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. 614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com