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ECONOMIC TRENDS 4 February 2009

quityResearchPP11072/11/2009 (022809)

Global EconomicsAn afternoon with Jim Rogers

We attended Jim Rogers talk entitled How I See The World Today.

In short, he is still bullish on China and commodities, bearish on the USDollar and bonds, with little to say about equities.

Overall, the talk reaffirmed his already well-documented and widely-publicized views on long-term economic trends and the financialmarket outlook.

How I see The World Today We attended a talk by Jim Rogers renownedinvestor who co-founded Quantum Fund with George Soros organized by BankNegara Malaysia (BNM) under the Financial Institutions Directors Education

Programme (FIDE) yesterday (3 Feb 09). The gist of his talk, entitled How ISee The World Today, is essentially a reiteration of his well documented andpublicized general long-term (8-10 year horizon) views on economic trends andfinancial markets, which we summarize below:

Still bullish on China Jim sees China as the economic superpower of the21st century after the US in the 20th century and UK in the 19th century. Hewent as far as urging the audience to follow his steps of getting his twodaughters to learn Mandarin, claiming the move to be his best investment forhis childrens future. Consequently, he also sees the balance of globaleconomic influence and financial centres moving to East Asia from the West,largely due to East Asia being the host of many creditors as opposed to

debtor nations (i.e. economies) with high-savings, current accountsurpluses, and/or large external reserves. Current setbacks in Chinafollowing the global financial meltdown and economic downturn (e.g. the dropin stock and property/real estate markets, declines in exports and industrialoutput and economic slowdown) are normal growing pains that alsooccurred in the US and UK as they ascended to global superpower status.

and commodities. With China rising as an economic superpower, thereis also the concomitant increase in long-term structural demand forcommodities, and he expects China to build strategic reserves in variouscommodities. He sees commodity supply shock coming from lower stocksand output and declining investments in production capacities, in reaction tothe current financial crisis and drop in commodity prices (e.g. foodinventories worldwide at 50-year low, farmers facing difficulties in accessingcredit to buy seeds and fertilizers leading to lower crops, drop in crude oilexploration activities, no new mines for industrial raw materials as minersfaced credit hence working capital crunch) which sets good fundamentalsfor a commodity rally. Moreover, the commodity rally still has some way togo as studies showed that historically, commodity rallies lasted 18 years onaverage and the recent upcycle is only about a decade old. Jim added thatover the past 10 years, commodities have yielded the best returns relative toother asset classes and said that he sees agricultural commodities as thebest bet as it has been a laggard relative to energy and industrial rawmaterials in the recent commodity upcycle. He also argued that commoditiesare still a relatively under-invested asset class considering that out of 70,000investment funds globally, there are only about 100 funds that invest incommodities.

Suhaimi Iliassuhaimi_ilias@aseam.com.my603-2284 8682

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Increasingly bearish on US Dollar Jim is extremely negative about theUS, largely due to the country being the worlds largest debtor nation - i.e.low/negative savings, highly-leveraged consumers, financial institutions,corporates and Government. The current financial crisis and policyresponses that included bailouts of financial and non-financial companies aswell as a large fiscal stimulus package in the pipeline will result in anexplosion of US public debt that is essentially funded by the printing of US

Dollars. He predicts this will cause a long-term decline of US Dollar not onlyin terms of value but also in terms of its status as the worlds trading andreserve currency. He likened the expected demise of the greenback to thatof British Pound Sterling in the late-1960s and 1970s as UKs decline as aneconomic superpower during the 20th century gained rapid momentum afterthe two World Wars. He acknowledged that the same process on the USDollar will not materialize soon but will take time. He went as far as boldlydeclaring that over the long-term, Renminbi will take over as the worldstrading and reserve currencies as China has the size in terms of theeconomy, markets and population.

and bonds. The printing of the US Dollar and the rise in public debtworldwide to fund the financial and non-financial sector bailouts, as well as

fiscal pump-priming will lead to a glut of Government papers, and togetherwith his bullish view on commodities, will result in the return of inflation in thelong term, which in his view, is negative for bonds.

Not much to say on stocksJim was somewhat neutral on stocks, taking theview that the global equity markets are likely to be volatile, resulting in a long-term sideways trend or pattern. He also argued that the strings of financialcrises since the 90s that culminated into the current one will dent investors faithin paper assets (bonds, equities) and currencies, further underpinning his bullishview on commodities.

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