Disaster movie amazonaws com
Investment update 19 November 2009
For professional investors only
Disaster movie Owning the Japanese yen as a proxy for the development of China
Stewart Cowley, Head of Fixed Income and manager of the Old Mutual Global Strategic Bond Fund and the Old Mutual Dynamic Bond Fund Stewart joined OMAM in June 2009 from Newton Investment Management where he held a similar role and managed the Newton International Bond Fund and BNY Mellon Global Bond Funds, both rated AAA by Standard & Poor’s. He has more than 20 years’ experience of global fixed income markets, having begun his career in 1987 as a broker before subsequently switching to fund management.
In a moment of loneliness (my usual disaster movie buddy has gone to university this year) I took myself off to see ‘2012’ which is a cheerful thing to watch on a Saturday afternoon. Without spoiling the plot, it’s enough to say that because of mysterious microwaves from the sun heating up the core of the earth, the crust slips round changing the geography of the world. The US occupies the place where the north pole currently is and enters a metaphorical and physical ice age, China saves the world by building metal arks and we all move to Africa because it’s the highest place on earth. As a species we sort of go home. You don’t have to be very deep to get the message. In many senses ‘2012’ is an important film: it’s the first overt criticism of western decadence and acknowledgement that going forward there is a transfer of power occurring. Hollywood invariably is very good at reflecting realities that the general public hasn’t quite caught up with yet. You only have to look at how there is continuous inward investment into China despite the travails of the western ice age. There have been lumps and bumps along the way, but currently foreigners are investing about $70 billion annually and the total is only increasing as the years go by (see chart 1). In the past 10 years foreigners have invested nearly $700 billion. Chart 1: China - annual foreign direct investment 110 100 US dollars (bn)
90 80 70 60 50 40 30 00
01
02
03
04
05
06
07
08
09
Source: Bloomberg
In economic terms $70 billion a year isn’t very significant: the Chinese currently have $2.2 trillion sitting in their bank account. But as an ‘emerging nation’ this is interesting. This is the first occasion in history when a new economic superpower has emerged onto the world stage with a full bank account. Usually you have to either borrow your way to a seat at the top of the table or sell off your natural resources. Page 1 of 2 Contact details +44 (0)20 7332 7500 www.omam.co.uk
Please see important information overleaf
Investment update
Old Mutual Asset Managers (UK)
By having money the Chinese can simultaneously plan ahead and smooth the economic cycle so that a plan that ensures global economic dominance in the next 20 years comes to pass. Given the current state of things it is more than likely that this will occur much quicker than most people and politicians are able or willing to admit. Chart 2: China - annual imports from Japan 180,000 160,000
US dollars (bn)
140,000 120,000 100,000 80,000 60,000 40,000 20,000 00
01
02
03
04
05
06
07
08
09
Source: Bloomberg
More to the point, old assumptions begin to break down. For instance, the idea that Japan is slavishly attached to the west, dutifully creating goods then recycling the earnings back to the west in order to support consumption, is just too cosy to keep on going forever. Although many of us understand the challenges facing Japan due to its aging population, it is unthinkable that they are about to stand by and idly allow the ravages of time to have their way. It is noticeable that imports from Japan have been almost relentlessly increasing over the years (there has been a sneeze recently as everyone has been caught in the US ice age) but with the Chinese ability to stimulate their economy at will, you can only assume that this will resume again in the near future. In that sense we shouldn’t write off the Japanese yen as a symbol of the development of the ‘new America’ that is China, as the two economies will synchronise and move on together. Page 2 of 2
Contact details +44 (0)20 7332 7500 www.omam.co.uk Important information: Past performance is no guarantee of future results. The value of an investment and the income from it can fall as well as rise and investors may not get back the amount originally invested. OMAM has no house market view and opinions expressed are the views of individual fund manager(s) as at the time of writing. These views may no longer be current and may have already been acted upon. Any underlying research or analysis has been procured by OMAM for its own purposes and may have been acted on by OMAM or an associate for its or their own purposes. OMAM is the appointed investment adviser for Old Mutual Fund Manager’s in-house OEIC funds. Old Mutual Asset Managers is the trading name of Old Mutual Asset Managers (UK) Limited and Old Mutual Fund Managers Limited. Old Mutual Fund Managers Limited, 2 Lambeth Hill, London EC4V 4AD. Authorised and regulated by the Financial Services Authority. A member of the IMA. Old Mutual Asset Managers (UK) Limited, 2 Lambeth Hill, London EC4P 4WR. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded for security purposes and to improve customer service. U4926/11/09
For professional investors only
Disaster movie Owning the Japanese yen as a proxy for the development of China
Stewart Cowley, Head of Fixed Income and manager of the Old Mutual Global Strategic Bond Fund and the Old Mutual Dynamic Bond Fund Stewart joined OMAM in June 2009 from Newton Investment Management where he held a similar role and managed the Newton International Bond Fund and BNY Mellon Global Bond Funds, both rated AAA by Standard & Poor’s. He has more than 20 years’ experience of global fixed income markets, having begun his career in 1987 as a broker before subsequently switching to fund management.
In a moment of loneliness (my usual disaster movie buddy has gone to university this year) I took myself off to see ‘2012’ which is a cheerful thing to watch on a Saturday afternoon. Without spoiling the plot, it’s enough to say that because of mysterious microwaves from the sun heating up the core of the earth, the crust slips round changing the geography of the world. The US occupies the place where the north pole currently is and enters a metaphorical and physical ice age, China saves the world by building metal arks and we all move to Africa because it’s the highest place on earth. As a species we sort of go home. You don’t have to be very deep to get the message. In many senses ‘2012’ is an important film: it’s the first overt criticism of western decadence and acknowledgement that going forward there is a transfer of power occurring. Hollywood invariably is very good at reflecting realities that the general public hasn’t quite caught up with yet. You only have to look at how there is continuous inward investment into China despite the travails of the western ice age. There have been lumps and bumps along the way, but currently foreigners are investing about $70 billion annually and the total is only increasing as the years go by (see chart 1). In the past 10 years foreigners have invested nearly $700 billion. Chart 1: China - annual foreign direct investment 110 100 US dollars (bn)
90 80 70 60 50 40 30 00
01
02
03
04
05
06
07
08
09
Source: Bloomberg
In economic terms $70 billion a year isn’t very significant: the Chinese currently have $2.2 trillion sitting in their bank account. But as an ‘emerging nation’ this is interesting. This is the first occasion in history when a new economic superpower has emerged onto the world stage with a full bank account. Usually you have to either borrow your way to a seat at the top of the table or sell off your natural resources. Page 1 of 2 Contact details +44 (0)20 7332 7500 www.omam.co.uk
Please see important information overleaf
Investment update
Old Mutual Asset Managers (UK)
By having money the Chinese can simultaneously plan ahead and smooth the economic cycle so that a plan that ensures global economic dominance in the next 20 years comes to pass. Given the current state of things it is more than likely that this will occur much quicker than most people and politicians are able or willing to admit. Chart 2: China - annual imports from Japan 180,000 160,000
US dollars (bn)
140,000 120,000 100,000 80,000 60,000 40,000 20,000 00
01
02
03
04
05
06
07
08
09
Source: Bloomberg
More to the point, old assumptions begin to break down. For instance, the idea that Japan is slavishly attached to the west, dutifully creating goods then recycling the earnings back to the west in order to support consumption, is just too cosy to keep on going forever. Although many of us understand the challenges facing Japan due to its aging population, it is unthinkable that they are about to stand by and idly allow the ravages of time to have their way. It is noticeable that imports from Japan have been almost relentlessly increasing over the years (there has been a sneeze recently as everyone has been caught in the US ice age) but with the Chinese ability to stimulate their economy at will, you can only assume that this will resume again in the near future. In that sense we shouldn’t write off the Japanese yen as a symbol of the development of the ‘new America’ that is China, as the two economies will synchronise and move on together. Page 2 of 2
Contact details +44 (0)20 7332 7500 www.omam.co.uk Important information: Past performance is no guarantee of future results. The value of an investment and the income from it can fall as well as rise and investors may not get back the amount originally invested. OMAM has no house market view and opinions expressed are the views of individual fund manager(s) as at the time of writing. These views may no longer be current and may have already been acted upon. Any underlying research or analysis has been procured by OMAM for its own purposes and may have been acted on by OMAM or an associate for its or their own purposes. OMAM is the appointed investment adviser for Old Mutual Fund Manager’s in-house OEIC funds. Old Mutual Asset Managers is the trading name of Old Mutual Asset Managers (UK) Limited and Old Mutual Fund Managers Limited. Old Mutual Fund Managers Limited, 2 Lambeth Hill, London EC4V 4AD. Authorised and regulated by the Financial Services Authority. A member of the IMA. Old Mutual Asset Managers (UK) Limited, 2 Lambeth Hill, London EC4P 4WR. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded for security purposes and to improve customer service. U4926/11/09
