Multipolarity And Globalization: Incompatible...
Transcript of Multipolarity And Globalization: Incompatible...
October 2013
Multipolarity And Globalization: Incompatible Pairing
February 2015
Presentation to: The 2nd Annual Texas Investors Summit - Houston
Marko Papic Chief Strategist Geopolitical Strategy
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A Word On Methodology For (geo)political analysis to be investment-relevant, it has to…
1. Examine policymaker CONSTRAINTS, not their PREFERENCES
2. Maintain risk-neutrality 3. Reveal endogenous (geo)political assumptions, not
fixate on exogenous ‘tail risks,’ or as Mark Twain said:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Forecasts For 2015
• Keystone theme: Multipolarity continues
• East Asia: Tensions temporarily subside • Middle East: Iran-Saudi proxy war in Iraq • Russia: Cold War Lite subsides and simmers
• EM: Bloodbath • DM: U.S. political risks overstated, in Europe
understated (but not existential)
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Hegemonic Stability Has Underpinned Globalization
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75 80 85 90 95 2000 05 10 15
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GLOBAL EXPORTS* (AS A PERCENTAGE OF GLOBAL GDP) (LS) POPULATION LIVING IN CAPITALISM** (AS A PERCENTAGE OF GLOBAL TOTAL POPULATION) (RS)
% %
* BASED ON IMF DATA, SHOWN SMOOTHED. ** PERCENTAGE OF GLOBAL POPULATION LIVING IN COUNTRIES WITH FRASER INSTITUTE ECONOMIC FREEDOM INDEX EQUAL TO OR GREATER THAN FIVE. BASED ON FRASER INSTITUTE AND WORLD BANK DATA.
Pax Americana
Hegemonic Stability Evolving Into Multipolarity
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© BCA Research 2015 © BCA Research 2015
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1.1
1.0
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90 94 98 02 06 10
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GEOPOLITICAL POWER INDEX* U.S. RELATIVE TO RUSSIA AND CHINA
* THE GEOPOLITICAL POWER INDEX MEASURES A COUNTRY'S POWER BASED ON A WEIGHTED AGGREGATION OF ITS ECONOMIC, MILITARY, POLITICAL, TECHNOLOGICAL, AND GEOGRAPHICAL ENDOWMENTS. SOURCE: BCA CALCULATIONS.
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50 60 70 80 90 2000 10
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U.S. ROLE IN WORLD AFFAIRS: ACTIVE ROLE STAY OUT
% %
RESPONDENTS WERE ASKED THE QUESTION,"DO YOU THINK IT WILL BE BEST FOR THE FUTURE OF THE COUNTRY IF WE TAKE AN ACTIVE PART IN WORLD AFFAIRS OR IF WE STAY OUT OF WORLD AFFAIRS?". SOURCE: CHICAGO COUNCIL SURVEY 2014.
Multipolarity Is Messy And Dangerous
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1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020
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NATIONAL CAPABILITY INDEX: U.S. U.K. FRANCE
GERMANY CHINA JAPAN RUSSIA
% %
SOURCE: CORRELATES OF WAR DATABASE BY SINGER, BREMER, AND STUCKEY. THE NATIONAL CAPABILITY INDEX MEASURES THE MATERIAL CAPABILITY OF COUNTRIES IN THE FORM OF IRON AND STEEL PRODUCTION, MILITARY EXPENDITURES AND PERSONNEL, PRIMARY ENERGY CONSUMPTION, AND TOTAL AND URBAN POPULATION.
WWI
WWII
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Multipolarity Will Erode Globalization
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1840 1860 1880 1900 1920 1940 1960 1980 2000
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TRADE GLOBALIZATION*
* TRADE GLOBALIZATION IS MEASURED BY IMPORTS AS PERCENTAGE OF GDP FOR 148 COUNTRIES WEIGHTED BY POPULATION. SOURCE:CHASE-DUNN C, KAWANO Y, AND BREWER B, "TRADE GLOBALIZATION SINCE 1975: WAVES OF INTEGRATION IN THE WORLD SYSTEM," AMERICAN SOCIOLOGICAL REVIEW 65 1, 2000.
Pax Americana
Pax Britannica
Hegemonic Instability
Investment Conclusions
• (Geo)political risks will increase in frequency – search for safe-haven assets continues
• Competition for commodities between competing regional powers will intensify
• EM needs access to foreign capital inflows and foreign markets for sustained growth • DECADE THEME: DM over EM
• Global savings glut will be assuaged • Inflation may not be dead
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East Asia Tensions Are On A Secular Rise
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.55
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90 94 98 02 06 10
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GEOPOLITICAL POWER INDEX CHINA U.S.
NOTE: THE GEOPOLITICAL POWER INDEX MEASURES A COUNTRY'S POWER BASED ON A WEIGHTED AGGREGATION OF ITS ECONOMIC, MILITARY, POLITICAL, TECHNOLOGICAL, AND GEOGRAPHICAL ENDOWMENTS. SOURCE: BCA CALCULATIONS.
33% increase in two decades
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MILITARY EXPENDITURE*: CHINA JAPAN
* SHOWN IN CONSTANT 2011 U.S. DOLLARS. SOURCE: STOCKHOLM INTERNATIONAL PEACE RESEARCH INSTITUTE.
Bn USD
Bn USD
© BCA Research 2015
China: Armed And Friendless
80 WHICH COUNTRY IS THE GREATEST ALLY?
%
NOTE: THE NUMBER OF RESPONDENTS WHO ANSWERED U.S. OR CHINA TO THE QUESTION, “WHAT COUNTRIES CAN YOUR COUNTRY MOST RELY ON AS DEPENDABLE ALLIES IN THE FUTURE?” SOURCE: PEW RESEARCH CENTER, JULY 2014, “GLOBAL OPPOSITION TO U.S. SURVEILLANCE AND DRONES, BUT LIMITED HARM TO AMERICA’S IMAGE.”
© BCA Research 2015
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U.S. CHINA
PHIL
IPPI
NES
SOU
TH K
OR
EA
JAPA
N
IND
IA
VIET
NAM
THAI
LAN
D
IND
ON
ESIA
MAL
AYSI
A
SOURCE: DIMITRAKI AND LIU, “THE MILITARY EXPENDITURE-ECONOMIC GROWTH NEXUS: EVIDENCE FROM CHINA, 1950-2011,” BRUNEL UNIVERSITY, MARCH 2011, AND SIPRI.
4.5
% Of GDP
4.0
3.5
3.0
2.5
2.0
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1.0
0.5
1970
s
1980
s
1990
s
2000
s
2010
s
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CHINESE DEFENSE SPENDING BY DECADE
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History Is Not Reassuring
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1875 1885 1895 1905
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GDP* GERMANY U.K. FRANCE
* IN 1990 INTERNATIONAL GEARY-KHAMIS DOLLAR; SOURCE: ANGUS MADDISON, REBASED TO 1870=100.
Europe in the 19th century…
…Rhymes with Asia in the 21st century
350
300
250
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150
100
96 2000 04 08 12
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250
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150
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GDP* CHINA JAPAN KOREA
* AT PURCHASING POWER PARITY, IN REAL TERMS; SOURCE: IMF; REBASED TO 1995=100.
© BCA Research 2015
Middle East: Second Derivative Of Multipolarity
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Middle East: Why Iraq Matters
CONTRIBUTION TO EXPECTED OIL SUPPLY INCREASE
(2012-2020)
%
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IRAQ
U.S
.
BR
AZIL
CAN
AD
A
KAZ
AK
HST
AN
OTH
ER N
ON
-OPE
C
CH
INA
LIB
YA
VEN
EZU
ELA
SOURCE: WORLD ENERGY OUTLOOK 2013, INTERNATIONAL ENERGY AGENCY.
12000
10000
8000
6000
4000
2000
Higher than during the anti-U.S. insurgency
2008
2009
2010
2012
2013
2011
2014
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CIVILIAN DEATHS IN IRAQ 2008-2014
Oil Price Collapse: Is There A Clear Demand Driver?
© BCA Research 2015 © BCA Research 2015
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1982 1990 1998 2006 2014
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GLOBAL INDUSTRIAL PRODUCTION Ann%
Chg Ann% Chg
Less clear demand catalyst
?
Is today like 85/86?
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WTI OIL PRICES 2002-CURRENT 1973 - 1990*
USD/ Bbl
* OIL PEAK IN NOVEMBER 22, 1985 IS REBASED TO THE JUNE 20, 2014 PEAK LEVEL.
USD/ Bbl
…then prices should have bottomed already
If today’s price collapse is like 1985/86…
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Russia-West Tensions Will Simmer, Not Blow Up
NATURAL GAS IMPORTS AND EXPORTS (2012)
EU IMPORTS FROM RUSSIA AS PERCENTAGE OF EU CONSUMPTION RUSSIAN EXPORTS
TO EU AS PERCENTAGE OF TOTAL RUSSIAN EXPORTS
%
80
70
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50
30
%
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EU
EM E
XCLU
DIN
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EUR
OPE
EXC
LUD
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EU
CH
INA
U.S
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RUSSIAN OIL EXPORTS* AS A PERCENTAGE OF TOTAL OIL EXPORTS (2013)
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* SOURCE: UNCTAD. SOURCE: BRITISH PETROLEUM.
Why Not Buy Russia On De-Escalation?
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© BCA Research 2015 © BCA Research 2015
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RUSSIA: 12-MONTH FORWARD P/E RATIO*
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RUSSIA: COMPARATIVE VALUATION INDICATOR* (LS) CORPORATE GOVERNANCE INDICATOR** (RS)
%
* PERCENTAGE PREMIUM / DISCOUNT RELATIVE TO EM BENCHMARK. ** SHOWN ADVANCED; SOURCE: WORLD BANK.
* SOURCE: THOMSON/IBES.
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EM: Bloodbath – Structural Reforms Are Needed
© BCA Research 2015
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EMERGING MARKETS*: PRODUCTIVITY**
Ann% Chg
* MARKET CAP-WEIGHTED AGGREGATE OF 21 EM ECONOMIES. ** SOURCE: THE CONFERENCE BOARD, TOTAL ECONOMY DATABASE
Ann% Chg
Structural rise in productivity
Structural decline in productivity
* INCLUDES CHINA, BRAZIL, RUSSIA, INDIA, MEXICO, INDONESIA, TURKEY, MALAYSIA, THE PHILIPPINES, THAILAND, AND SOUTH AFRICA. ** SOURCE: WORLD BANK AND BCA RESEARCH. *** WEIGHTED BY POPULATION.
BCA GOVERNANCE INDICATOR** (LS) GDP PER CAPITA*** (RS)
EMERGING MARKETS*:
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Growth Is Not Correlated With Equity Returns
1993-19981998-20032003-20082008-2013
© BCA Research 2015
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EM* AVERAGE GDP GROWTH
No correlation!
EQU
ITY
PRIC
ES: E
M* R
ELAT
IVE
TO W
OR
LD
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9
4
SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION) AND IMF WORLD ECONOMIC OUTLOOK. * NOTE: DATAPOINTS REPRESENT CHINA, BRAZIL, INDIA, RUSSIA, SOUTH AFRICA, SOUTH KOREA, TAIWAN, MALAYSIA, CHILE, MEXICO, AND SINGAPORE DURING FOUR SEPARATE TIME PERIODS.
-10 0 10 20 30 40
1993-1998 1998-2003 2003-2008 2008-2013
Gauging Risk Of Social Unrest
© BCA Research 2015
19 * INEQUALITY IS MEASURED BY GPD PER CAPITA AS A MULTIPLE OF MEDIAN WEALTH. SOURCE: IMF WEO OCTOBER 2014 AND CREDIT SUISSE GLOBAL WEALTH DATA BOOK. ** INDICATOR IS AN EQUALLY-WEIGHTED AVERAGE OF THE FOLLOWING MEASURES: GOVERNMENT EFFECTIVENESS, VOICE AND ACCOUNTABILITY, RULE OF LAW, AND CONTROL OF CORRUPTION. SOURCE: WORLD BANK AND BCA RESEARCH.
-0.5 0 0.5 1
1.5
1
0.5
INEQ
UAL
ITY*
GOVERNANCE INDICATOR**
HUNGARY
CZECH REPUBLIC
POLAND CHILE
MALAYSIA
CHINA PERU MEXICO
COLOMBIA INDONESIA
PHILIPPINES
INDIA
3
2.5
2 SOUTH AFRICA
TURKEY BRAZIL
RUSSIA THAILAND
Unequal & poorly run Social unrest risk
Equal but poorly run Equal & well run
…But The Economy Is Actually Worse Off Than In 2011
© BCA Research 2015 © BCA Research 2015
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EURO AREA: UNEMPLOYMENT RATE
% %
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0
-2
-4
10 12 14
2
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-2
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EURO AREA: REAL GDP
Ann% Chg
Ann% Chg
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European Risks Appear To Be Under Control…
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© BCA Research 2015
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2013 2014
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PERCENT OF VOTING INTENTIONS: SPANISH* CENTRIST PARTIES PODEMOS (SPAIN) ITALIAN** CENTRIST PARTIES 5S MOVEMENT (ITALY)
% %
* INCLUDES THE PEOPLE'S PARTY, SOCIALIST WORKER'S PARTY, AND THE UNION, PROGRESS AND DEMOCRACY. ** INCLUDES THE PARTIES IN THE CENTRODESTRA COALITION AND THE CENTROSINISTRA COALITION. ALL SERIES ARE AGGREGATED FROM VARIOUS POLLING DATA.
© BCA Research 2015
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PERCENT OF RESPONDENTS IN FAVOR OF THE EURO:
GREECE SPAIN FRANCE ITALY GERMANY EURO AREA AVERAGE
% %
SOURCE: EU COMMISSION. 2015
JAN APR JUL OCT JAN APR JUL OCT JAN
Europe: Populist Appeal Has Plateaued
12
10
8
6
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
12
10
8
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EURO AREA*: NON-CENTRIST PARTIES IN PARLIAMENT
% %
* INCLUDES AUSTRIA, BELGIUM, FINLAND, FRANCE, GERMANY, GREECE, ITALY, THE NETHERLANDS, PORTUGAL, AND SPAIN.
© BCA Research 2015
Support rises…
…and then peaks
Great Recession
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U.S.: Polarization In Context
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-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
More liberal
SOURCE: POOLE, ROSENTHAL, ET AL. (2014) AND BCA CALCULATIONS.
More conservative
House Democrats (1985-1987)
Clinton (1995-1997)
Obama (2013-Present)
Reagan (1985-1987)
House Republicans (1995-1997)
House Republicans (2013-Present)
Ideological difference = 1.0
Ideological difference = 0.869
Ideological difference = 0.878
© BCA Research 2015
Q&A
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