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Macroeconomic Research Capabilities Overview Case Studies

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Macroeconomic Research Services – An Overview Sutherland Economic Research •

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Sutherland’s economic research team provides macroeconomic research services to investment banks, brokerage houses and independent research firms We provide end-to-end macroeconomic research services across geographies. Our clients span across North America, Europe, Middle East and Emerging Markets

PL

Economic Research Offering Creation and maintenance of a broad economic database

M

Collection of macroeconomic data from a wide variety of sources such as DataStream, Haver, CIEC and Bloomberg Collection of data from public sources such as Central banks, Ministries or international organizations Keeping track of new data releases while adding/ updating data, forecasts and related charts/ figures

SA

Developing forecasting models and updating research •

Forecasting major macroeconomic variables based on key drivers: – Developing econometric models for forecasting house prices in the US or any other country – Estimating loan demand equations for Germany and construct an econometric model for short-term forecasting

Preparing periodicals on economies and markets

• • • •

Daily news updates on economies, business and policy developments Daily/ Weekly/ Monthly macroeconomic reports on various economies Periodical study of key international trends like deleveraging, fiscal and monetary policy, trade flows, etc. Country’s economic outlook

Researching on themes of interest and creating new ideas •

The probable benefits and structure of the proposed Gulf Monetary Union; Continued GCC integration – impact on trade and diversification Studies on issues related to social aspects like health care and education; Analysis of the rise and role of Sovereign Wealth Funds in the region

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Case Study 1 – Database Design and Presentation: UK Macroeconomic Data Dashboard 2004

2005

2006

2007

2008 YTD Annualized

3.3 2.2 0.7 1.0 0.1 -0.6

1.8 1.0 0.6 0.3 -0.1 0.0

2.9 1.3 0.4 1.3 -0.2 0.0

3.1 2.0 0.4 0.9 0.4 -0.6

1.9 1.2 0.2 0.6 0.4 -0.6

1.3 3.0 2.2 2.0 3.1 18.8 0.69 0.52 97.6 101.8

2.0 2.8 2.2 2.2 2.7 5.4 0.68 0.57 96.8 101.3

2.3 3.2 3.0 3.0 3.2 8.3 0.67 0.51 97.7 103.2

2.3 4.3 3.2 3.2 4.2 9.3 0.72 0.50 99.7 99.7

1.1 2.0 1.8 1.9 2.0 -1.9 0.75 0.51 92.6 98.7

4.7 0.7

0.7 0.8

4.7 2.6 4.4 1.2 2.2 2.6

5.1 2.9 4.0 3.1 0.9 0.8

5.8 8.8 10.7 73.9 16.8 4.75 4.4 4.9

3.2 12.7 8.8 78.2 17.1 4.50 5.0 4.4

GDP and Components Real GDP Private Consumption Contribution Govt Consumption Contribution Fixed Investment Contribution Inventory Contribution Net Exports Contribution

Unemployment Rate % Claimant Count Rate % Avg Earnings YoY% Unit Lab Costs YoY% Output per Worker YoY% Output per Hour YoY% Money, Credit & Interest Rates Narrow Money (M0) YoY% Broad Money (M4) YoY% M4 Lending (Households) YoY% Mortgage Lending (Ind) % of GDP Consumer Credit % of GDP BoE Base Rate % (eop) 3-Month Rate % (eop) 10-Year Bond Yield % (eop)

London branch of a US-based Hedge Fund Global alternative investment firm providing multi-asset investment capabilities. Invests on behalf of qualified institutions, funds of funds and high net worth individuals

Engaged Sutherland for creating and maintaining a ‘Macroeconomic Data Dashboard’ for the UK, a specialized and time-consuming task for an investment firm Identify and compile key economic indicators of relevance to financial markets The database was to be complemented with a customized tool for generating charts that would be time and cost-effective for fund managers

PL

2.8 0.4

3.9 0.5

2.7 0.0

5.5 2.9 4.1 2.1 2.0 2.3

5.2 2.5 3.9 1.6 2.3 2.0

5.2 2.5 1.8 1.9 2.0 1.7

5.1 12.8 9.1 82.6 16.3 5.00 4.6 4.5

5.8 12.1 8.8 85.5 16.1 5.50 5.6 5.0

9.3 10.6 9.7 80.1 12.3 5.25 5.6 4.6

SA

Labour & Productivity

M

Other Activity Measures Retail Sales YoY% Consumer Confidence (Std Norm)

• •

Research Requirements

Prices & Exchange Rates Headline CPI YoY% Headline RPI YoY% RPIX YoY% RPIY YoY% TPI YoY% Halifax House Price Index YoY% GBP/EUR (eop) GBP/USD (eop) Nom Eff Ex Rate (NEER) Real Eff Ex Rate (REER)

The Client

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Macroeconomic Indicator

• •

Sutherland’s Offering • •

• • • •

Identified key macroeconomic indicators, from the Bank of England and UK Federal Stats office Covered National Accounts, various price series, activity indices from business and consumer surveys, housing data, monetary and credit developments and balance of payments Mapped corresponding data from Thomson Datastream Carried out theoretically sound data-processing for ease of analysis Generated an easy-to-use VB tool called ‘Chart Generator’ Built in formulas and created comprehensive documentation for easy updation and transition to different users

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Case Study 2 – Econometric Analysis: Forecasting German Lending Growth 7

The Client

Estimated German Credit YoY%

• Credit Growth to temper starting August

5 Actual German Credit YoY%

Requirements

E

3

Equity Research (Banking) team of an European sell-side research house

To estimate loan demand equations for Germany and construct an econometric model for short-term forecasting

PL

1 -1 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

SA

M

Key Highlights

Conducted a survey of academic literature to isolate the appropriate variables and econometric techniques. Built a comprehensive database Time-series properties of various series were analyzed. Co-integration was carried-out to isolate long-term relationships among loans, GDP and real interest rates Separate forecasting tools for consumer and corporate credit demand were estimated using Vector Error Correction Models (VECM) Apart from employing long-term co-integrating errors, we attempted to explain short-term variations in loan off-take using survey-based indicators and supply-side factors like banks’ credit rationing measures

Client Impact •

The superior forecasting performance of the econometric tool, enhanced the readership of the ‘banking strategy' report that carried it

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Case Study 3 – Thematic: Greek Debt Conundrum The Client •

India based portfolio investor

Research Requirements The objective for the client was to get an unbiased analysis of Greece problem as it had exposure to Euro dominated assets

PL

E

Sutherland’s Offering

A member of economics team who tracks global events retrieved all relevant data

The structure of the analysis was as follows

SA

M

Analysis of deficit and debt

Issues of fudged numbers and fiscal indiscipline

Reaction of markets as CDS spread widened and rating agencies downgraded the sovereign ratings

Efforts by the government and opposition from within

Fear of contagion spreading to vulnerable countries such as Portugal, Ireland, Spain

Conclusion

The analysis was delivered in the form of presentation

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Thank You

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Macroeconomic research capabilities