the influence of growing economies on developed markets ... files/presentation... · emerging...
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1
Ripple effects in global waters The influence of growing economies on developed markets
March 8, 2012, CFA Québec
2
3
THE
POWER OF
DISCIPLINED INVESTING
4
China and India dominated global output historically
China
India/ Pakistan
Rest of World
Europe
United States
0%
25%
50%
75%
100%
1750 1800 1830 1860 1880 1900
Relative share of world manufacturing output 1750 to 1900
Source: International Monetary Fund, IFS
0%
5%
10%
15%
China in 1980
China in 2010
% of global GDP
13.6%
2.2%
5
China & India’s population dwarf the rest of the world
0
300
600
900
1 200
1 500
1 800
1950 1970 1990 2010 2030 2050
Po
pu
lati
on
(m
illi
on
s)
Russia Brazil
USA Germany
Source: United Nations, Department of Economic and Social Affairs, Population Division
6
Urbanization occurring
Source: UN Department of Economic and Social Affairs, Population Division
0
20
40
60
80
100
1950 1970 1990 2010 2030 2050
% o
f U
rba
n P
op
ula
tio
n
Russia Brazil
Germany USA
7
China a top export destination
Source: World Trade Organization, 2009
Exports to China
Country / region % China’s rank
United States 6.6% 4
European Union 7.2% 3
Japan 18.9% 1
South Korea 23.9% 1
Taiwan 26.6% 1
South Africa 10.5% 2
Russia 5.5% 3
Brazil 13.2% 2
India 5.9% 4
8
9
Arable land per person decreasing
Source: Food and Agriculture Organization of the United Nations
0,00
0,10
0,20
0,30
0,40
0,50
2,0
3,0
4,0
5,0
6,0
7,0
1961 1971 1981 1991 2001
Ara
ble
la
nd
(H
a p
er
pe
rso
n)
Po
pu
lati
on
(b
illi
on
s)
World population World arable land (hectare per person)
10
Arable land per person also shrinking in India and China
0,00
0,10
0,20
0,30
0,40
0,50
1961 1971 1981 1991 2001
Ara
ble
la
nd
(H
a p
er
pe
rso
n)
World arable land China India
Source: Food and Agriculture Organization of the United Nations
11
Shortfall in fertilizer production
0
2
4
6
8
10
12
Brazil India China
Mil
lio
ns
of
ton
ne
s
Potash supply & demand
Consumption
Production
Shortfall
Source: International Fertilizer Industry Association, BMO
12
Fertilizer producers experience demand growth
Global fertilizer
producers Country
5-year profit
growth (CAGR)
Potash Corp. Canada 33.7%
Agrium Canada 17.1%
ICL-Israel Chemicals Israel 15.1%
Yara International Norway 23.6%
Saudi Arabia Fertilizers Saudi Arabia 29.0%
Source: FactSet, using most recent fiscal year end
13
0
5
10
15
20
25
Million Tonnes Primary Product Capacity
Canada home to two of the top ten producers
Based on PotashCorp nameplate capacity.
Source: Blue, Johnson; Fertecon; PotashCorp; Company reports
Why housing prices have doubled in Regina!
BHP
Vale
Rio Tinto
14
15
New source of funds flowing into developed bond markets
Nominal US Treasury holdings of BRIC nations, billions of US dollars, 2000 - 2011
Source: FactSet, US Department of Treasury
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
China
Russia
Brazil
India
16
BRIC increasing share of foreign purchases
China
Brazil
India
Russia
0%
5%
10%
15%
20%
25%
30%
35%
2006 2007 2008 2009 2010 2011
Percentage of foreign owned US Treasuries
Source: US Department of Treasury, Bloomberg
17
Canada remains a safe haven for foreign investors
Net international purchases of Canadian bonds, 2001 - 2011
Source: Statistics Canada, Bloomberg
0
100
200
300
Q1-01 Q1-03 Q1-05 Q1-07 Q1-09 Q1-11
$C
dn b
illions
18
19
China’s increased demand for raw materials
Source: CNNC/SNMIA, Macquarie Research estimates
0%
20%
40%
60%
Copper Zinc Lead Nickel Iron Ore
% o
f to
tal
wo
rld
use
2000 2010
20
Basic materials production – a global story
Company Headquarters Primary commodity
BHP Billiton Australia, UK Iron ore
Vale Brazil Iron ore
Rio Tinto Australia, UK Iron ore
Anglo American UK, South Africa Copper
Norilsk Nickel Russia Nickel
Xstrata Switzerland Copper
Teck Resources Canada Copper & coal
POSCO South Korea Steel
ArcelorMittal Netherlands Steel
Southern Copper Peru Copper
Source: FactSet
21
1500
2500
3500
4500
7500
9500
11500
13500
15500
S&
P/T
SX M
ate
rials
secto
r
S&
P/T
SX C
om
posi
te
S&P/TSX (lhs)
Materials sector (rhs)
Materials production – the Canadian connection
Source: FactSet, S&P/TSX
22
23
Health insurance coverage in China is rapidly increasing
0%
25%
50%
75%
100%
2004 2005 2006 2007 2008 2009 2010
% o
f Popula
tion
Source: China Ministry of Health
24
Emerging markets impacting global pharmaceuticals growth
0% 6% 12% 18%
North America
Europe
Japan
Latin America
Asia/Africa/Australia
% average revenue growth 2006-2010
Source: IMS Health
25
Emerging markets impacting global pharmaceuticals growth
Avg. growth = +16.3%
Note: Bubble size represents 2010 market sales. Source: IMS Health
Long-term avg. growth 2006-10
Short
term
gro
wth
(2009-1
0)
China
Thailand
Turkey
S. Africa
Pakistan Egypt
Romania
Argentina
Vietnam
Poland Mexico
Venezuela 35%
30%
25%
20%
15%
10%
5%
0%
-5% 0% 5% 10% 15% 20% 25% 30% 35%
Brazil
India
Russia
26
Global companies lead Chinese pharmaceuticals sales
Source: IMS Health, ChinaPharma Online
0
200
400
600
800
1000
Pfizer AstraZeneca Sanofi-Aventis Bayer Sichuan Kelun
2010 S
ale
s ($
million)
US
Europe
China
27
28
Rapid growth in China’s middle class
Source: Goldman Sachs Global Investment Research 2011
0
200
400
600
800
1 000
1 200
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Popula
tion (
mns)
Income between $6,000 and $30,000 Income above $30,000
29
Emerging markets lead auto sales growth
Source: Goldman Sachs Global Investment Research 2011
0
20
40
60
80
2000 2002 2004 2006 2008 2010
Au
to U
nit
Sa
les
(mil
lio
n)
US, Europe, Japan
Emerging Markets
30
China’s vehicle sales continue to increase
0
5
10
15
20
25
1995 1997 1999 2001 2003 2005 2007 2009 2011E
Unit
Sale
s (m
illion)
Source: CAAM, Deutsche Bank
31
Asi
a
E.
Euro
pe
Car ownership levels well below developed markets
Source: Goldman Sachs Global Investment Research 2011
USA
W.
Euro
pe
800
600
400
0
200
Japan
Kore
a
S.
Am
eri
ca
Glo
bal Avg.
Cars
per
1000 o
f popula
tion (
2008)
32
0
5000
10000
15000
20000
2000 2002 2004 2006 2008 2010
Un
its
(00
0’s
) Foreign brands participating in Chinese auto growth
Source: Goldman Sachs Global Investment Research 2011; IHS Global Insight
Chinese branded
Imports
33
Magna International to focus growth on emerging markets
Source: Magna International 2012 corporate outlook, January 2012
• Up to half of 2012 capital spending ($1.5B)
planned for projects in Asia, South America &
Eastern Europe
• Launching 40 new facilities between 2012 and
2014 – mostly in emerging markets
• By 2014, 20% of sales will be relatively new
markets including: Asia, South America and
Central and Eastern Europe
34
Air traffic growing in emerging markets
Source: J.P.Morgan
Cumulative Annual Growth Rates in Global Airline Passenger Traffic
(2000 to 2010)
7,6%
2,9%
4,5%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Emerging Markets Developed Markets Total
35
Aircraft Deliveries continue to grow
Source: J.P.Morgan
0
200
400
600
800
1000
1200
1400
1600
1800 2
00
5
20
06
20
07
20
08
20
09
20
10
20
11
E
20
12
E
20
13
E
20
14
E
20
15
E
20
16
E
Large Commercial Aircraft Deliveries
36
37
0
2000
4000
6000
8000
10000
1980 1985 1990 1995 2000 2005 2010
Tho
usa
nd
Bar
rels
Pe
r D
ay
Chinese oil demand outpacing supply
Source: US Energy Information Agency
Net
imports
38
China, India already among the largest importers of oil
0
3000
6000
9000
12000
Europe US China Japan India
Th
ou
san
ds
of
Ba
rre
ls /
Da
y
Net imports of oil
Source: BP Statistical review of world energy, June 2011
39
China, India oil imports dominated by Middle East & Africa
Source: BP Statistical Review of World Energy June 2011
0
500
1000
1500
2000
2500
3000
Middle East Africa Former Soviet Union
Other Asia Pac S. & Cent America
Th
ou
san
ds
of
Ba
rre
ls /
Da
y
To China
To India
40
Canada has a significant share of oil reserves
Source: BP Statistical Review of World Energy June 2011
0 50 100 150 200 250 300
Kazakhstan
Libya
Russia
UAE
Kuwait
Iraq
Iran
Canada
Venezuela
Saudi Arabia
Billion barrels
Proven reserves
Oil sands
41
Canadian Energy: Owning oil sands growth
Source: FactSet, CPMS, First Energy
Dec 2007 Dec 2011
Production* 270k BOE/day Est. 540k BOE/day
Revenue $14.62/share $24.67 /share
Cash flow $3.74/share $6.23/share
Price-to-cash flow 14.4x 4.7x
Crude oil price $96 $99
Share price $53.96 $29.38
Suncor Energy Fundamentals: 2007 vs. 2011
*2007 production is prior to takeover of Petro-Canada
42
43
Oil prices influence provincial GDP growth
Source: Statistics Canada
0
20
40
60
80
100
120
-15%
-10%
-5%
0%
5%
10%
15%
2006 2007 2008 2009 2010
Pri
ce (
$)
GD
P G
row
th (
YoY
%)
Saskatchewan Alberta Newfoundland and Labrador Oil (WTI)
44
Oil prices influence Alberta occupancy rates
Source: CB Richard Ellis, Bloomberg
$0
$40
$80
$120
$160
92%
94%
96%
98%
100%
Q4-05 Q3-06 Q2-07 Q1-08 Q4-08 Q3-09 Q2-10 Q1-11 Q4-11
Pri
ce o
f O
il (
$/
bb
l.)
Occ
up
an
cy R
ate
Calgary (lhs) Edmonton (lhs) Price of oil (rhs)
45 Source: CB Richard Ellis, Bloomberg
$0
$40
$80
$120
$160
0
1
2
3
4
07Q1 07Q4 08Q3 09Q2 10Q1 10Q4 11Q3
Pri
ce o
f O
il (
$/
bb
l.)
Sq
ua
re F
ee
t U
nd
er
Co
nst
ruct
ion
(m
illi
on
s) Calgary Edmonton Price of Oil
Oil prices influence Alberta construction
Industrial sq.ft. under construction vs oil price
46
47
China’s growing middle class
Source: Goldman Sachs Global Investment Research 2011, BMW
298 280
103
64 147
377
24
30
104
0
200
400
600
1995 2010 2025
Nu
mb
er
of
ho
use
ho
lds
pe
r in
com
e g
rou
p
(mn
)
>$60,000 $15-60,000 $0-15,000
48
Consumer goods consumption
0 100 200 300 400 500
Personal care
Household care
Hot drinks
Packaged food
Pet care
Soft drinks
Per capita consumption $US
Emerging Markets
Developed Markets
Source: BofA Merril Lynch Global Research estimates, National statistics, Euromonitor
1,282
49
High propensity to spend on consumer goods
-1% 0% 1% 2% 3% 4% 5% 6% 7%
Alcoholic drinks
Personal care
Tobacco
Household care
Hot drinks
Packaged food
Pet care
Soft drinks
GDP
Emerging Markets
Developed Markets
Source: BofA Merrill Lynch Global Research estimates, National statistical agencies
5-yr average sales
growth (2005-10)
50
Growth in consumer goods driven by emerging countries
21% 24%
31%
40%
53% 57%
78%
Heinz Kraft P&G Nestle Unilever Colgate Avon
Est
. re
ve
nu
e f
rom
Em
erg
ing
Ma
rke
ts
Source: Company data, BofA Merrill Lynch Global Research estimates
51
52
Also growing in the emerging markets…millionaires
Source: Capgemini Merrill Lynch, World Wealth Report 2011
153
155
454
535
924
1739
3104
India
Brazil
UK
China
Germany
Japan
US
Number of Millionaires (thousands)
21% growth (2009-2010)
12% growth (2009-2010)
53
Luxury goods consumption is growing in China
0%
3%
6%
9%
12%
15%
0
20
40
60
80
100
1998 2008 2009 2010E
Glo
ba
l S
ha
re (
%)
Lu
xu
ry C
on
sum
pti
on
(B
illi
on
RM
B)
Dollars spent (LHS) Global share of luxury goods purchases (RHS)
Source: McKinsey Consumer & Shopping Insights, March 2011
54
Chinese taste for the good life
27%
19%
26% 25% 24%
39%
Bulgari S.p.A. Burberry Hermes International
LVMH Moet-Hennessy Louis
Vuitton
Richemont Swatch
Ex
po
sure
to
Ch
ina
Hermes Louis
Vuitton Richemont Swatch
Source: Goldman Sachs Global Investment Research 2011
Bulgari Burberry
55
“All other things being equal, avoid investing in companies which
produce what China is producing now, or will be producing soon.”
“All other things being equal, invest in companies
which produce what China needs to buy.”
Don Coxe, Global Portfolio Strategist, BMO Capital Markets (2002)
56
57
0
1000
2000
3000
4000
5000
2000 2010
Per
Cap
ita G
DP
($U
S)
China
India
India still well behind China
Source: International Monetary Fund, World Economic Outlook Database, September 2011
58
India poised to drive growth
0
300
600
900
1 200
1 500
1 800
1950 1970 1990 2010 2030 2050
Po
pu
lati
on
(m
illi
on
s)
Russia Brazil
USA Germany
Source: United Nations, Department of Economic and Social Affairs, Population Division
China
India
59
India poised to drive growth
Source: UN Department of Economic and Social Affairs, Population Division
0
20
40
60
80
100
1950 1970 1990 2010 2030 2050
% o
f U
rba
n P
op
ula
tio
n
Russia Brazil
Germany USA
60
THE
POWER OF
DISCIPLINED INVESTING
61
Questions?
62
Your presenter
Greystone’s Managing Director of Canadian Equities, Donnie MacKay, CFA, is proof of the
firm’s belief in developing and nurturing its own talented people.
Mr. MacKay joined Greystone in January 1992 on the money market desk as our Trader.
Seeking to broaden his knowledge and experience, he became the Trader for Canadian and
U.S. equities in 1994, while still working on his CFA charter, which was granted two years
later.
In 1997, Mr. MacKay began covering Canadian equity sectors as a Portfolio Manager and in
1999 became Vice-President of Canadian Equities. He assumed leadership of the Canadian
Equity team in January 2004, becoming Senior Vice-President. Along with portfolio
management and research, he is the relationship manager for key Greystone clients and an
active member of our Asset Strategy Team.
Along with his CFA Charter, Mr. MacKay holds a B.A. from the University of Saskatchewan.