodity producers and IC being larger, labor-intensive manufacturing and service economies. Within those pairs, what I find remarkable is not only China’s amazing outperformance, but that it did so with relatively low population growth. This is related to the Chinese demographic time bomb that is often mentioned, also known as “will China get old before it gets rich”
Next post I’ll say a bit more about the RIC and the heart of the BRICS and the countries around them…
I like to begin the new year, and even many new weeks, with some perspective on “big picture” numbers. As we enter 2015, one of the big stories / numbers / trends is China (specifically the PRC) overtaking the US as the world’s largest economy, at least in PPP terms. The BBC’s “More or Less” podcast recently highlighted that there definitely are hazards in using statistics like this to assume market sizes and base business decisions, but the trend is clear: China and the US are clearly the two economic super powers to watch as of the middle of this decade.
Some numbers which may interest / impress / surprise many of my fellow Anglophones:
The UK has roughly the population and GDP of Canada, Australia and NZ combined.
In terms of land area, the UK is slightly smaller than New Zealand, 1/30th the size of Australia and 1/40th the size of Canada
Japan is roughly the population and GDP of the UK, Canada, Australia, and NZ combined.
Japan’s land area is only 50% larger than that of the UK
The US population is still 25% larger and GDP 75% higher than Japan, the UK, Canada, Australia and NZ combined.
To match the US population, simply add Germany to the “JUCAN” basket
To match the size of the US economy, you would need to add Germany, France AND Italy.
In other words, the US is still over half the economies of groups like the G7, and the English-speaking world is still bigger than the whole of the Eurozone. Beyond the G7 / JUCAN, I next look at “Greater China” (which everyone one) and “Greater India” (though almost no one calls it that), followed by ASEAN and the CIS, each of which deserve their own post.
In case you are trying to reach me and manage to find and read this, I lost my phone in China and will be unreachable by email and all messaging apps and social media until I return to Hong Kong on Jan 3rd. I’m posting this via WordPress which should hopefully still push to my Twitter, LinkedIn, Facebook and Google+, though it wasn’t even able to upload a live photo from Fenghuang to this post after 3 tries.
I’d rather not let it ruin my New Year’s outlook and try and see this as an opportunity to start 2015 anew with a very handy reminder.
Meanwhile, have a great New Year’s Eve and toasting to some grounded optimism for 2015!
There are still only 12 countries in the world with over 100 million people: China, India, the US, Indonesia, Brazil, Pakistan, Nigeria, Bangladesh, Russia, Japan, Mexico, and #12 just added this year is the Philippines. The Eurozone does not include any countries with over 100 million population individually, but collectively has a population of over 330 million (just over that of the United States), and many more if you count non-Eurozone users of the Euro, so altogether this gives us an “instant basket” of 12 FX currency pairs against the US dollars that each “cover” over 100 million people each. I put “instant basket” in quotes because this is certainly not the most easy-to-trade currency basket – despite their large populations, many of those currencies have capital controls and other restrictions which make them far more difficult to trade and invest in than relatively “tiny” currencies like the New Zealand dollar or the Norwegian Krone.
Also worth noting: the above currency basket includes all of the BRICs (not South Africa, which is only halfway to the 100 million club), and 7 members of the basket are fully in Asia, 8 if you count the fact that most of Russia’s landmass and resources are in Asia if not its population.
Not surprisingly, the far and away worst performer of these 12 currencies in the 2014 FX market (marked by a strong dollar trend and downward pressure on petrocurrencies) is the Russian Ruble.
What was surprising (to me at least) was that in a year where the US dollar strengthened against the Euro, Yen, Gold and Oil, the dollar actually weakened against two of the absolute riskiest and most difficult currencies in this basket: the Pakistani Rupee and the Bangladesh Taka. These two countries split apart in 1971 after being a single country partitioned from India in 1947, and I have no idea if there has somehow been some barbell of trade and stability between these two countries this year that have managed to help their currencies outperform India’s in 2014, despite India having stronger fundamentals and a better position to benefit from 2014’s decline in oil prices. Bangladesh and Pakistan are also the two countries in the above basket with the worst credit rating: S&P rates Pakistan B- and Bangladesh BB-, which along with Nigeria make the only 3 remaining non-investment grade countries in this club of 12. Anyone who held the tracker ETFs of Bangladesh or Pakistan listed in HK or Singapore would have benefited from this otherwise hard-to-explain and hard-to-access currency appreciation, but I still admit these are three countries in the basket I know the least about, even from an economic and statistical perspective.
For 2015, I’m going to focus on the part of this basket with higher real interest rates AND in case the dollar gives back some of its 2014 gains…
At the risk of offending those who say it (I’m not a big fan of political correctness anyway), “Happy Holidays” to me is little more than a polite way of saying “I don’t care to know enough about you to bother learning which holidays you do or do not celebrate, and even though Christmas is obviously the dominant holiday this month, I don’t want to say that in case that just doesn’t happen to be your holiday.”
Maybe I’m too worldly, but I would never be offended if someone said to me “Eid Mubarak”, “Mazel Tov”, or “Happy Holi”, and I don’t see anyone getting too worked up about saying “Happy Holidays” around Hari Raya, Yom Kippur, or Diwali as they do with Christmas. Oddly enough, I have found the biggest prevalence of “Happy Holidays” in the US and Canada, which are, at least according to maps like the one below, among the most Christian countries in the world. Here in HK, which seems to be a pink dot on the map surrounded by Singapore, Indonesia, and Korea, the malls do an amazing job putting up decorations, and while there are probably as few nativity scenes here as there would be in most major US cities, “Merry Christmas” is not unheard of. Even the “grey” countries of China and India may not have a large percentage of Christians in their populations, but each have more Christians than Germany, and between the two I’d expect China to be the far bigger celebrator of Christmas in the coming decade. The Philippines is still a country where I’d love to celebrate Christmas one year, even if it’s after the days of rolling blackouts to power those large displays which are so famous there.
Thank you again for visiting and reading, and have a very Merry Christmas this year, even if it’s not your biggest holiday this month.