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Equity Research

PP11072/11/2009 (022809)

ECONOMIC TRENDS

4 February 2009

Global Economics
An afternoon with Jim Rogers
Suhaimi Ilias suhaimi_ilias@aseam.com.my 603-2284 8682

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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 US Dollar and bonds, with little to say about equities. Overall, the talk reaffirmed his already well-documented and widelypublicized views on long-term economic trends and the financial market outlook.

“How I see The World Today”… We attended a talk by Jim Rogers – renowned investor who co-founded Quantum Fund with George Soros – organized by Bank Negara Malaysia (BNM) under the Financial Institutions’ Directors Education Programme (FIDE) yesterday (3 Feb ’09). The gist of his talk, entitled “How I See The World Today”, is essentially a reiteration of his well documented and publicized general long-term (8-10 year horizon) views on economic trends and financial markets, which we summarize below:  Still bullish on China… Jim sees China as the economic superpower of the 21st century after the US in the 20th century and UK in the 19th century. He went as far as urging the audience to follow his steps of getting his two daughters to learn Mandarin, claiming the move to be his best investment for his children’s future. Consequently, he also sees the balance of global economic 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 account surpluses, and/or large external reserves. Current setbacks in China following the global financial meltdown and economic downturn (e.g. the drop in stock and property/real estate markets, declines in exports and industrial output and economic slowdown) are “normal growing pains” that also occurred in the US and UK as they ascended to global superpower status. … and commodities. With China rising as an economic superpower, there is also the concomitant increase in long-term structural demand for commodities, and he expects China to build strategic reserves in various commodities. He sees commodity “supply shock” coming from lower stocks and output and declining investments in production capacities, in reaction to the current financial crisis and drop in commodity prices (e.g. food inventories worldwide at 50-year low, farmers facing difficulties in accessing credit to buy seeds and fertilizers leading to lower crops, drop in crude oil exploration activities, no new mines for industrial raw materials as miners faced credit – hence working capital – crunch) which sets good fundamentals for a commodity rally. Moreover, the commodity rally still has some way to go as studies showed that historically, commodity rallies lasted 18 years on average and the recent upcycle is only about a decade old. Jim added that over the past 10 years, commodities have yielded the best returns relative to other asset classes and said that he sees agricultural commodities as the best bet as it has been a laggard relative to energy and industrial raw materials in the recent commodity upcycle. He also argued that commodities are still a relatively under-invested asset class considering that out of 70,000 investment funds globally, there are only about 100 funds that invest in commodities.

as well as fiscal pump-priming will lead to a glut of Government papers. markets and population. financial institutions. and together with his bullish view on commodities.  Not much to say on stocks… Jim was somewhat “neutral” on stocks. largely due to the country being the world’s largest debtor nation . Renminbi will take over as the world’s trading and reserve currencies as China has the size in terms of the economy. low/negative savings. further underpinning his bullish view on commodities. The current financial crisis and policy responses that included bailouts of financial and non-financial companies as well as a large fiscal stimulus package in the pipeline will result in an explosion of US public debt that is essentially funded by the printing of US Dollars. taking the view that the global equity markets are likely to be volatile.i. corporates and Government. highly-leveraged consumers.An Afternoon With Jim Rogers  Increasingly bearish on US Dollar… Jim is extremely negative about the US. He predicts this will cause a long-term decline of US Dollar not only in terms of value but also in terms of its status as the world’s trading and reserve currency. He went as far as boldly declaring that over the long-term. resulting in a longterm “sideways” trend or pattern.e. will result in the return of inflation in the long term. ECONOMIC TRENDS ▪ 4 February 2009 Page 2 of 3 . is negative for bonds. equities) and currencies. The printing of the US Dollar and the rise in public debt worldwide to fund the financial and non-financial sector bailouts. which in his view. He also argued that the strings of financial crises since the 90s that culminated into the current one will dent investors’ faith in paper assets (bonds. He likened the expected demise of the greenback to that of British Pound Sterling in the late-1960s and 1970s as UK’s decline as an economic superpower during the 20th century gained rapid momentum after the two World Wars. … and bonds. He acknowledged that the same process on the US Dollar will not materialize soon but will take time.

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Fax: 03-2078 4194 Stockbroking Business: Level 8. may fluctuate and that each security’s price or value may rise or fall.maybank-ib. country or other jurisdiction where such distribution. associates.An Afternoon With Jim Rogers Definition of Ratings Maybank Investment Bank Research uses the following rating system: STRONG BUY Total return is expected to exceed 20% in the next 12 months. “expect”. its affiliates and related companies and their officers. the financial situation and the particular needs of persons who may receive or read this report. regulations. mergers and acquisition. state. MaybanLife Tower. Depreciation And Amortisation EPS = Earnings Per Share EV = Enterprise Value FCF = Free Cashflow FV = Fair Value FY = Financial Year FYE = Financial Year End MoM = Month-On-Month NAV = Net Asset Value NTA = Net Tangible Asset P = Price P. investors may receive back less than originally invested. “intend”. altered in any way. availability or use would be contrary to law or regulation. Investment ratings are only applicable to the stocks which form part of the coverage universe. 100 Jalan Tun Perak. policies and procedures for the time being in force. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives. rules. transmitted to. “will”. “predict” and “project” and statements that an event or result “may”. Accordingly. and potential of obtaining new projects. Any information. “plan”. 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Investors should therefore seek financial. high conviction call BUY Total return is expected to be above 10% in the next 12 months HOLD Total return is expected to be between above 0% to 10% in the next 12 months FULLY VALUED Total return is expected to be between -10% and 0% in the next 12 months SELL Total return is expected to be below -10% in the next 12 months TRADING BUY Total return is expected to be between 10-20% in the next 6 months arising from positive newsflow e. Investors should note that income from such securities. Readers are cautioned not to place undue relevance on these forwardlooking statements.