China Outlook: Improving?

McVEAN

Trading Trading & & Investments, Investments, LLC LLC

CHINA OUTLOOK: IMPROVING? FRANKFURT, GERMANY SEPTEMBER 30, 2019

Michael Drury Chief Economist McVean Trading and Investments, LLC

Past Performance Is Not Necessarily Indicative Of Future Results.

1

CHINA SHIFTS TO DOMESTIC FOCUS

38%

CHINESE EXPORTS VS IMPORTS AS A % OF GDP

33%

28%

23%

18%

13% 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 r-0 p-0 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 a e a e a e a e a e a e a e a e Q2 ar ep ar ep ar ep ar ep ar ep ar ep ar ep ar ep aEXPORTS a a M S M S M S M S M S M S M S M S M Se M Se M SIMPORTS M S M S M S M S M S M S M S M Se19

Past Performance Is Not Necessarily Indicative Of Future Results.

2

PRIVATE SECTOR BEARS THE BURDEN

Past Performance Is Not Necessarily Indicative Of Future Results.

3

2016 CHINA + HONG KONG EXPORT PIE $2.0 TRILLION

PACIFI C RIM

NORTH

AMERI CA

30%

PAC RIM EUROPE NORTH AMERICA SOUTH ASIA MENA LATIN AMERICA OTHER

EUROPE 24%

22% Past Performance Is Not Necessarily Indicative Of Future Results.

4

2016 US EXPORT PIE $1.5 TRILLION

OTHER 23%

NORTH AMERICA 34% NORTH AMERICA WESTERN EUROPE PACRIM OTHER

PAC RIM 25%

EUROPE 18%

Past Performance Is Not Necessarily Indicative Of Future Results.

5

LAST TARIFF ROUND WAS THE ONE CHINA FEARED MOST

YOU START WITH THE LOW HANGING FRUIT SOLAR & WASHING MACHINES

STEEL & ALUMINUM

25% ON $50 B

10% ON $200B

$36B, THEN $14B

25% ON JAN 1

15% MORE ON THE SAME $200B

INDUSTRIAL PARTS & CHEMICALS

CHINA TIT FOR TAT RESPONSE

25% ON $50 B MOSTLY AGRICULTURE

10% TO 25% ON $60 B

5% TO 25% ON ANOTHER $60B

Past Performance Is Not Necessarily Indicative Of Future Results.

6

NEW TARIFFS WILL LIFT US PRICES

Past Performance Is Not Necessarily Indicative Of Future Results.

7

AND NEXT $325 B LANDS OUTSIDE CHINA

Past Performance Is Not Necessarily Indicative Of Future Results.

8

ALTERNATIVES TO CHINA?

Past Performance Is Not Necessarily Indicative Of Future Results.

9

NEXT GENERATION FOR INDUSTRY

Past Performance Is Not Necessarily Indicative Of Future Results.

10

CHINA FISCAL STIMULUS HAS BEEN SUBSTANTIAL • • • • • • • • • •

Infrastructure -- mostly high speed rail -- raised by $80 billion Middle class income taxes and new deductions for key services Lowered interest rates and reserve requirements Pulled forward $220 billion in state government lending Small business loans increased Tariffs reduced (even for US) and export rebates increased Promised $300 billion in stimulus at National Congress Cut VAT from 1% to 3% depending on product $45 billion in new tax and fee reductions passed on April 15 th Changed definition of prime rate to lower costs for SME

• Cumulative over 4% of GDP since mid-2018

Past Performance Is Not Necessarily Indicative Of Future Results.

11

CHINA MONTHLY CAR SALES (SEASONALLY ADJUSTED BY MCVEAN TRADING)

32

30

28

26

24

22

20

18

16

3 MO AVG

CURRENT MONTH

Aug-19

Past Performance Is Not Necessarily Indicative Of Future Results.

12

CHINA RETAIL SALES

3 MONTH AVERAGE % CHANGE FROM PRIOR 3 MONTHS; SAAR* 25%

20%

15%

10%

5%

0%

-5%

*Seasonally adjusted by Mcvean Trading

TOTAL

Past Performance Is Not Necessarily Indicative Of Future Results.

EX AUTO

Aug-19

13

QUARTERLY INDUSTRIAL PRODUCTION 3 MONTH AVERAGE % CHANGE FROM YEAR AGO

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Aug-19 Past Performance Is Not Necessarily Indicative Of Future Results.

14

CHINA CREDIT LEADS THE WORLD ECONOMY

2000

CHINA SOCIAL FINANCING VS US & EUROPEAN PMI

60

1750 55 1500

1250

50

1000 45

750

500 40 250

0

35

06 06 06 07 07 08 08 08 09 09 10 10 11 11 11 12 12 13 13 13 14 14 15 15 16 16 16 17 17 18 18 18 19 n- un- ov- pr- ep- eb- ul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- ul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- ul- ec- aya J D M O M A J D M O M A J D M A S F J J N A S F A S F J J N J J N CHINA SOCIAL FINANCING (12 MO AVERAGE) AVERAGE OF EUROPE & US PMI (3MO AVG) July-19

Past Performance Is Not Necessarily Indicative Of Future Results.

15

CHINA LEADS THE GLOBAL MANUFACTURING China, Eurozone and US PMI 65

54

60

52.5

55

51

50

49.5

45

48 Eurozone

US

CHINA

Past Performance Is Not Necessarily Indicative Of Future Results.

Jul-19 16

CHINA & US EQUITIES HAD REBOUNDED

5000

3000

4500 2500 4000

2000

3500

3000

1500

2500 1000 2000

1500

500

SHANGHAI COMPOSITE

S&P 500

Past Performance Is Not Necessarily Indicative Of Future Results.

July 19 17

CHINESE RAILROAD FREIGHT VS ELECTRICITY PRODUCTION 3 MONTH AVERAGE % CHANGE FROM YEAR AGO 3 MONTH AVERAGE

30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0%

RAIL

ELECTRICITY PRODUCTION

Past Performance Is Not Necessarily Indicative Of Future Results.

June-19

18

CHINA EXPORTS VS IMPORTS

6 MONTH AVERAGE %CH FROM 6 MONTH AVERAGE YEAR AGO 66.0%

49.5%

33.0%

16.5%

0.0%

-16.5%

-33.0% 0 0 1 1 2 2 3 4 4 5 5 6 7 7 8 8 9 9 0 1 1 2 2 3 4 4 5 5 6 6 7 8 8 9 -0 g-0 r-0 t-0 y-0 c-0 l-0 b-0 p-0 r-0 v-0 n-0 n-0 g-0 r-0 t-0 y-0 c-0 l-1 b-1 p-1 r-1 v-1 n-1 n-1 g-1 r-1 t-1 y-1 c-1 l-1 b-1 p-1 r-1 n u u u a c p a c p a c Ap Ja Au M O Ma De J Fe Se A No Ju Ja Au EXPORTS M O Ma De J Fe IMPORTS Se A No Ju Ja Au M O Ma De J Fe Se Jul-19

Past Performance Is Not Necessarily Indicative Of Future Results.

19

CHINESE PPI BOTTOMING?

15

CHINA PPI CHANGE FROM SAME MONTH A YEAR AGO

10

5

0

-5

-10

Jul-19 Past Performance Is Not Necessarily Indicative Of Future Results.

20

MANAGING THE FREE FLOATING YUAN CORRUPTION CAMPAIGN CURRENCY BREAK

UR

EU CRISIS

AD TR

CO RE

RE T

RECESSION PRE LEHMAN

N

OOPS

RY VE

E

SCHUMER

Past Performance Is Not Necessarily Indicative Of Future Results.

21