Global Outlook

Global Outlook - GDP

20092009 20102010 20112011 20122012Global -2.2 3.8 3.9 3.5

Developed -3.5 2.6 3.0 2.9 US -2.6 2.8 3.6 3.0

Euroland -4.0 1.7 1.8 1.9

Japan -5.2 4.3 2.5 2.0

Emerging 1.3 7.1 6.1 6.0 Asia 5.6 9.0 7.7 7.5

China 9.1 10.3 9.6 9.0

Europe -5.3 4.0 4.0 4.6

Latin -2.4 6.0 4.5 4.1

Source: JPMorgan ; Jesper Koll

Jesper Koll

Global Outlook - CPI

20092009 20102010 20112011 20122012Global 1.3 3.4 3.5 3.5

Developed 0.6 1.5 1.8 1.8 US 1.5 1.2 1.5 1.6

Euroland 0.4 2.0 2.0 1.9

Japan -2.0 -0.5 0.0 1.0

Emerging 3.9 5.6 5.9 6.2 Asia 2.7 5.0 5.0 5.0

China 0.7 4.7 5.6 4.5

Europe 6.2 6.6 7.2 5.8

Latin 5.3 6.7 7.7 7.8

Source: JPMorgan ; Jesper Koll ; note Oct-Dec compared to Oct-Dec previous year

Japan Inc. :V-Shaped Profit Recovery

2011 Focus – Labor Market

Age

Yen

40-45

55

65

Sweet-Spot

Jesper Koll

Why Japan ?

Jesper Koll

No Lost Decade

Source: National Institute of Population and Social Security Research

Relentless Focus on Research & Development Spending(total R&D spending by public and private sector as % of GDP)

Source: NIPSSR

Japan

US

Germany

France

Japan

US

Germany

Jesper Koll

Global Patent Applications

20042004 20092009US 43,350 45,790 + 2,440

Japan 20,264 29,827 + 9,563

Germany 15,214 16,736 + 1,522

Korea 3,558 8,066 + 4,508

China 1,706 7,946 + 6,240

Total 122,610 155,900 +33,290Source: Jesper Koll ; Wolrd Intellectual Property Organization

Who is Afraid of China ?Percent of each countries exports that compete head-to-head with Made-

in-China Products in the US market

1990 1995 2000 2005 2009e

Japan 3 8 16 25 29

Korea 25 28 37 50 55

Taiwan 27 40 50 78 81

Singapore 15 19 35 45 51

Indonesia 49 60 68 72 78

Malaysia 37 37 47 72 79

Philippines

42 46 46 75 82

Thailand 36 48 56 77 85

Source: C.H.Kwan – RIETI / NRI ; Jesper Koll & Merrill Lynch estimates for 2009

Jesper Koll

Cool NipponDo You Think This Country’s Products Are “Cool”?

Response By Consumers In Different Cities

Source: Nikkei

Note: China=Beijin, Shanghai, Guangzhou

Jesper Koll

Japan Profit Sensitivity

1% Domestic Growth 5%

1% Global Growth 18%

10% Yen Move 10%

Note: Jesper Koll Calculations

Legacy Problem

Source: National Institute of Population and Social Security Research

Fiscal Deficit Forced BoJ Balance Sheet Expansion“Normalizing” both BoJ and Fiscal Policy Forces Volatility

Source: BoJ and Mikuni & Company

Problem: Inefficient Tax System

Tax MultiplierTax MultiplierJapan 0.4

Euroland 0.9

Germany 0.9

US 1.0

Korea 1.3

OECD 0.9Note: Tax Multiplier is the average over past three years, 2005-2007 ; based on OECD estimates

International Students in US

TotalTotal GraduateGraduate SchoolSchoolJapan 33,974 6,862 = 20%

Korea 69,124 24,677 = 36%

India 94,563 68,280 = 72%

China 81,127 53,057 = 65%

Germany 8,907 3,670 = 41%

Source: Institute for International Education ; Jesper Koll

Yes, The Yen Floats On Water

Source: Washington Post

Jesper Koll

Population by Age Groups – Million People

Source: METI

Who’s Got The Power?Top Heavy - Stagnant Middle – Declining Front-End

Jesper Koll

Upside Down Debate• Interest Rates & Fiscal

• Demographics & Employment

• Agriculture

• Taxes

Jesper Koll

Problem: Inefficient Tax System

Tax MultiplierTax MultiplierJapan 0.6

Euroland 0.9

Germany 0.9

US 1.0

Korea 1.3

OECD 0.9Note: Tax Multiplier is the average over past three years, 2005-2007 ; based on OECD estimates

Excess Liquidity !

Jesper Koll

Japan Fiscal Spending By Major Category

Source: MoF Note: FY 1965-1996: Settlement, FY 2006: Initial Budget

No Return to Big GovernmentPost-Koizumi leaders must cut rising social security, debt service and local

transfers unpopular

Jesper Koll

Budget Realities

Jesper Koll

Radical Break ?

Jesper Koll

Japan Net Household Financial Assets and Public Sector DebtAs % of GDP

Poor Japan

Source: US Federal Reserve, Michal Taylor, Jesper Koll

Private Wealth Barely Covers Public Deficit : All Public Debt can be paid off with 93% of Household Financial Assets

Jesper Koll

US Net Household Financial Assets and Public Sector DebtAs % of GDP

Rich AmericaPrivate Wealth Far Exceeds Public Deficit :

All Federal Debt can be paid off with 41% of Household Financial Assets

Source: US Federal Reserve, Michal Taylor, Jesper Koll

Jesper Koll

Upside Down DebateGrowth = Kapital + Labor + Innovation

US

Europe

Japan

China

Jesper Koll

AgriculturalReform

Jesper Koll

Legacy Problem

Source: National Institute of Population and Social Security Research

Fiscal Deficit Forced BoJ Balance Sheet Expansion“Normalizing” both BoJ and Fiscal Policy Forces Volatility

Source: BoJ and Mikuni & Company

Jesper Koll

AgriculturalReform

Jesper Koll

Real EstateBOOM

Appendix

The New Japan

End 2010 UnemploymentEnd 2010 Unemployment 5%5% 6%6%

Back to 3.5% Unemployment :

2-years Growth (2011-12) 2.8 3.8

3-years Growth (2011-13) 2.0 2.8Source: Jesper Koll ; Local Stats Offices

New Economic Reality – New Social Reality

Jesper Koll

The New America

End 2010 UnemploymentEnd 2010 Unemployment 9%9% 10%10%

Back to 6% Unemployment :

2-years Growth (2011-12) 5.1 6.5

3-years Growth (2011-13) 4.1 5.0

Source: Jesper Koll ; Local Stats Offices

New Economic Reality – New Social Reality

Money Matters

US US 1985-951985-95 1996-061996-06 0707

Loans 1.8 2.3 2.1

other credit 1.2 3.8 5.8

total 3.0 6.1 7.9

JapanJapan 1980-851980-85 1985-901985-90 8787 Loans 1.2 2.1 3.7

other credit 0.5 0.9 1.1

total 1.7 3.0 4.8Source: Jesper Koll ; BoJ & Fed

Financial Asset Growth Multiplier – Ratio to GDP Growth

Base Money / GDP

Bold Bernankexx

Source: Various Government Agencies – Morgan Stanley

Global Supply-Side Revolution

----> End of Cold War Frees Up New Investment Opportunities ; ----> Global Flow of Goods and Services Accelerates ; ----> Third Industrial Revolution

Source: Jesper Koll

Think theUnthinkable !

BreakThe Rules !

Be Scared !

Globalization = China Challenge

Source: IMF ; Jesper Koll

Compared to Past Economic Empire Transitions, The China Challenge Is Huge

Global Reality : From Cost Competition

Lower Cost

BrandValue

中国

Global Reality : To Ruthless Brand Competition

Lower Cost

BrandValue

Toyota

Geely

No Lost Decade

Source: National Institute of Population and Social Security Research

Relentless Focus on Research & Development Spending(total R&D spending by public and private sector as % of GDP)

Source: NIPSSR

Japan

US

Germany

France

Japan

US

Germany

Global Patent Applications

20042004 20092009US 43,350 45,790 + 2,440

Japan 20,264 29,827 + 9,563

Germany 15,214 16,736 + 1,522

Korea 3,558 8,066 + 4,508

China 1,706 7,946 + 6,240

Total 122,610 155,900 +33,290Source: Jesper Koll ; Wolrd Intellectual Property Organization

Patent Powerhouses

Panasonic 1,891 6%

Huawei Technologies 1,847 24%

Bosch 1,586 10%

Philips 1,295 29%

Qualcomm 1,280 3%

Ericson 1,240 34%

LG Electronics 1,090 14%

NEC 1.069 4%

Toyota 1,068 4%

Sharp 997 3%

Source: Jesper Koll ; Wolrd Intellectual Property Organization

Cool NipponDo You Think This Country’s Products Are “Cool”?

Response By Consumers In Different Cities

Source: Nikkei

Note: China=Beijin, Shanghai, Guangzhou

Japan Profit Sensitivity

1% Domestic Growth 5%

1% Global Growth 18%

10% Yen Move 10%

Note: Jesper Koll Calculations

Source: Thomson Financial, Merrill Lynch

Global PlayerOutward M&A Accelerating Sharply

US Net Household Financial Assets and Public Sector DebtAs % of GDP

Rich AmericaPrivate Wealth Far Exceeds Public Deficit :

All Federal Debt can be paid off with 41% of Household Financial Assets

Source: US Federal Reserve, Michal Taylor, Jesper Koll

Japan Net Household Financial Assets and Public Sector DebtAs % of GDP

Poor Japan

Source: US Federal Reserve, Michal Taylor, Jesper Koll

Private Wealth Barely Covers Public Deficit : All Public Debt can be paid off with 93% of Household Financial Assets

International Students in US

9898 0101 0404 0808Total 481,280 547,867 572,509 623,808

Japan 47,073 46,497 40,835 33,974

Korea 42,890 45,685 52,484 69,124

India 33,818 54,664 79,736 94,563

China 46,958 59,939 61,765 81,127

Germany 9,309 10,128 8,745 8,907

Source: Institute for International Education ; Jesper Koll

Globalization at Home

WorkersWorkersStudentsStudents

US 13.4% 5.8%

England 15.9 25.7

Germany 11.4 12.4

France 12.4 11.7

Australia 28.9 28.6

Japan 0.7 3.5Note: Students = international university students relative to domestic high-school graduates

Global Reality CheckGDPGDP Growth Growth $ Growth$ Growth

US 14.2 trn 2% 284 bn 284bnJapan 4.9 trn 1% 49 bnASIA 10.3 trn 5% 515 bn 564bn

China 4.3 trn 7% 301 bn

A-Tigers* 3.8 trn 4% 152 bn India 1.2 trn 5% 60 bn Australia 1.0 bn 2% 20 bn

Euroland 13.6 trn 1% 136 bn 216 bnNew Europe 1.6 trn 2% 32 bnRussia 1.6 trn 3% 48 bn

The New America

End 2009 UnemploymentEnd 2009 Unemployment 9%9% 10%10%

Back to 6% Unemployment :

2-years Growth (2010-11) 6.1 7.5

3-years Growth (2010-12) 5.1 6.0

Source: Jesper Koll ; Local Stats Offices

New Economic Reality – New Social Reality

US Capital Stock – Age & Growth

Capex – Poised For Recoveryccc

Source: US Bureau of Economic Analysis, Michal Taylor, Jesper Koll

US Equity Earnings

America Inc = More Than FinanceNon-Financial Earnings Very Strong

Source: Morgan Stanley – G. Miniack

US Profits – Global versus Local

Made By AmericaAbout 60% of US corporate Profits Are Sourced Globally

Source: Morgan Stanley – G. Miniack

Jesper Koll

Upside Down Debate• Interest Rates

• Employment

• Agriculture

• Taxes

ImpossibleI’m Possible

Jesper Koll

JapanOptimist

Global GDP: V - Recovery

世界が直面する問題

Kand

J

Jesper Koll

Jesper Koll

4.3% ?

X = 2/3D = 1/3