unemployment rate real gdp growth
September 2013
Geopolitical Risks & Opportunities In The Age Of Atrophy
Marko Papic
Chief Strategist Geopolitical Strategy
GEOPOLITICS IS NOT JUST ABOUT ‘TAIL RISK’
BCA Asset Allocation Model: • Growth • Valuations
• Liquidity • Momentum (technical analysis) • Risk • Discretion ← GEOPOLITICS
2
GEOPOLITICS = BLINDSIDE
3
(MIS)PRICING GEOPOLITICAL RISK
100
GOOGLE NORTH KOREA REFERENCES*
100 And what now?
80
80
60
60
40
40
20
Cheonan sinking
Yeonpyeong Shelling
Kim Jong-Il dies
Failed missile launch
Third nuclear test
0
20
0 © BCA Research 2013
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL 2010 2011 2012 2013 4
* INDICATOR REPRESENTS NUMBER OF GOOGLE SEARCHES OF "NORTH KOREA" RELATIVE TO PAST SEARCHES OF THE TERM. THE INDICATOR IS NORMALIZED AND MEASURED ON A 0-100 SCALE.
WHERE TO FROM HERE…
• Risks And Opportunities In 2014 o Defining Year For EM
o Europe: A Bargain? o Tensions Shift From MENA To Asia • Age Of Atrophy: A Decade Forecast
5
MAJOR BCA THEME: LONG DM / SHORT EM POLITICAL RISK IS APPROPRIATELY PRICED IN DM, BUT NOT EM Th USD
EMERGING MARKETS*: BCA GOVERNANCE INDICATOR** (LS) -.20 GDP PER CAPITA*** (RS)
4200
1.2
BCA GOVERNANCE INDICATOR*
1
4000
0.8
-.22 3800
0.6
-.24 0.4
3600
0.2
-.26 3400
Emerging Markets
0
Developed Markets
-.28 3200
© BCA Research 2013
2000 02 *
6
04
06
08
10
-0.2 © BCA Research 2013
12
INCLUDES CHINA, BRAZIL, RUSSIA, INDIA, MEXICO, INDONESIA, TURKEY, MALAYSIA, THE PHILIPPINES, THAILAND, AND SOUTH AFRICA. ** SOURCE: WORLD BANK AND BCA RESEARCH. *** WEIGHTED BY POPULATION.
* SHOWN USING 2011 DATA. SOURCE: WORLD BANK AND BCA RESEARCH.
EM BEAR MARKET: MORE TO COME Bn USD
360
CUMULATIVE* NET FOREIGN PURCHASES OF EMERGING MARKET EQUITIES
Bn USD
%
%
EMERGING MARKETS SOVEREIGN YIELD*
360 14
14
320
320
280
280
12
12
240
240
10
10
200
200
8
8
160
160
6
6
4
4
© BCA Research 2013
06 7
08
© BCA Research 2013
10
12
* CUMULATIVE SINCE JANUARY 1999; INCLUDES KOREA, TAIWAN, INDIA, THAILAND, INDONESIA, THE PHILIPPINES, AND SOUTH AFRICA.
2000 02
04 06 08 10
12 14
* EXCLUDING VENEZUELA AND ARGENTINA. SOURCE: J.P. MORGAN CHASE & CO.
2014: YEAR OF ELECTIONS
8
Country
Election Date
Government In Power Since…
Turkey
Aug-Oct 2014 – Presidential Jun 2015 – Legislative
2002 (AKP)
India
May 2014 – Legislative
2004 (Congress)
Indonesia
Apr 2014 – Legislative Jul 2014 – Presidential
2009 (Demokrat)
Brazil
Oct 2014 – Presidential Oct 2014 – Legislative
2002 (PT - Lula/Rousseff)
South Africa
Apr 2014 – Legislative
1994 (ANC)
Russia
Dec 2016 – Legislative Mar 2018 – Presidential
1999 (Putin)
Mexico
Jul 2015 – Legislative Jul 2018 – Presidential
2012 (PRI)
EQUITY PRICE LEVEL RELATIVE TO WORLD
GROWTH ≠ EQUITY RETURNS
19
GDP GROWTH AND EQUITY PERFORMANCE: NO CORRELATION 1993-1998 2003-2008
14
1998-2003 2008-2013
9
4
© BCA Research 2013
-10
0
10
20
30
40
AVERAGE GDP GROWTH 9
SOURCE: MSCI (SEE COPYRIGHT DECLARATION), IMF WORLD ECONOMIC OUTLOOK. NOTE: DATA POINTS REPRESENT CHINA, BRAZIL, INDIA, RUSSIA, SOUTH AFRICA, SOUTH KOREA, TAIWAN, MALAYSIA, CHILE, MEXICO, AND SINGAPORE IN FOUR TIME PERIOS.
CHINA: ONE COUNTRY, TWO ECONOMIES USD GDP PER CAPITA BY PROVINCE (2012)
16,000
EASTERN REGION CENTRAL REGION WESTERN REGION
14,000 12,000 10,000
SOURCE: CEIC.
10
GUIZHOU
GANSU
YUNNAN
TIBET
JIANGXI ANHUI
SICHUAN
GUANGXI
HAINAN HENAN
HUNAN QINGHAI
SHANXI
XINJIANG
HEILONGJIANG
NINGXIA
HEBEI
SHAANXI
CHONGQING
JILIN
SHANGDONG
FUJIAN
GUANGDONG
LIAONING
ZHEJIANG
JAINGSU
BEIJING
2,000
TIANJIN
4,000
SHANGHAI
6,000
INNER MONGOLIA
8,000
HUBEI
Level at which South Korea and Taiwan began democratization
© BCA Research 2013
EUROPE: ‘WHATEVER IT TAKES’ % 8
Greece Bailout
% Ireland Bailout
Portugal Bailout
7
3-Year LTROs Announced Draghi: “Do whatever it takes”
7
6
6
5
5
4
4 Spain
3 2
3 2
1
2-YEAR GOVERNMENT BOND YIELDS
Italy
© BCA Research 2013
2010 11
8
2011
2012
2013
1
SOCIAL UNREST IS A ‘RED HERRING’ %
% PERCENT OF RESPONDENTS IN FAVOR OF THE EURO: GREECE SPAIN FRANCE ITALY
80
% PERCENT OF VOTING INTENTIONS:
80
80
60
40 70
70
60
50
ITALY: CENTRIST PARTIES 5S MOVEMENT
40
Italian election
80 SPAIN: CENTRIST PARTIES UNITED LEFT
06
08
SOURCE: EU COMMISSION.
12
10
12
60 40 20
© BCA Research 2013
04
40
%
20 02
60
20
80 60
50
80
20
% 60
%
© BCA Research 2013
2012
2013
SOURCE: VARIOUS NATIONAL SOURCES.
YOUTH IS NOT POLITICALLY RELEVANT %
% YOUTH POPULATION AS SHARE OF TOTAL POPULATION*: EUROPEAN PERIPHERY** MIDDLE EAST
30
30
Youth relevant
25
25
20
20
Youth irrelevant
© BCA Research 2013
96 13
98
2000
02
04
06
* AGES 15-30. SOURCE: U.S. CENSUS BUREAU. ** INCLUDES: GREECE, ITALY, PORTUGAL, SPAIN, AND FRANCE.
08
10
12
14
IS THE ADJUSTMENT HAPPENING?
HARMONISED COMPETITIVENESS INDICATORS BASED ON GDP DEFLATORS
140
GERMANY FRANCE ITALY SPAIN NETHERLANDS GREECE IRELAND PORTUGAL
130
120 110
140
Less competitive
130 120
Spain
110
Convergence
100
100 Greece More competitive
90
90
Germany
80
98 14
80
© BCA Research 2013
2000
02
04
06
08
10
12
14
SOURCE: ECB HARMONISED COMPETITIVENESS INDICATORS BASED ON GDP DEFLATORS RELATIVE TO TOP 20 TRADING PARTNERS. REBASED TO Q1 1999 = 100.
IS EUROPE CHEAP?
3.5
EURO AREA: REAL EQUITY PRICES* TREND TREND +/- TWO STANDARD DEVIATIONS
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0 © BCA Research 2013
75 15
80
85
90
95
2000
05
10
15
* DEFLATED BY CONSUMER PRICE INDEX. SHOWN AS A NATURAL LOGARITHM. TIME TREND: 1975 - PRESENT.
GERMAN/CORE CONSUMPTION %
8
%
POLICY RATE: ECB OFFICIAL RATE PERIPHERY TAYLOR RULE* CORE TAYLOR RULE
8
% Of GDP
GERMANY: DOMESTIC DEMAND* (LS) CONSUMER SERVICES STOCKS VS. MARKET
82
1.0
80 6
6
.8 78
4
4 76
.6
2
2
0
0 © BCA Research 2013
06 16
08
74 72
.4 © BCA Research 2013
10
12
92
96 2000 04
08
* TAYLOR RULE INCLUDES INFLATION AND THE * CONSUMPTION AND INVESTMENT; UNEMPLOYMENT GAP. SOURCE: EUROSTAT. FOR ADDITIONAL DETAILS PLEASE SEE: NECHIO, FERNANDA, "MONETARY POLICY WHEN ONE SIZE DOES NOT FIT ALL,” FRBSF ECONOMIC LETTER (JUNE 2011).
12
RISKS IN 2014 • Portugal/Greece OMT/bailouts • ECB ‘Stress Tests’ = Recapitalization For Spain Ann% Chg
Ann% Chg
REAL GDP GROWTH
2 1 0 -1 -2
2 1 0 -1 -2
FOR BOTH PANELS: FRANCE MINUS GERMANY
%
6
%
6
UNEMPLOYMENT RATE
4
4
2
2
0
0
-2
© BCA Research 2013
70 17
• Greek Primary Surplus • And… FRANCE:
75
-2 80
85
90
95
2000
NOTE: VERTICAL LINE DENOTES OFFICIAL LAUNCH OF THE EURO AREA.
05
10
15
MYTH: GERMANS ARE EUROSKEPTICS, FRENCH ARE EUROPHILES %
SUPPORT FOR EURO AREA BAILOUTS 50
…but rising in Germany
Falling in France…
45
40
35
© BCA Research 2013
2010
2012 FRANCE
18
2013
2010
2012
2013
GERMANY
NOTE: THE SURVEYED RESPONDENTS WERE ASKED: “DO YOU THINK THE (SURVEY COUNTRY) GOVERNMENT SHOULD PROVIDE FINANCIAL ASSISTANCE TO OTHER EUROPEAN UNION COUNTRIES THAT HAVE MAJOR FINANCIAL PROBLEMS?” THE RESPONSE SHOWN ABOVE ONLY USES THE PERCENT OF RESPONDENTS WHO ANSWERED “YES”. SOURCE: PEW (2013).
GERMAN ELECTION: A PRO-ACTIVE BERLIN? %
GERMAN ELECTION POLL:
40
CDU/CSU* SPD** GREENS FDP***
%
Bn EUR
One German bank
180 40 140
30
30
Five countries and seven bailouts
100 20
20 60
10
“Bundestag threshold”
10 20
© BCA Research 2013
10
19
11
© BCA Research 2013
12
13
* CENTER-RIGHT CHRISTIAN DEMOCRATIC UNION AND ITS BAVARIAN-ONLY SISTER PARTY THE CHRISTIAN SOCIAL UNION. ** CENTER-LEFT SOCIAL DEMOCRACRY PARTY. *** PRO-BUSINESS, LIBERAL, MILDLY-EUROSKEPTIC FREE DEMOCRATIC PARTY. SOURCES: ALLENBASH, EMNID, FORSA, FORSCHUNGSGRUPPE WAHLEN, GMS, AND INFRATEST POLLS.
TOTAL EURO TOTAL BAILOUT AREA BAILOUT OF HYPO REAL COMMITMENT ESTATE
EAST ASIA RISKS TRUMP MENA Bn USD
Bn Mn USD Bbl/ Day
EAST ASIAN* TRADE WITH CHINA U.S.
90
90
80
80
70
70
60
U.S. OIL IMPORTS WITH NO GEOPOLITICAL RISK GEOPOLITICAL RISK (ME* COUNTRIES) GEOPOLITICAL RISK (NON-ME* COUNTRIES)
6
5
5
4
4
3
3
2
2
1
1
60
50
50
40
40
30
30 © BCA Research 2013
04 20
6
Mn Bbl/ Day
06
© BCA Research 2013
08
10
12
80
90
2000
* ME = MIDDLE-EAST; SOURCE: EIA. * INCLUDES: JAPAN, SOUTH KOREA, THE PHILIPPINES, VIETNAM, INDONESIA, MALAYSIA, SINGAPORE, AND TAIWAN. NOTE: ALL SERIES SHOWN SMOOTHED.
10
RAPID GROWTH PRODUCES DISEQUILIBRIUM
GDP*
GDP* CHINA JAPAN KOREA
300
300 300
300
250
250
250
250
200
200
150
150
200
200
150
150
100
100
100
© BCA Research 2013
96 21
GERMANY U.K. FRANCE
2000
04
08
12
* AT PURCHASING POWER PARITY, IN REAL TERMS SOURCE: IMF; REBASED TO 1995 = 100.
© BCA Research 2013
1875
1885
1895
1905
100
1915
* IN 1990 INTERNATIONAL GEARY-KHAMIS DOLLAR; SOURCE: ANGUS MADDISON, REBASED TO 1870 = 100.
IS THE U.S. OVERREACTING?
Country
22
Geopolitical Power Index (2008)
U.S.
0.714401
China
0.52378
India
0.39629
France
0.296183
Russia
0.287648
U.K.
0.258283
Japan
0.218674
Brazil
0.192714
Italy
0.189546
Germany
0.189006
GEOPOLITICAL POWER INDEX MEASURES A COUNTRY’S POWER BASED ON A WEIGHTED AGGREGATION OF ITS ECONOMIC, MILITARY, POLITICAL, TECHNOLOGICAL, AND GEOGRAPHICAL ENDOWMENTS.
Tn. USD
MILITARY SPENDING STOCK US Stock U.S. STOCK Chinese Mil Spending CHINESE MIL (7.2%) SPENDING
(7.5%) (5%) Chinese Mil Spending (2.9%) CHINESE MIL SPENDING (4%)
100
Chinese Mil Spending CHINESE MIL (4.4%) SPENDING
80
In order for China to match the U.S. military „stock‟ by 2050, it will need to double its military spending from current levels
60
40
20 © BCA Research 2013
2012
2020
2030
2040
2050
NOTE: CHINESE MILITARY SPENDING IS SHOWN AS A PERCENT OF GDP.
MENA RISKS TO OIL
BRENT CRUDE OIL: IMPLIED VOLATILITY FAIR VALUE*
CIVILIAN DEATHS IN IRAQ 2008-2013
7000
„Arab Spring‟ induced volatility
12 6000
Israel-Iran induced volatility
8 5000
12
8
4
4
0
0
3000
-4
-4
2000
-8
-8
1000
-12
-12
4000
© BCA Research 2013
08 23
09
10
© BCA Research 2013
11
12
THE FIGURE FOR 2013 IS EXTRAPOLATED FROM THE FIRST SIX MONTHS OF 2013. SOURCE: UN.
13
10
11
12
13
* ADJUSTED FOR S&P 500 EQUITY VOLATILITY.
BACKWARDATION SUGGESTS OIL RISKS TRANSITORY
%
% WTI OIL CURVE: 1-MONTH MINUS 13-MONTH FUTURES PRICE AS A % OF SPOT 10
10 Egyptian coup
5
5 Mean 0
0
-5
-5
-10
-10 Mubarak overthrown
-15 © BCA Research 2013
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT 2013 2010 2011 2012 24
-15
IRAQ IS THE FULCRUM OF THE REGION
25
SOURCE: IAEA.
26
© BCA Research 2013
PAKISTAN
FINLAND
© BCA Research 2013
DENMARK
5,000
ISRAEL
10,000
SOUTH AFRICA
15,000
IRAN, ISLAMIC REP.
FEB 2013
20,000
INDIA
SEP 2011 NOV 2011
FEB 2010
NOV 2010
JUN 2010
50
MAY 2010
100
MAY 2011
150
FEB 2012
200
NOV 2012
250
MAY 2012
Natanz Fordow
AUG 2012
(AT 20% ENRICHMENT)
300
NUMBER OF PUBLISHED SCIENTIFIC AND TECHNICAL JOURNAL ARTICLES
TURKEY
CUMULATIVE IRANIAN URANIUM PRODUCTION
BRAZIL
Kg.
MAY 2013
IRAN-ISRAELI TENSIONS WILL DISSIPATE
NOTE: SCIENTIFIC AND TECHNICAL JOURNAL ARTICLES REFER TO THE NUMBER OF SCIENTIFIC AND ENGINEERING ARTICLES PUBLISHED IN THE FOLLOWING FIELDS: PHYSICS, BIOLOGY, CHEMISTRY, MATHEMATICS, CLINICAL MEDICINE, BIOMEDICAL RESEARCH, ENGINEERING AND TECHNOLOGY, AND EARTH AND SPACE SCIENCES. SOURCE: WORLD BANK.
IRAN IS A LUXURY FOR ISRAEL
27
THE NEXT DECADE: THE AGE OF ATROPHY
ATROPHY LEVELS • Geopolitical
• State • Individual
28
HEGEMONIC ATROPHY
GEOPOLITICAL POWER INDEX U.S. RUSSIA AND CHINA
.80
.80
.75
.75
.70
.70
.65
.65
.60
.60 © BCA Research 2013
90 29
95
2000
05
10
NOTE: GEOPOLITICAL POWER INDEX MEASURES A COUNTRY'S POWER BASED ON A WEIGHTED AGGREGATION OF ITS ECONOMIC, MILITARY, POLITICAL, TECHNOLOGICAL, AND GEOGRAPHICAL ENDOWMENTS.
DOMESTIC ATROPHY %
.49
SHARE OF TOTAL HOUSEHOLD INCOME*: BOTTOM 20th PERCENTILE SECOND THIRD FOURTH TOP 20th PERCENTILE
.49
U.S. GINI COEFFICIENT
120 .47
.47
.45
120
110
110
100
100
90
90
80
80
.45
.43
.43
.41
.41
.39
.39 © BCA Research 2013
80
85
90
95 2000 05
SOURCE: U.S. CENSUS BUREAU.
30
%
© BCA Research 2013
10
80
85
90
95 2000 05
* SHOWN REBASED TO 1980 = 100. SOURCE: U.S. CENSUS BUREAU.
10
INDIVIDUAL – STATE ATROPHY
Elite Legitimacy Eroded In… • Politics • Finance
• INFORMATION
31
GROWING ECONOMIC IMPORTANCE OF THE VIRTUAL % Of Total
% Of U.S. NON-FINANCIAL CORPORATE*: Total REAL ESTATE AND EQUIPMENT AS A % OF TOTAL ASSETS
65
65
60
60
55
55
50
50
45
%
% 50
U.S. PERCENTAGE OF MANUFACTURING ORDERS MADE ONLINE
45
45
40
40
35
35
30
30
25
25
20
20
45 © BCA Research 2013
50
60
70
© BCA Research 2013
80
90 2000 10
* SOURCE: FLOW OF FUNDS.
32
50
2000 02
04
06
08
10
12
SOURCE: U.S. CENSUS BUREAU, ANNUAL SURVEY OF MANUFACTURES AND THE ECONOMIC CENSUS.
REFORMATION 2.0
Evolution Of The State: 1. Treaty Of Westphalia 1648 – state sovereignty created
2. Glorious Revolution 1688 – divine right of kings challenged 3. French Revolution 1789 – nation-state created • American Constitution – first modern state
What Next?
33
Q&A
34
LOOSE ENDS
• U.S. o Recovery Stronger In 2014
o Political Context • Japan • Frontier Markets
35
U.S.: CAPEX LED RECOVERY IN 2014 % U.S. 5-YEAR PERCENT CHANGE, ANNUALIZED: REAL PRIVATE-SECTOR CAPITAL STOCK PER CAPITA
3
%
%
8 3
U.S. GAP BETWEEN AVERAGE RETURN ON CAPITAL AND WEIGHTED-AVERAGE REAL* COST OF CAPITAL (LS) REAL NON-RESIDENTIAL INVESTMENT (RS)
30 20
4
2
Ann% Chg
2
10 HISTORICAL MEAN
1
1
0
0 -10
0
A post-war low
0
A big divergence
-4
© BCA Research 2013
50 36
60
70
© BCA Research 2013
80
90 2000 10
85
90
95 2000 05
10
* DEFLATED BY NON-FINANCIAL CORPORATE GDP DEFLATOR.
-20
U.S.: CHANGING POLITICAL CONTEXT
140
U.S.: ECONOMICALLY-SIGNIFICANT* REGULATIONS
130
140 130
120
U.S.: EXPIRING FEDERAL 1400 TAX PROVISIONS INDEX*
1400
1200
1200
1000
1000
800
800
600
600
400
400
120
110
110
100
100
90
90
80
80
70
70
7-year low
200
© BCA Research 2013
96 37
2000
200
© BCA Research 2013
04
08
12
* DEFINED AS HAVING AN ECONOMIC IMPACT OF GREATER THAN $100 MILLION. SOURCE: CONGRESSIONAL RESEARCH SERVICE (2013). NOTE: SHADING DENOTES FINAL YEAR OF THE FIRST TERM, AND THE FIRST THREE YEARS OF THE SECOND TERM.
90
95
2000
05
10
15
* MEASURES THE TOTAL DOLLAR AMOUNT OF EXPIRING TAX PROVISIONS IN THE NEXT 10 YEARS AND APPLIES A DISCOUNT FACTOR TO ENSURE THAT IMMINENT EXPIRING TAX PROVISIONS ARE GIVEN A GREATER WEIGHTING IN THE INDEX. SOURCE: BAKER, BLOOM, AND DAVIS (2013).
UNCOMPETITIVE PRIMARY
MARGIN OF VICTORY PRIMARY ELECTION (IN 2012)
GOP WILL BLINK
House Republican Votes On Increasing Debt Ceiling (In January 2013)
20%
0%
Quadrant 1
Quadrant 2
Electoral threat is general election
No electoral threat
77 Yes
101 Yes
9 No
15 No
Total Expected Votes: 77 Quadrant 3
Total Expected Votes: 50 Quadrant 4
Electoral threat from both primary and general election
Electoral threat is primary election
12 Yes
7 Yes
2 No
7 No
Total Expected Votes: 6
Total Expected Votes: 0 20%
MARGIN OF VICTORY GENERAL ELECTION (IN 2012)
38
UNCOMPETITIVE GENERAL
© BCA Research 2013
JAPAN: IS IT ‘DIFFERENT’ THIS TIME?
PERCENT CHANGE IN GINI INDEX*, MEASURE OF INEQUALITY (1993 TO 2008)
50 40 30 20 10
S. KOREA
0
JAPAN
CHINA**
EU
BRAZIL
U.S.***
-10 © BCA Research 2013
*
39
GINI DATA FOR BRAZIL, SOUTH KOREA, JAPAN, AND THE EU ARE FROM WORLD DEVELOPMENT INDICATORS AND THE CIA. SOUTH KOREA TIMELINE IS FROM 1998 TO 2010. ** DATA INCLUDES ESTIMATES. SOURCE: WORLD BANK AND CHEN JIANGDONG, WENXUAN HOU AND SHENWU JIN, “A REVIEW OF THE CHINESE GINI COEFFICIENT FROM 1998 TO 2005”, JAN 16, 2008. *** SOURCE: BLOOMBERG.
JAPAN: EXOGENOUS/ENDOGENOUS CHANGE Bn USD
Bn USD
MILITARY EXPENDITURE*: CHINA JAPAN
130
104 130
110
110
90
90
70
70
50
50
30
30 © BCA Research 2013
90 40
95
2000
05
10
* SHOWN IN CONSTANT 2010 U.S. DOLLARS. SOURCE: STOCKHOLM INTERNATIONAL PEACE RESEARCH INSTITUTE.
JAPANESE IMPORTS OF MINERAL FUELS
104
(IN VOLUME)
100
100
96
96
92
92
88
88 © BCA Research 2013
06
08
10
12
NOTE: SERIES SHOWN AS A 12-MONTH MOVING AVERAGE. VERTICAL LINE DENOTES THE MARCH 11, 2011, EARTHQUAKE.
FRONTIER MARKETS: OPPORTUNITY
EMERGING MARKETS (1988-2012)
MARKET CAP AS A % OF GDP
100
7
STRENGTH OF LEGAL RIGHTS 2012 LEVEL (LS) 2004-2012 CHANGE (RS)
6
80
0.6 0.5
2
R = 0.7417 5
0.4
60
4 0.3 3
40
0.2
2 20
FM ex. GCC (2012)
0.1
1 © BCA Research 2013
© BCA Research 2013
7000 8000 9000 10000 11000 REAL GDP PER CAPITA (PPP) 41
SOURCE: WORLD BANK AND BCA CALCULATIONS.
DM
EM
FM
SOURCE: WORLD BANK AND BCA CALCULATIONS.
Geopolitical Risks & Opportunities In The Age Of Atrophy
Marko Papic
Chief Strategist Geopolitical Strategy
GEOPOLITICS IS NOT JUST ABOUT ‘TAIL RISK’
BCA Asset Allocation Model: • Growth • Valuations
• Liquidity • Momentum (technical analysis) • Risk • Discretion ← GEOPOLITICS
2
GEOPOLITICS = BLINDSIDE
3
(MIS)PRICING GEOPOLITICAL RISK
100
GOOGLE NORTH KOREA REFERENCES*
100 And what now?
80
80
60
60
40
40
20
Cheonan sinking
Yeonpyeong Shelling
Kim Jong-Il dies
Failed missile launch
Third nuclear test
0
20
0 © BCA Research 2013
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL 2010 2011 2012 2013 4
* INDICATOR REPRESENTS NUMBER OF GOOGLE SEARCHES OF "NORTH KOREA" RELATIVE TO PAST SEARCHES OF THE TERM. THE INDICATOR IS NORMALIZED AND MEASURED ON A 0-100 SCALE.
WHERE TO FROM HERE…
• Risks And Opportunities In 2014 o Defining Year For EM
o Europe: A Bargain? o Tensions Shift From MENA To Asia • Age Of Atrophy: A Decade Forecast
5
MAJOR BCA THEME: LONG DM / SHORT EM POLITICAL RISK IS APPROPRIATELY PRICED IN DM, BUT NOT EM Th USD
EMERGING MARKETS*: BCA GOVERNANCE INDICATOR** (LS) -.20 GDP PER CAPITA*** (RS)
4200
1.2
BCA GOVERNANCE INDICATOR*
1
4000
0.8
-.22 3800
0.6
-.24 0.4
3600
0.2
-.26 3400
Emerging Markets
0
Developed Markets
-.28 3200
© BCA Research 2013
2000 02 *
6
04
06
08
10
-0.2 © BCA Research 2013
12
INCLUDES CHINA, BRAZIL, RUSSIA, INDIA, MEXICO, INDONESIA, TURKEY, MALAYSIA, THE PHILIPPINES, THAILAND, AND SOUTH AFRICA. ** SOURCE: WORLD BANK AND BCA RESEARCH. *** WEIGHTED BY POPULATION.
* SHOWN USING 2011 DATA. SOURCE: WORLD BANK AND BCA RESEARCH.
EM BEAR MARKET: MORE TO COME Bn USD
360
CUMULATIVE* NET FOREIGN PURCHASES OF EMERGING MARKET EQUITIES
Bn USD
%
%
EMERGING MARKETS SOVEREIGN YIELD*
360 14
14
320
320
280
280
12
12
240
240
10
10
200
200
8
8
160
160
6
6
4
4
© BCA Research 2013
06 7
08
© BCA Research 2013
10
12
* CUMULATIVE SINCE JANUARY 1999; INCLUDES KOREA, TAIWAN, INDIA, THAILAND, INDONESIA, THE PHILIPPINES, AND SOUTH AFRICA.
2000 02
04 06 08 10
12 14
* EXCLUDING VENEZUELA AND ARGENTINA. SOURCE: J.P. MORGAN CHASE & CO.
2014: YEAR OF ELECTIONS
8
Country
Election Date
Government In Power Since…
Turkey
Aug-Oct 2014 – Presidential Jun 2015 – Legislative
2002 (AKP)
India
May 2014 – Legislative
2004 (Congress)
Indonesia
Apr 2014 – Legislative Jul 2014 – Presidential
2009 (Demokrat)
Brazil
Oct 2014 – Presidential Oct 2014 – Legislative
2002 (PT - Lula/Rousseff)
South Africa
Apr 2014 – Legislative
1994 (ANC)
Russia
Dec 2016 – Legislative Mar 2018 – Presidential
1999 (Putin)
Mexico
Jul 2015 – Legislative Jul 2018 – Presidential
2012 (PRI)
EQUITY PRICE LEVEL RELATIVE TO WORLD
GROWTH ≠ EQUITY RETURNS
19
GDP GROWTH AND EQUITY PERFORMANCE: NO CORRELATION 1993-1998 2003-2008
14
1998-2003 2008-2013
9
4
© BCA Research 2013
-10
0
10
20
30
40
AVERAGE GDP GROWTH 9
SOURCE: MSCI (SEE COPYRIGHT DECLARATION), IMF WORLD ECONOMIC OUTLOOK. NOTE: DATA POINTS REPRESENT CHINA, BRAZIL, INDIA, RUSSIA, SOUTH AFRICA, SOUTH KOREA, TAIWAN, MALAYSIA, CHILE, MEXICO, AND SINGAPORE IN FOUR TIME PERIOS.
CHINA: ONE COUNTRY, TWO ECONOMIES USD GDP PER CAPITA BY PROVINCE (2012)
16,000
EASTERN REGION CENTRAL REGION WESTERN REGION
14,000 12,000 10,000
SOURCE: CEIC.
10
GUIZHOU
GANSU
YUNNAN
TIBET
JIANGXI ANHUI
SICHUAN
GUANGXI
HAINAN HENAN
HUNAN QINGHAI
SHANXI
XINJIANG
HEILONGJIANG
NINGXIA
HEBEI
SHAANXI
CHONGQING
JILIN
SHANGDONG
FUJIAN
GUANGDONG
LIAONING
ZHEJIANG
JAINGSU
BEIJING
2,000
TIANJIN
4,000
SHANGHAI
6,000
INNER MONGOLIA
8,000
HUBEI
Level at which South Korea and Taiwan began democratization
© BCA Research 2013
EUROPE: ‘WHATEVER IT TAKES’ % 8
Greece Bailout
% Ireland Bailout
Portugal Bailout
7
3-Year LTROs Announced Draghi: “Do whatever it takes”
7
6
6
5
5
4
4 Spain
3 2
3 2
1
2-YEAR GOVERNMENT BOND YIELDS
Italy
© BCA Research 2013
2010 11
8
2011
2012
2013
1
SOCIAL UNREST IS A ‘RED HERRING’ %
% PERCENT OF RESPONDENTS IN FAVOR OF THE EURO: GREECE SPAIN FRANCE ITALY
80
% PERCENT OF VOTING INTENTIONS:
80
80
60
40 70
70
60
50
ITALY: CENTRIST PARTIES 5S MOVEMENT
40
Italian election
80 SPAIN: CENTRIST PARTIES UNITED LEFT
06
08
SOURCE: EU COMMISSION.
12
10
12
60 40 20
© BCA Research 2013
04
40
%
20 02
60
20
80 60
50
80
20
% 60
%
© BCA Research 2013
2012
2013
SOURCE: VARIOUS NATIONAL SOURCES.
YOUTH IS NOT POLITICALLY RELEVANT %
% YOUTH POPULATION AS SHARE OF TOTAL POPULATION*: EUROPEAN PERIPHERY** MIDDLE EAST
30
30
Youth relevant
25
25
20
20
Youth irrelevant
© BCA Research 2013
96 13
98
2000
02
04
06
* AGES 15-30. SOURCE: U.S. CENSUS BUREAU. ** INCLUDES: GREECE, ITALY, PORTUGAL, SPAIN, AND FRANCE.
08
10
12
14
IS THE ADJUSTMENT HAPPENING?
HARMONISED COMPETITIVENESS INDICATORS BASED ON GDP DEFLATORS
140
GERMANY FRANCE ITALY SPAIN NETHERLANDS GREECE IRELAND PORTUGAL
130
120 110
140
Less competitive
130 120
Spain
110
Convergence
100
100 Greece More competitive
90
90
Germany
80
98 14
80
© BCA Research 2013
2000
02
04
06
08
10
12
14
SOURCE: ECB HARMONISED COMPETITIVENESS INDICATORS BASED ON GDP DEFLATORS RELATIVE TO TOP 20 TRADING PARTNERS. REBASED TO Q1 1999 = 100.
IS EUROPE CHEAP?
3.5
EURO AREA: REAL EQUITY PRICES* TREND TREND +/- TWO STANDARD DEVIATIONS
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0 © BCA Research 2013
75 15
80
85
90
95
2000
05
10
15
* DEFLATED BY CONSUMER PRICE INDEX. SHOWN AS A NATURAL LOGARITHM. TIME TREND: 1975 - PRESENT.
GERMAN/CORE CONSUMPTION %
8
%
POLICY RATE: ECB OFFICIAL RATE PERIPHERY TAYLOR RULE* CORE TAYLOR RULE
8
% Of GDP
GERMANY: DOMESTIC DEMAND* (LS) CONSUMER SERVICES STOCKS VS. MARKET
82
1.0
80 6
6
.8 78
4
4 76
.6
2
2
0
0 © BCA Research 2013
06 16
08
74 72
.4 © BCA Research 2013
10
12
92
96 2000 04
08
* TAYLOR RULE INCLUDES INFLATION AND THE * CONSUMPTION AND INVESTMENT; UNEMPLOYMENT GAP. SOURCE: EUROSTAT. FOR ADDITIONAL DETAILS PLEASE SEE: NECHIO, FERNANDA, "MONETARY POLICY WHEN ONE SIZE DOES NOT FIT ALL,” FRBSF ECONOMIC LETTER (JUNE 2011).
12
RISKS IN 2014 • Portugal/Greece OMT/bailouts • ECB ‘Stress Tests’ = Recapitalization For Spain Ann% Chg
Ann% Chg
REAL GDP GROWTH
2 1 0 -1 -2
2 1 0 -1 -2
FOR BOTH PANELS: FRANCE MINUS GERMANY
%
6
%
6
UNEMPLOYMENT RATE
4
4
2
2
0
0
-2
© BCA Research 2013
70 17
• Greek Primary Surplus • And… FRANCE:
75
-2 80
85
90
95
2000
NOTE: VERTICAL LINE DENOTES OFFICIAL LAUNCH OF THE EURO AREA.
05
10
15
MYTH: GERMANS ARE EUROSKEPTICS, FRENCH ARE EUROPHILES %
SUPPORT FOR EURO AREA BAILOUTS 50
…but rising in Germany
Falling in France…
45
40
35
© BCA Research 2013
2010
2012 FRANCE
18
2013
2010
2012
2013
GERMANY
NOTE: THE SURVEYED RESPONDENTS WERE ASKED: “DO YOU THINK THE (SURVEY COUNTRY) GOVERNMENT SHOULD PROVIDE FINANCIAL ASSISTANCE TO OTHER EUROPEAN UNION COUNTRIES THAT HAVE MAJOR FINANCIAL PROBLEMS?” THE RESPONSE SHOWN ABOVE ONLY USES THE PERCENT OF RESPONDENTS WHO ANSWERED “YES”. SOURCE: PEW (2013).
GERMAN ELECTION: A PRO-ACTIVE BERLIN? %
GERMAN ELECTION POLL:
40
CDU/CSU* SPD** GREENS FDP***
%
Bn EUR
One German bank
180 40 140
30
30
Five countries and seven bailouts
100 20
20 60
10
“Bundestag threshold”
10 20
© BCA Research 2013
10
19
11
© BCA Research 2013
12
13
* CENTER-RIGHT CHRISTIAN DEMOCRATIC UNION AND ITS BAVARIAN-ONLY SISTER PARTY THE CHRISTIAN SOCIAL UNION. ** CENTER-LEFT SOCIAL DEMOCRACRY PARTY. *** PRO-BUSINESS, LIBERAL, MILDLY-EUROSKEPTIC FREE DEMOCRATIC PARTY. SOURCES: ALLENBASH, EMNID, FORSA, FORSCHUNGSGRUPPE WAHLEN, GMS, AND INFRATEST POLLS.
TOTAL EURO TOTAL BAILOUT AREA BAILOUT OF HYPO REAL COMMITMENT ESTATE
EAST ASIA RISKS TRUMP MENA Bn USD
Bn Mn USD Bbl/ Day
EAST ASIAN* TRADE WITH CHINA U.S.
90
90
80
80
70
70
60
U.S. OIL IMPORTS WITH NO GEOPOLITICAL RISK GEOPOLITICAL RISK (ME* COUNTRIES) GEOPOLITICAL RISK (NON-ME* COUNTRIES)
6
5
5
4
4
3
3
2
2
1
1
60
50
50
40
40
30
30 © BCA Research 2013
04 20
6
Mn Bbl/ Day
06
© BCA Research 2013
08
10
12
80
90
2000
* ME = MIDDLE-EAST; SOURCE: EIA. * INCLUDES: JAPAN, SOUTH KOREA, THE PHILIPPINES, VIETNAM, INDONESIA, MALAYSIA, SINGAPORE, AND TAIWAN. NOTE: ALL SERIES SHOWN SMOOTHED.
10
RAPID GROWTH PRODUCES DISEQUILIBRIUM
GDP*
GDP* CHINA JAPAN KOREA
300
300 300
300
250
250
250
250
200
200
150
150
200
200
150
150
100
100
100
© BCA Research 2013
96 21
GERMANY U.K. FRANCE
2000
04
08
12
* AT PURCHASING POWER PARITY, IN REAL TERMS SOURCE: IMF; REBASED TO 1995 = 100.
© BCA Research 2013
1875
1885
1895
1905
100
1915
* IN 1990 INTERNATIONAL GEARY-KHAMIS DOLLAR; SOURCE: ANGUS MADDISON, REBASED TO 1870 = 100.
IS THE U.S. OVERREACTING?
Country
22
Geopolitical Power Index (2008)
U.S.
0.714401
China
0.52378
India
0.39629
France
0.296183
Russia
0.287648
U.K.
0.258283
Japan
0.218674
Brazil
0.192714
Italy
0.189546
Germany
0.189006
GEOPOLITICAL POWER INDEX MEASURES A COUNTRY’S POWER BASED ON A WEIGHTED AGGREGATION OF ITS ECONOMIC, MILITARY, POLITICAL, TECHNOLOGICAL, AND GEOGRAPHICAL ENDOWMENTS.
Tn. USD
MILITARY SPENDING STOCK US Stock U.S. STOCK Chinese Mil Spending CHINESE MIL (7.2%) SPENDING
(7.5%) (5%) Chinese Mil Spending (2.9%) CHINESE MIL SPENDING (4%)
100
Chinese Mil Spending CHINESE MIL (4.4%) SPENDING
80
In order for China to match the U.S. military „stock‟ by 2050, it will need to double its military spending from current levels
60
40
20 © BCA Research 2013
2012
2020
2030
2040
2050
NOTE: CHINESE MILITARY SPENDING IS SHOWN AS A PERCENT OF GDP.
MENA RISKS TO OIL
BRENT CRUDE OIL: IMPLIED VOLATILITY FAIR VALUE*
CIVILIAN DEATHS IN IRAQ 2008-2013
7000
„Arab Spring‟ induced volatility
12 6000
Israel-Iran induced volatility
8 5000
12
8
4
4
0
0
3000
-4
-4
2000
-8
-8
1000
-12
-12
4000
© BCA Research 2013
08 23
09
10
© BCA Research 2013
11
12
THE FIGURE FOR 2013 IS EXTRAPOLATED FROM THE FIRST SIX MONTHS OF 2013. SOURCE: UN.
13
10
11
12
13
* ADJUSTED FOR S&P 500 EQUITY VOLATILITY.
BACKWARDATION SUGGESTS OIL RISKS TRANSITORY
%
% WTI OIL CURVE: 1-MONTH MINUS 13-MONTH FUTURES PRICE AS A % OF SPOT 10
10 Egyptian coup
5
5 Mean 0
0
-5
-5
-10
-10 Mubarak overthrown
-15 © BCA Research 2013
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT 2013 2010 2011 2012 24
-15
IRAQ IS THE FULCRUM OF THE REGION
25
SOURCE: IAEA.
26
© BCA Research 2013
PAKISTAN
FINLAND
© BCA Research 2013
DENMARK
5,000
ISRAEL
10,000
SOUTH AFRICA
15,000
IRAN, ISLAMIC REP.
FEB 2013
20,000
INDIA
SEP 2011 NOV 2011
FEB 2010
NOV 2010
JUN 2010
50
MAY 2010
100
MAY 2011
150
FEB 2012
200
NOV 2012
250
MAY 2012
Natanz Fordow
AUG 2012
(AT 20% ENRICHMENT)
300
NUMBER OF PUBLISHED SCIENTIFIC AND TECHNICAL JOURNAL ARTICLES
TURKEY
CUMULATIVE IRANIAN URANIUM PRODUCTION
BRAZIL
Kg.
MAY 2013
IRAN-ISRAELI TENSIONS WILL DISSIPATE
NOTE: SCIENTIFIC AND TECHNICAL JOURNAL ARTICLES REFER TO THE NUMBER OF SCIENTIFIC AND ENGINEERING ARTICLES PUBLISHED IN THE FOLLOWING FIELDS: PHYSICS, BIOLOGY, CHEMISTRY, MATHEMATICS, CLINICAL MEDICINE, BIOMEDICAL RESEARCH, ENGINEERING AND TECHNOLOGY, AND EARTH AND SPACE SCIENCES. SOURCE: WORLD BANK.
IRAN IS A LUXURY FOR ISRAEL
27
THE NEXT DECADE: THE AGE OF ATROPHY
ATROPHY LEVELS • Geopolitical
• State • Individual
28
HEGEMONIC ATROPHY
GEOPOLITICAL POWER INDEX U.S. RUSSIA AND CHINA
.80
.80
.75
.75
.70
.70
.65
.65
.60
.60 © BCA Research 2013
90 29
95
2000
05
10
NOTE: GEOPOLITICAL POWER INDEX MEASURES A COUNTRY'S POWER BASED ON A WEIGHTED AGGREGATION OF ITS ECONOMIC, MILITARY, POLITICAL, TECHNOLOGICAL, AND GEOGRAPHICAL ENDOWMENTS.
DOMESTIC ATROPHY %
.49
SHARE OF TOTAL HOUSEHOLD INCOME*: BOTTOM 20th PERCENTILE SECOND THIRD FOURTH TOP 20th PERCENTILE
.49
U.S. GINI COEFFICIENT
120 .47
.47
.45
120
110
110
100
100
90
90
80
80
.45
.43
.43
.41
.41
.39
.39 © BCA Research 2013
80
85
90
95 2000 05
SOURCE: U.S. CENSUS BUREAU.
30
%
© BCA Research 2013
10
80
85
90
95 2000 05
* SHOWN REBASED TO 1980 = 100. SOURCE: U.S. CENSUS BUREAU.
10
INDIVIDUAL – STATE ATROPHY
Elite Legitimacy Eroded In… • Politics • Finance
• INFORMATION
31
GROWING ECONOMIC IMPORTANCE OF THE VIRTUAL % Of Total
% Of U.S. NON-FINANCIAL CORPORATE*: Total REAL ESTATE AND EQUIPMENT AS A % OF TOTAL ASSETS
65
65
60
60
55
55
50
50
45
%
% 50
U.S. PERCENTAGE OF MANUFACTURING ORDERS MADE ONLINE
45
45
40
40
35
35
30
30
25
25
20
20
45 © BCA Research 2013
50
60
70
© BCA Research 2013
80
90 2000 10
* SOURCE: FLOW OF FUNDS.
32
50
2000 02
04
06
08
10
12
SOURCE: U.S. CENSUS BUREAU, ANNUAL SURVEY OF MANUFACTURES AND THE ECONOMIC CENSUS.
REFORMATION 2.0
Evolution Of The State: 1. Treaty Of Westphalia 1648 – state sovereignty created
2. Glorious Revolution 1688 – divine right of kings challenged 3. French Revolution 1789 – nation-state created • American Constitution – first modern state
What Next?
33
Q&A
34
LOOSE ENDS
• U.S. o Recovery Stronger In 2014
o Political Context • Japan • Frontier Markets
35
U.S.: CAPEX LED RECOVERY IN 2014 % U.S. 5-YEAR PERCENT CHANGE, ANNUALIZED: REAL PRIVATE-SECTOR CAPITAL STOCK PER CAPITA
3
%
%
8 3
U.S. GAP BETWEEN AVERAGE RETURN ON CAPITAL AND WEIGHTED-AVERAGE REAL* COST OF CAPITAL (LS) REAL NON-RESIDENTIAL INVESTMENT (RS)
30 20
4
2
Ann% Chg
2
10 HISTORICAL MEAN
1
1
0
0 -10
0
A post-war low
0
A big divergence
-4
© BCA Research 2013
50 36
60
70
© BCA Research 2013
80
90 2000 10
85
90
95 2000 05
10
* DEFLATED BY NON-FINANCIAL CORPORATE GDP DEFLATOR.
-20
U.S.: CHANGING POLITICAL CONTEXT
140
U.S.: ECONOMICALLY-SIGNIFICANT* REGULATIONS
130
140 130
120
U.S.: EXPIRING FEDERAL 1400 TAX PROVISIONS INDEX*
1400
1200
1200
1000
1000
800
800
600
600
400
400
120
110
110
100
100
90
90
80
80
70
70
7-year low
200
© BCA Research 2013
96 37
2000
200
© BCA Research 2013
04
08
12
* DEFINED AS HAVING AN ECONOMIC IMPACT OF GREATER THAN $100 MILLION. SOURCE: CONGRESSIONAL RESEARCH SERVICE (2013). NOTE: SHADING DENOTES FINAL YEAR OF THE FIRST TERM, AND THE FIRST THREE YEARS OF THE SECOND TERM.
90
95
2000
05
10
15
* MEASURES THE TOTAL DOLLAR AMOUNT OF EXPIRING TAX PROVISIONS IN THE NEXT 10 YEARS AND APPLIES A DISCOUNT FACTOR TO ENSURE THAT IMMINENT EXPIRING TAX PROVISIONS ARE GIVEN A GREATER WEIGHTING IN THE INDEX. SOURCE: BAKER, BLOOM, AND DAVIS (2013).
UNCOMPETITIVE PRIMARY
MARGIN OF VICTORY PRIMARY ELECTION (IN 2012)
GOP WILL BLINK
House Republican Votes On Increasing Debt Ceiling (In January 2013)
20%
0%
Quadrant 1
Quadrant 2
Electoral threat is general election
No electoral threat
77 Yes
101 Yes
9 No
15 No
Total Expected Votes: 77 Quadrant 3
Total Expected Votes: 50 Quadrant 4
Electoral threat from both primary and general election
Electoral threat is primary election
12 Yes
7 Yes
2 No
7 No
Total Expected Votes: 6
Total Expected Votes: 0 20%
MARGIN OF VICTORY GENERAL ELECTION (IN 2012)
38
UNCOMPETITIVE GENERAL
© BCA Research 2013
JAPAN: IS IT ‘DIFFERENT’ THIS TIME?
PERCENT CHANGE IN GINI INDEX*, MEASURE OF INEQUALITY (1993 TO 2008)
50 40 30 20 10
S. KOREA
0
JAPAN
CHINA**
EU
BRAZIL
U.S.***
-10 © BCA Research 2013
*
39
GINI DATA FOR BRAZIL, SOUTH KOREA, JAPAN, AND THE EU ARE FROM WORLD DEVELOPMENT INDICATORS AND THE CIA. SOUTH KOREA TIMELINE IS FROM 1998 TO 2010. ** DATA INCLUDES ESTIMATES. SOURCE: WORLD BANK AND CHEN JIANGDONG, WENXUAN HOU AND SHENWU JIN, “A REVIEW OF THE CHINESE GINI COEFFICIENT FROM 1998 TO 2005”, JAN 16, 2008. *** SOURCE: BLOOMBERG.
JAPAN: EXOGENOUS/ENDOGENOUS CHANGE Bn USD
Bn USD
MILITARY EXPENDITURE*: CHINA JAPAN
130
104 130
110
110
90
90
70
70
50
50
30
30 © BCA Research 2013
90 40
95
2000
05
10
* SHOWN IN CONSTANT 2010 U.S. DOLLARS. SOURCE: STOCKHOLM INTERNATIONAL PEACE RESEARCH INSTITUTE.
JAPANESE IMPORTS OF MINERAL FUELS
104
(IN VOLUME)
100
100
96
96
92
92
88
88 © BCA Research 2013
06
08
10
12
NOTE: SERIES SHOWN AS A 12-MONTH MOVING AVERAGE. VERTICAL LINE DENOTES THE MARCH 11, 2011, EARTHQUAKE.
FRONTIER MARKETS: OPPORTUNITY
EMERGING MARKETS (1988-2012)
MARKET CAP AS A % OF GDP
100
7
STRENGTH OF LEGAL RIGHTS 2012 LEVEL (LS) 2004-2012 CHANGE (RS)
6
80
0.6 0.5
2
R = 0.7417 5
0.4
60
4 0.3 3
40
0.2
2 20
FM ex. GCC (2012)
0.1
1 © BCA Research 2013
© BCA Research 2013
7000 8000 9000 10000 11000 REAL GDP PER CAPITA (PPP) 41
SOURCE: WORLD BANK AND BCA CALCULATIONS.
DM
EM
FM
SOURCE: WORLD BANK AND BCA CALCULATIONS.
