Transcript Here - Sovereign Wealth Focus

THE GLOBAL OUTLOOK
JUNE 2010
TREVOR WILLIAMS
CHIEF ECONOMIST
WHOLESALE MARKETS
CONSIDERABLE FISCAL SUPPORT HAS BEEN
PROVIDED TO HEAD OFF GLOBAL RECESSION …
Fiscal balance, % of GDP
2
Forecast
0
-2
World
-4
Emerging and developing
economies
-6
-8
Advanced economies
-10
1970
1974
LLOYDS BANKING GROUP
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2
NOW, PRESSURE TO TACKLE FISCAL DEFICITS IS
GROWING
Public borrowing % GDP
15
Manageable, but
deteriorating
Cause for concern
10
UK
IRELAND
US
5
France
SPAIN
PORTUGAL
Poland
Netherlands Belgium
Slovakia
Australia
Sweden
GREECE
Iceland
Germany
Japan
ITALY
Switzerland
0
0
--5
20
Korea
40
Fiscally prudent
--10
60
80
100
120
140
160
180
200
Path of fiscal rectitude (no one on it!)
Norway
* OECD 2010 estimates
Public debt % GDP
Source: Thomson Datastream, OECD
LLOYDS BANKING GROUP
3
…WITH SMALL ECONOMIES IN THE EURO FACING
HEADWINDS
7
Spread over 10yr Bunds
6
Greece
5
4
3
Ireland
2
Portugal
1
Spain
0
-1
2005
2006
2007
2008
2009
2010
Source: Lloyds TSB Corporate Markets
LLOYDS BANKING GROUP
4
EQUITIES ARE UNDER SELLING PRESSURE…
130
Global equity indices, Jan 2007 = 100
120
110
100
DAX 30
90
FTSE 100
80
DOW JONES
70
60
NIKKEI 225
50
40
2007
2008
2009
2010
Source: Lloyds TSB Corporate Markets
LLOYDS BANKING GROUP
5
BONDS ARE ATTRACTING SAFE-HAVEN FLOWS…
10yr Gov't bond yields, %
6.00
5.50
5.00
UK
4.50
4.00
3.50
3.00
2.50
Germany
US
2.00
2007
2008
2009
2010
Source: Lloyds TSB Corporate Markets
LLOYDS BANKING GROUP
6
BUT MONETARY LOOSENING HAS BEEN
AGGRESSIVE…
6 Official interest rates, %
UK Bank Rate
7 3m Libor, %
UK £
6
5
5
4
4
3
3
2
ECB repo rate
1
US Fed funds rate
0
2004 2005 2006 2007 2008 2009 2010
Euro
2
US $
1
0
2007
2008
2009 2010
Source: Thomson Datastream
LLOYDS BANKING GROUP
7
‘UNCONVENTIONAL’ MONETARY MEASURES
ADOPTED…
Index of Central Bank's balance sheets, Jan 2007 = 100
350
Bank of England (£252bn)
300
250
US Federal Reserve ($2.3tn)
200
150
ECB (€2.1tn)
100
Bank of Japan (Y121tn)
50
2007
2008
2009
2010
Source: ltsb corporate markets
LLOYDS BANKING GROUP
8
INFLATION BACKDROP IS BENIGN
5.0
Core CPI Inflation, annual rate, %
Emerging economies
4.5
4.0
3.5
3.0
2.5
World
2.0
1.5
Advanced economies
1.0
0.5
0.0
Jun-03
Apr-04
Feb-05
Dec-05
Oct-06
Aug-07
Jun-08
Apr-09
Feb-10
Source: OECD
LLOYDS BANKING GROUP
9
EMERGING MARKET INFLATION NOT GOING TO BE A CONCERN
FOR SOME YEARS
18
% increase in year, CPI
inflation
16
Forecast
Latin America
14
Africa
12
10
Eastern Europe
8
Middle East*
6
4
Asia
2
0
2002
2004
2006
2008
2010
2012
* IMF forecast
LLOYDS BANKING GROUP
10
ACCOMMODATIVE SUPPORT CAN REMAIN IN PLACE
Short term interest rates, %
Forecasts
US
Euro
12.11
9.11
3.11
9.10
3.10
9.09
3.09
9.08
3.08
9.07
3.07
9.06
UK
3.06
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Source: Datastream, Lloyds TSB Corporate Markets
LLOYDS BANKING GROUP
11
…SO WE STILL EXPECT GLOBAL RECOVERY TO PICK
UP SPEED IN 2010 AND BEYOND…
GDP %Yr
2008
2009
2010
2011
3.1
-0.9
3.9
4.4
Developed economies (G10)
US
UK
Japan
Eurozone
0.4
0.5
0.5
-0.7
0.6
-3.3
-2.4
-4.9
-5.2
-4.0
2.2
3.4
0.7
1.5
1.0
2.6
3.4
2.2
1.6
1.7
Emerging economies (E10)
China
Brazil
India
Russia
6.3
8.9
5.1
7.5
5.6
2.7
8.7
-0.2
6.5
-8.5
6.8
9.5
5.5
7.5
4.7
7.0
8.7
5.3
9.1
5.2
World
Source: Lloyds TSB Corporate Markets
LLOYDS BANKING GROUP
12
…IN A RANGE OF ECONOMIES…
10 % increase in year
F'cast
Emerging and developing economies
8
6
World
4
2
0
Advanced economies
-2
-4
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
Source: Lloyds TSB Corporate Markets
LLOYDS BANKING GROUP
13
…SO GLOBAL ECONOMY TO FACE LONG TERM
SHIFT…
Global GDP trends, to
2035
Countries
US
China
Japan
India
Germany
France
UK
Russia
Italy
Brazil
Mexico
Spain
South Korea
Canada
Turkey
Indonesia
Australia
Netherlands
Poland
South Africa
2007 Rank
13.827
1
7.151
2
4.440
3
3.083
4
2.858
5
2.089
6
2.064
7
2.037
8
1.793
9
1.776
10
1.464
11
1.380
12
1.204
13
1.171
14
0.947
15
0.805
16
0.702
17
0.647
18
0.591
19
0.452
20
LLOYDS BANKING GROUP
Trillions $ PPP
2010 Rank
14.019
1
9.285
2
4.224
3
3.798
4
2.786
5
2.063
7
1.994
8
2.081
6
1.695
10
1.965
9
1.451
11
1.329
12
1.297
13
1.179
14
0.963
15
0.943
16
0.751
17
0.641
19
0.650
18
0.473
20
2015 Rank
16.280
1
14.205
2
4.614
4
5.729
3
3.084
5
2.278
9
2.308
8
2.627
6
1.823
10
2.451
7
1.810
11
1.428
13
1.605
12
1.426
14
1.315
15
1.268
16
0.893
17
0.718
19
0.815
18
0.586
20
2025 Rank
21.976
2
30.168
1
5.089
4
11.421
3
3.557
6
2.700
9
2.878
8
3.845
5
2.019
14
3.334
7
2.575
10
1.643
16
2.283
11
1.855
15
2.216
12
2.132
13
1.171
18
0.860
20
1.230
17
0.908
19
2035 Rank
29.551
2
53.680
1
5.406
5
21.111
3
3.837
7
3.169
12
3.524
10
5.502
4
2.092
15
4.616
6
3.704
9
1.748
17
2.992
13
2.293
14
3.464
11
3.705
8
1.446
18
0.994
20
1.848
16
1.391
19
14
GLOBAL CURRENT ACCOUNT IMBALANCES TO DIMINISH
3
% share of global GDP
F'cast
2
1
0
-1
-2
-3
2001
2003
Oil exporters
Source: IFSL
LLOYDS BANKING GROUP
2005
German & Japan
2007
Other Asia
US
2009
European
excluding
Germany
2012
15
BIG FLOWS OF CASH ARE BEING GENERATED, A LOT
FINDS ITS WAY TO EUROPE
Official foreign exchange reserves
held in SWFs % share, end-2009
Sovereign
Wealth
Funds
Asian
reserves not
in Sovereign
Wealth
Funds
17%
47%
SWF investment into EU countries
% share, completed investment transactions by
SWFs, 1995 - Jun 2009, total $187bn
Others
Italy
14%
4%
Netherlands 6%
49%
UK
12%
36%
France
15%
Rest of world
Source: IFSL
Total: $7,520bn
LLOYDS BANKING GROUP
Germany
16
ASSETS UNDER MANAGEMENT TO GROW
Hedge funds
Private equity
Sovereign wealth
funds
Insurance funds
Mutual Funds
Pension funds
0
Source: IFSL
LLOYDS BANKING GROUP
5
10
15
20
25
30
$ trillion, end-2009
17
SWF ASSETS UNDER MANAGEMENT BY CATEGORY
$bn
6,000
Forecast
5,000
4,000
3,000
2,000
1,000
1999
2001
2003
Commodity
2005
2007
2009
2012
Non-commodity
Source: IFSL
LLOYDS BANKING GROUP
18
SWFS MARKET SHARE BY COUNTRY AND REGION
end-2009
By country
China
United Arab Emirates
Norway
Saudi Arabia
Singapore
Kuwait
Russia
Others
By region
Middle East
Asia
Europe
Americas
Other
Total
$bn
928.0
677.0
445.0
436.0
370.0
203.0
168.0
573.0
1,620
1,350
670
90
70
3,800
stake (%)
24.0
18.0
12.0
11.0
10.0
5.0
4.0
15.0
43
36
18
2
2
Source: IFSL
LLOYDS BANKING GROUP
19
SUBSTANTIAL MID-TERM RISKS REMAIN BUT WE
REMAIN CONFIDENT THE CORNER HAS BEEN TURNED
 Disorderly reversal of unprecedented policy measures
- Leave it too late: inflationary risk, asset price bubble
-
Move too early: threaten the incipient recovery
 Credit conditions fail to improve sufficiently
 Rise in oil commodity prices squeezes western real incomes
 Major economies fail to rebalance (particularly China and the US)
 Rising tide of protectionism
 Spread of contagion from Greece to other sovereigns
LLOYDS BANKING GROUP
20
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Lloyds TSB Corporate Markets is a trading name of Lloyds TSB Bank plc, which is part of the Lloyds Banking Group. Lloyds TSB Bank plc is
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Bank of Scotland Treasury is a division of Bank of Scotland plc, which is part of the Lloyds Banking Group. Bank of Scotland plc is authorised
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LLOYDS BANKING GROUP
21