Kotok's presentation Nov 0905

David R. Kotok Chairman & Chief Investment Officer Cumberland Advisors

China in the 21st Century The Global Interdependence Center’s 24th Annual Monetary and Trade Conference November 9, 2005 Federal Reserve Bank of Philadelphia 614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Three Ways to View The World 2004 PPP ($mm)

2004 GDP ($mm)

World’s 10 Largest Stock Markets ($mm) Measured in USD at 8/31/05 exchange rates

World Total

55,938,191

%

World Total

40,887,837

%

11,628,083

20.8

1.

United States

11,667,515

28.5

1. United States 16,750,440

2. China**

7,334,392

13.1

2.

Japan

4,623,398

11.3

2. Japan

3,688,253

9.5

3. Japan

3,774,086

6.7

3.

Euronext*

3,097,953

7.6

3. U.K.

3,046,675

7.9

4. India

3,362,960

6.0

4. Germany

2,714,418

6.6

4. Euronext*

2,598,094

6.7

5. Euronext*

2,793,365

5.0

5. U.K.

2,140,898

5.2

5. Canada

1,395,869

3.6

6. Germany

2,325,828

4.2

6. China**

1,812,334

4.4

6. China**

1,360,430

3.5

7. U.K.

1,832,252

3.3

7.

Italy

1,672,302

4.1

7. Germany

1,193,972

3.1

8. Italy

1,621,372

2.9

8.

Spain

991,442

2.4

8. Spain

990,333

2.6

9. Brazil

1,482,859

2.7

9.

Canada

979,764

2.4

9. India***

930,444

2.4

10. Russia

1,408,603

2.5

10. India

691,876

1.7

872,436

2.3

17,238,142

31.0

9,816,263

24.0

Rest of World 5,847,316

15.1

1. United States

Rest of World

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Rest of World

(171 Countries)

World Total 38,674,262

10. Switzerland (36 exchanges)

% 43.3

Changes in Share of World’s Output 25% United States - decreasing 20%

Euro Area - decreasing

15% 10%

Japan - decreasing China - increasing

5% India - increasing 0% 1985

1988

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1991

1994

1997

2000

2003

2006

PPP Share of World GDP by Country Percent of World Economy World Advanced Economies United States Euro Area Germany France Italy Spain Japan U.K. Canada Other Advanced Emerging & Dev. Countries Africa Central & Eastern Europe C.I.S. Russia Other Developing Asia China India Other Middle East Western Hemisphere Brazil Mexico

1999 100% 58.6% 22.2% 17.0% 4.9% 3.4% 3.3% 1.8% 7.8% 3.3% 2.0% 6.4% 41.5% 3.2% 3.4% 3.2% 2.2% 1.0% 21.1% 10.6% 5.4% 5.2% 2.7% 8.0% 2.7% 1.9%

2000 100% 58.1% 22.0% 16.8% 4.8% 3.4% 3.2% 1.8% 7.6% 3.3% 2.0% 6.5% 42.0% 3.2% 3.4% 3.3% 2.4% 1.0% 21.5% 10.9% 5.4% 5.2% 2.7% 8.0% 2.7% 1.9%

2001 100% 57.4% 21.6% 16.7% 4.7% 3.3% 3.2% 1.8% 7.5% 3.2% 2.0% 6.5% 42.7% 3.3% 3.3% 3.5% 2.4% 1.0% 22.2% 11.4% 5.5% 5.3% 2.7% 7.8% 2.7% 1.9%

2002 100% 56.6% 21.3% 16.3% 4.6% 3.3% 3.1% 1.8% 7.2% 3.2% 2.0% 6.5% 43.4% 3.3% 3.3% 3.6% 2.5% 1.1% 22.9% 12.0% 5.6% 5.4% 2.7% 7.6% 2.7% 1.9%

2003 100% 55.5% 21.1% 15.8% 4.4% 3.2% 3.0% 1.7% 7.1% 3.2% 1.9% 6.5% 44.5% 3.3% 3.4% 3.7% 2.5% 1.1% 23.9% 12.7% 5.8% 5.5% 2.8% 7.5% 2.6% 1.8%

Extrapolations using real GDP growth from published IMF "purchasing power parity" weights in 2004

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2004* 100% 54.6% 20.9% 15.3% 4.3% 3.1% 2.9% 1.7% 6.9% 3.1% 1.9% 6.5% 45.4% 3.3% 3.4% 3.8% 2.6% 1.2% 24.6% 13.2% 5.9% 5.5% 2.8% 7.5% 2.6% 1.8%

2005 100% 53.7% 20.8% 14.8% 4.2% 3.0% 2.8% 1.7% 6.7% 3.0% 1.9% 6.4% 46.3% 3.3% 3.4% 3.9% 2.7% 1.2% 25.4% 13.8% 6.0% 5.6% 2.8% 7.5% 2.6% 1.8%

2006 100% 53.0% 20.7% 14.5% 4.0% 2.9% 2.7% 1.7% 6.6% 3.0% 1.9% 6.4% 47.0% 3.3% 3.4% 4.0% 2.7% 1.3% 26.0% 14.2% 6.1% 5.6% 2.8% 7.4% 2.6% 1.8%

2007 100% 52.3% 20.5% 14.1% 3.9% 2.9% 2.6% 1.6% 6.4% 2.9% 1.8% 6.4% 47.7% 3.4% 3.4% 4.0% 2.7% 1.3% 26.7% 14.7% 6.3% 5.7% 2.9% 7.4% 2.5% 1.8%

2008 100% 51.6% 20.4% 13.8% 3.8% 2.8% 2.5% 1.6% 6.3% 2.9% 1.8% 6.4% 48.4% 3.4% 3.4% 4.1% 2.7% 1.3% 27.3% 15.2% 6.4% 5.8% 2.9% 7.3% 2.5% 1.7%

Share of World Stock Market Value 100% 90% 80% 70% 60%

1998 marks the end of the LTCM crisis

Rest Of World

1998 ROW 40.3%

US Share

50% 40%

Aug 2005 ROW 57.0%

Shrinking

1998 US 59.7%

30%

Aug 2005 US 43.0%

US

20% 10% 0% 1998

1999

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2000

2001

2002

2003

2004

Aug-05

Share of World Stock Market Value 1998 (Total $25.683 MM)

Aug 2005 (Total $38.970 MM) 2005 (Total $38.674 MM)

1998 (Total $25.683 MM)

US 59.7%

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ROW 40.3%

US 43.0%

ROW 57.0%

Share of World Stock Market Value: Focus on China 1998 (Total $25.683 MM)

China 3.5% $1360.4 MM

China 2.3% $579.4 MM

ROW 38.0%

Aug 2005 (Total $38.970 MM)

US 59.7%

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US 43.0% ROW 53.5%

Market Cap of Hong Kong, Shanghai, Shenzhen Exchanges (USD) 1,600,000

Shenzhen Stock Exchange

1,400,000

Shanghai Stock Exchange 1,200,000

Hong Kong Exchanges

USD MM

1,000,000 800,000 600,000 400,000 200,000 0 1995

1996

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1997

1998

1999

2000

2001

2002

2003

2004

Aug-05

Number of Listed Companies – Hong Kong, Shanghai, Shenzhen Exchanges 3,000 Shenzhen Stock Exchange

No. of Listed Companies

2,500

Shanghai Stock Exchange

542

Hong Kong Exchanges 2,000 834 1,500

1,000

1109

500

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Aug05 614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Stock Market Statistics 2006 Forward P/E Ratio China

10.7

Hong Kong

14.3

(Shanghai and Shenzhen)

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China Forward Earnings Growth Estimates Analyst Earnings Expectations 12-Months 5-years

China

(Shanghai and Shenzhen)

Hong Kong

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9.1

11.0

10.7

13.3

China: What the “Bears” Say. . . “…China’s financial markets are still relatively immature. Its banking system is rife with corruption and corporate governance is poor; its stock market is depressed and seemingly broken; its brokerage houses are insolvent; and its managed currency elicits outrage overseas because of trade disputes.”

David Barboza, Finance Firms Accelerating Their Moves Into China, The New York Times, Saturday, October 22, 2005.

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China: What the “Bulls” Do. . .

Recent Investments in Chinese Banks Bank of America

$3 Bn

China Construction Bank

Royal Bank of Scotland/ Merrill Lynch

$3.1 Bn

Bank of China

Goldman Sachs

$3 Bn

Industrial & Commercial Bank of China

Temasek Holdings

$4 Bn

Two Chinese Banks

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2008 Forecast • US PPP Share declines from 20.8% in 2004 to 20.4% in 2008 • China PPP Share increases from 13.1% in 2004 to 15.2% in 2008 • Chinese Stock Markets If current trend continues, China exchanges (Hong Kong, Shanghai, and Shenzhen) could be 4.5% - 5% of total world in 2008.

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