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January 2013
Geopolitics:
Risks & Opportunities In 2013
Marko Papic
Managing Editor
Geopolitical Strategy
GLOBAL FORECAST: More Sunny Breaks in 2013
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General theme: policy is a tailwind
Europe: a ‘Red Herring’
Middle East: overstated
U.S.: don’t expect miracles
East Asia: risks understated
EUROPE: Where is the collapse?
% Of
GDP
8
4
% Of
CYCLICALLY-ADJUSTED
GDP
PRIMARY BUDGET BALANCE*:
ITALY
8
GREECE
SPAIN
IRELAND
PORTUGAL
4
Th
Hrs.
GERMANY:
TOTAL HOURS LOST
TO LABOR ACTION
Implementation
phase
Th
Hrs.
400
400
Hartz IV negotiation
phase
300
300
200
200
100
100
0
0
-4
-4
-8
-8
-12
-12
© BCA Research 2013
2010
2011
2012
* SOURCE: IMF FISCAL MONITOR
(OCTOBER 2012).
2013
© BCA Research 2013
2000
2002
2004
2006
2008
NOTE: VERTICAL LINE DENOTES
JANUARY 2005, WHEN HARTZ IV LABOR
REFORMS TOOK EFFECT; SOURCE: ILO.
EUROPE: Investment Opportunities
%
%
7.0
8.0
6.5
6.5
7.5
7.5
6.0
6.0
7.0
7.0
6.5
5.5
5.5
6.5
6.0
6.0
5.0
5.0
5.5
5.5
%
7.0
4.5
ITALIAN 10-YEAR
GOVERNMENT BOND YIELD
4.5
© BCA Research 2013
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
SPANISH 10-YEAR
GOVERNMENT BOND YIELD
5.0
© BCA Research 2013
8.0
5.0
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2012
125
%
2012
OVERALL EQUITY MARKET*: EURO AREA RELATIVE TO U.S.
125
100
100
75
© BCA Research 2013
75
© BCA Research 2013
50
4
50
© BCA Research 2013
1975
1980
1985
1990
1995
2000
2005
* REBASED TO JAN. 2008 = 100; EXPRESSED IN COMMON-CURRENCY TERMS.
2010
MIDDLE EAST: Iran-Israel Conflict Is Key (But Overstated)
PAKISTAN
FINLAND
DENMARK
ISRAEL
SOUTH AFRICA
5,000
IRAN, ISLAMIC REP.
10,000
TURKEY
15,000
BRAZIL
20,000
INDIA
NUMBER OF PUBLISHED SCIENTIFIC AND TECHNICAL JOURNAL ARTICLES
© BCA Research 2013
NOTE: SCIENTIFIC AND TECHNICAL JOURNAL ARTICLES REFER TO THE NUMBER OF SCIENTIFIC AND ENGINEERING ARTICLES PUBLISHED IN
THE FOLLOWING FIELDS: PHYSICS, BIOLOGY, CHEMISTRY, MATHEMATICS, CLINICAL MEDICINE, BIOMEDICAL RESEARCH, ENGINEERING AND
TECHNOLOGY, AND EARTH AND SPACE SCIENCES.
SOURCE: WORLD BANK.
U.S.: A HOUSE DIVIDED
DEMOCRATS
REPUBLICANS
DEMOCRATS
REPUBLICANS
DEMOCRATS
REPUBLIC…
DEMOCRATS
REPUBLICANS
© BCA Research 2013
SOURCE: POOL, ROSENTHAL, ET AL. (2011).
DATA USED FOR POLARIZATION ANALYSIS USES NOMINATE (NOMINAL THREE-STEP ESTIMATION), A MULTIDIMENSIONAL SCALING METHOD
DEVELOPED TO ANALYZE PREFERENCE AND CHOICE. THE TWO DIMENSIONS USED IN THIS METHOD ACCOUNT FOR THE GREAT BULK OF
ALL ROLL CALL VOTING IN THE U.S. CONGRESS OVER ITS HISTORY. THE PRIMARY DIMENSION (X-AXIS) IS THE LIBERAL-CONSERVATIVE
SPECTRUM ON THE BASIC ROLE OF THE GOVERNMENT IN THE ECONOMY. THE SECOND DEPENDS ON THE ERA, PICKING UP REGIONAL
DIFFERENCES ON A NUMBER OF SOCIAL ISSUES SUCH AS THE CIVIL RIGHTS MOVEMENT. THE DATA ILLUSTRATES THAT THE SECOND
DIMENSION HAS DECLINED IN IMPORTANCE, WITH SOCIAL ISSUES NOW LARGELY CONSIDERED WITHIN THE LIBERAL-CONSERVATIVE
SPECTRUM OF THE PRIMARY DIMENSION. THE PRIMARY DIMENSION NOW ACCOUNTS FOR APPROXIMATELY 93% OF ALL ROLL CALL VOTING
CHOICES AND THE TWO PARTIES ARE HIGHLY POLARIZED ON THIS SPECTRUM.
6
© BCA Research 2013
2,000
7
GUIZHOU
YUNAN
GANSU
TIBET
INDONESIA
GUANGXI
ANHUI
SICHUAN
JIANGXI
HAINAN
QINGHAI
HENAN
HUNAN
XINJIANG
SHANXI
NINGXIA
HEILONGJIANG
SHAANXI
CHONGQING
HUBEI
HEBEI
CHINA
JILIN
THAILAND
FUJIAN
SHANDONG
LIAONING
GUANGDONG
INNER MONGOLIA
SOUTH AFRICA
ZHEJIANG
JIANGSU
MEXICO
TIANJIN
BRAZIL
BEIJING
SHANGHAI
CHINA: Domestic Pressures For Reform
2010 GDP PER CAPITA (IN USD)
10,000
8,000
6,000
4,000
© BCA Research 2012
SOURCE: CEIC AND IMF WEO.
NOTE: BLACK DENOTES COASTAL PROVINCES, BLUE DENOTES INTERIOR PROVINCES, AND RED DENOTES SOVEREIGN COUNTRIES.
EAST ASIA: Geopolitical Tensions Understated
Bn
USD
TOTAL TRADE WITH:
CHINA
U.S.
THE PHILIPPINES
3
Bn
USD
3
Bn
USD
28
24
24
JAPAN
20
2
2
1
1
Bn
USD
Bn
USD
VIETNAM
20
16
16
12
12
Bn
USD
Bn
USD
SOUTH KOREA
4
4
20
20
3
3
16
16
2
2
12
12
1
1
8
8
© BCA Research 2013
© BCA Research 2013
8
Bn
USD
28
TOTAL TRADE WITH:
CHINA
U.S.
04
06
08
10
12
NOTE: BOTH SERIES SHOWN SMOOTHED.
04
06
08
10
12
NOTE: BOTH SERIES SHOWN SMOOTHED.
JAPAN: Opportunities Exist
CENTRAL BANK TOTAL ASSETS*
FED
500
BoE
ECB
450
BoJ
.22
400
400
.20
350
350
300
300
250
250
200
200
500
450
JAPAN RELATIVE
TO SOUTH KOREA:
EXPORTS TO
THE WORLD (LS)
EQUITY
PERFORMANCE* (RS)
2.0
1.8
1.6
.18
1.4
.16
1.2
.14
1.0
150
150
.12
100
© BCA Research 2013
9
.8
100
2007 2008 2009 2010 2011 2012
* SHOWN REBASED TO JAN. 2007 = 100.
© BCA Research 2013
2008 2009 2010 2011 2012 2013
* LOCAL CURRENCY TERMS. SOURCE:
MSCI INC. (SEE LAST PAGE).