5. US Rate Hike in 2015
Market Update
Iran nuclear pact complete
sources: HiddenLevers,
1
3
Gold ticks down to 5y low
2
4
Dude!!
Tech partying like 1999
SPX +70%
NAS +140%
6. Market Update: Viva le Dollar
Post QE rise in USD set to repeat as Interest Rates rise
sources: HiddenLevers
Rate Hike
=
strong USD
US economic
picture
improving
Yuan is
pegged to
USD
Yuan flat against USD
5
8. CHINA 2015: Global Context
sources: HiddenLevers, DailyMail, KraneShares, IMF
25%
15%
7%
5%4%
45%
2014 Global Nominal GDP (IMF)
United States
China
Japan
Germany
United Kingdom
Rest of World
China GDP:
- 15% of global GDP
- Passes US, adjusted for purchasing power
- Main contributor to global GDP growth
9. China2015: Triple Bubble
sources: HiddenLevers, Goldman Sachs, Forbes, Economist
According to Credit Suisse, China's "triple bubble" – a combination of
the third biggest credit bubble, the biggest investment bubble and
the second-biggest real estate bubble of all time – is the single
biggest risk to the global economy.
China Total Debt/GDP
10. CHINA 2015: Wild Bull Market
sources: HiddenLevers, Forbes, Financial Times
+150%
–32%
11. CHINA 2015: Looking for Tell Tails
sources: Gulf Times, Nat’l Bureau of Statistics of China
One of these things is not
like the other.
It’s the Shanghai market.
12. CHINA 2015: Sino Evils (Govt Actions)
sources: HiddenLevers, Bloomberg
13. CHINA 2015: Impact on World
sources: HiddenLevers, Frontier Strategy Group, Economist
US captures 25% of a 1%
decrease in Chinese GDP
VULNERABLE
commodities players
+
Africa
15. Scenario Update
- HL introducing Shanghai Composite as a lever
- Chinese market + economic cycles out of step
- Copper losing its value as a key lever
- USD post-QE rise hasn’t killed US rally
China
Slowdown
Soft Landing 7% GDP Hard Landing 4-5% GDP China Recession
(long priced in) (headed there) (still alive)
16. GOOD: Double Happiness
source: HiddenLevers, Bloomberg, Financial Times
Allocations rise in line with China share of global GDP
hiccup in
maturing
market
govt action
volatility
killer
GDP stays
above 7%
2nd largest
equity
market
17. BAD: Shanghai Crash
foreign
money no
come back
China markets struggle but S+P in tact
source: HiddenLevers, WikInvest, Forbes, WSJ
negative
wealth
effect
RE + credit
bubbles
don’t pop
69 P/E,
above 2007
peak
Still
holding!
margin calls
allowed
-8
-32
18. UGLY: China Recession
triple
bubble pop
source: HiddenLevers, Economist, ZeroHedge,
seismic
economic
changes
China posts negative GDP as a consumer nation
govt actions
far exceed US
in 2008
China is
world’s #2
consumer
government
caught lying
19. Scenario: China Slowdown
Shanghai
1975 -50%
Shanghai
2950 -25%
Shanghai
5000 +25%
key
lever
China’s equity market share
rises to equal China’s share
of world GDP – with
positive spillover for all
markets
China is unable to contain
market volatility with
government intervention,
and sky-high valuations
lead to a Shanghai crash,
with limited global impact.
China enters its first full
blown recession since 1980,
dragging down global
growth and commodities
producers.
Good
Double
Happiness
Bad
Shanghai
Crash
Ugly
China
Recession
20. China Troubles – Take Aways
China market + economic
cycles out of step
US capture of China downside
increases with magnitude
margin lending led to
Shanghai rise + fall
Copper + Aussie Dollar good
barometers for China GDP