The Changing Global Economy
Jim O’Neill
Chairman, Goldman Sachs Asset Management
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or
investment advice.. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011,
June 2012
Goldman Sachs. All rights reserved
1
Country Classification by
2011 GDP Share
N11
World
Emerging
Markets
13%
Developed
Markets
62%
Source: GSAM
Growth
Markets
25%
Bangladesh
Egypt
Iran
Nigeria
Pakistan
Philippines
Vietnam
Mexico
Korea
Turkey
Indonesia
Growth Markets
Mexico
2% Korea
2%
Turkey
1%
Indonesia
1%
China
10%
Brazil
4%
India
3%
Russia
3%
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
2
GDP Forecasts
2010
2011
US
3.0
1.7
UK
2.1
0.7
Canada
3.2
2.5
Euroland
1.9
1.5
Japan
4.4
-0.7
Brazil
7.5
2.7
China
10.4
9.2
India
10.6
6.9
Russia
4.3
4.2
Mexico
5.5
3.9
Korea
6.3
3.6
Indonesia
6.2
6.5
Turkey
9.0
8.5
Advanced
3.1
1.3
BRICs
9.1
7.4
Growth Markets
8.5
7.0
World
5.3
3.8
Consensus data as of June 2012.
Source: GSAM and Consensus Economics
2012
GSAM Consensus
2.2
2.2
0.4
0.3
2.2
2.1
-0.4
-0.4
1.9
2.5
3.6
3.0
8.2
8.1
7.2
6.6
4.0
3.8
3.6
3.7
3.4
3.0
6.0
6.0
3.0
2.5
1.2
1.2
7.0
6.7
6.4
6.1
3.5
3.4
2013
GSAM Consensus
2.5
2.4
1.8
1.8
2.5
2.2
1.0
0.6
1.3
1.3
5.0
4.3
8.0
8.4
8.0
7.3
5.0
3.9
3.8
3.5
4.8
3.8
6.1
6.2
5.0
4.6
1.8
1.6
7.4
7.3
6.9
6.7
4.1
3.9
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
3
Inflation Forecasts
2009
2010
2011
2012*
2013*
US
1.9
1.7
UK
2.1
3.4
Canada
0.8
2.2
Euroland
0.9
2.2
Japan
-1.7
-0.4
Brazil
4.3
5.9
China
0.7
4.7
India
15.0
9.5
Russia
8.8
8.8
Mexico
3.6
4.4
Korea
2.8
3.5
Indonesia
2.8
7.0
Turkey
6.5
6.4
Advanced
1.1
1.7
BRICS
5.2
6.4
Growth Markets
4.9
6.1
World
2.6
3.5
* Consensus Economics June 2012
Source: IMF and Consensus Economics
3.2
5.3
2.9
2.6
-0.3
6.5
5.4
8.3
6.8
3.2
4.4
5.4
6.3
2.7
6.3
6.0
4.1
2.2
3.2
2.1
2.3
0.1
5.1
3.3
7.7
6.3
3.7
2.8
4.8
9.6
2.0
4.8
4.8
3.2
2.0
2.6
2.0
0.6
0.0
5.4
3.6
6.9
6.0
3.7
3.1
5.5
6.6
1.3
4.8
4.7
2.9
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
4
2001 – 2010 Change in Global
GDP
12,000
US$ bn
10,000
8,000
2001 - 2010 Increase in GDP
6,000
4,000
2,000
0
Source: IMF
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
5
Change in US$ Size of GDP
from 2011 to 2020
16
2010 US$ trn
14
12
10
8
2011 - 2020 GDP Increase
6
4
2
0
Source: GS Global ECS Research. GSAM Calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
6
World GDP (Ave Growth)
1981-1990
1991-2000
2001-2010
2011-2020
World
3.3
3.3
3.5
4.2
United States
3.3
3.4
1.6
2.1
Euro Area
2.4
2.3
1.2
2.2
Japan
4.6
1.2
0.7
1.6
BRICs
5.3
5.5
8.1
6.6
Growth Markets
5.1
5.2
6.9
6.2
N-11
4.5
4.4
4.2
5.3
Source: IMF, GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
7
China vs European Periphery
Greek GDP
300
Spanish GDP
1,500
Italian GDP
2,200
7,300
Chinese GDP
Change in Chinese
GDP, 2010-2011
1,370
Change in BRIC GDP,
2010-2011
2,160
0
2,000
USD, bn
4,000
6,000
8,000
Source: IMF, GSAM
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
8
Share of Global GDP in 2020
45
40
Share, %
35
30
25
20
2020 Share of global GDP
15
10
5
0
Source: GS Global ECS Research. GSAM Calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
9
Growth Market / Emerging Market
Split
25
Global GDP Share,
%
2050 Share of Global GDP
20
Share of Global GDP Cut-off
Point (1%)
15
10
Growth Markets
Emerging Markets
5
0
Source: GS Global ECS Research. GSAM Calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
10
BRICs & N11. 2011 Growth
Environment Score (GES)
8
GES
7
6
1997-2011 GES Change
1997
1997 Developing Average
2011 Developing Average
5
4
3
2
1
0
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
11
GES For Growth Markets (and US)
Korea
China
Brazil
Mexico
Russia
Turkey Indonesia
Headline
7.7
5.4
5.4
5.0
4.9
4.9
Rule of Law
Corruption
Political Stability
Government Deficit
Inflation
External Debt
GFCF
Openness
Life Expectancy
Schooling
Mobiles
Computers
Internet
Servers
Patents
R and D
Cost of Business
Urbanization
7.0
5.8
5.9
5.8
10.0
..
5.7
4.7
9.1
9.5
9.8
10.0
10.0
5.1
10.0
8.0
8.5
9.1
4.3
3.8
4.5
3.8
10.0
9.3
9.1
3.6
7.6
6.5
5.6
0.7
3.3
0.0
1.6
3.7
9.6
5.0
5.0
5.1
4.3
3.6
9.7
8.6
3.7
1.8
7.6
8.0
9.0
2.1
4.5
0.2
0.8
2.7
9.3
9.6
3.9
4.3
3.1
2.8
9.9
8.4
4.0
3.7
8.3
6.7
7.5
1.9
3.0
0.1
0.8
0.9
8.8
8.6
3.4
2.9
2.5
3.2
9.2
7.5
4.4
2.3
6.7
7.3
10.0
1.7
3.4
0.1
1.8
2.6
9.7
8.1
5.2
5.0
2.4
3.6
8.7
6.3
3.7
2.6
7.7
7.1
8.7
0.8
4.2
0.4
0.3
2.1
8.3
7.7
India
United States
4.5
3.9
7.0
3.7
3.5
2.7
4.4
9.7
7.5
6.4
2.8
6.7
6.1
6.7
0.3
1.0
0.0
0.1
0.2
7.9
6.0
4.9
4.0
3.1
0.8
7.8
8.5
5.9
2.7
6.0
4.7
4.5
0.4
0.6
0.0
0.2
2.0
4.4
3.3
8.2
7.5
6.8
0.0
9.7
..
2.9
2.0
8.6
8.9
8.9
10.0
9.0
10.0
9.9
7.1
9.9
9.1
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
12
GES Aggregates
World
DM
EM
Africa
Asia
CEE
Developed Europe
Latin America
MENA
North America
BRICs
N-11
G7
Broad EM
Growth Environment Score
2011
2010
1997
5.05
4.93
4.19
6.89
6.79
6.44
4.71
4.58
3.78
3.77
3.64
2.80
5.24
5.09
4.55
5.33
5.24
4.32
6.81
6.72
6.25
5.16
5.06
4.24
5.32
5.16
4.40
7.06
6.96
7.16
4.88
4.73
3.81
4.73
4.65
3.60
6.70
6.60
6.23
4.72
4.59
3.80
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
13
Who is Fit for EMU?
(Growth Markets)
Cyclically adjusted
budget deficit
(%GDP)
Gross General
Govt. Debt (%
GDP)
Growth
Environment Score
India
-9.1
67.6
3.9
Brazil
-2.7
65.1
5.4
Mexico
-3.2
42.9
5.0
Turkey
-1.8
36.0
4.9
Korea
2.4
32.9
7.7
Indonesia
-1.6
23.2
4.5
China
0.0
22.0
5.4
Russia
1.6
8.4
4.9
Note, data are 2012 estimates
Source: IMF and GS Global ECS
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
14
Who is Fit for EMU?
(Developed Markets)
Cyclically adjusted budget
deficit (%GDP)
Gross General Govt.
Debt (% GDP)
Growth
Environment Score
Germany
-0.4
81.6
7.0
France
-3.3
90.7
6.5
Italy
-0.8
125.3
5.8
Spain
-4.7
78.1
6.2
Netherlands
-2.3
66.5
7.4
Belgium
-2.7
94.3
7.0
Austria
-3.0
73.9
6.9
Greece
-4.7
189.1
5.0
Finland
1.2
50.3
7.2
Ireland
-5.5
115.4
6.1
Portugal
-1.3
111.8
5.7
Slovakia
EMU Average
-3.4
-2.4
46.9
90.0
6.0
6.8
UK
-5.1
86.6
6.8
US
-5.6
107.6
7.0
Canada
-3.2
86.7
7.1
Japan
-8.6
241.0
6.7
Australia
-1.8
23.8
7.6
Sweden
1.2
32.6
7.6
Note, data are 2012 estimates. Source: IMF and Eurostat
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
15
Euro Area Competitiveness
155
Index, Jan
'00=100
145
135
125
Unit Labour Costs
France
Germany
Greece
Ireland
Italy
Portugal
Spain
Austria
Belgium
Finland
115
105
95
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: Haver Analytics
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
16
China Lead Indicators
18
% yoy
Index
1996=100
16
106
105
14
104
12
103
10
102
101
8
100
6
99
4
2
98
GSCA (lhs)
CEMAC-GS Leading Indicator (rhs)
0
97
96
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
17
China FCI
112
index
111
110
China FCI
109
108
107
106
105
Easier Conditions
104
103
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
18
Retail Sales US and BRICs
36
%yoy
32
28
24
20
16
12
8
4
0
-4
USA
Russia
Brazil
-8
China
India*
BRICs
-12
04
05
06
07
08
09
10
11
12
* Private final consumption
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
19
Change in Real Retail Sales in
Developed vs Growth Plus (Jan ‘07 to
Present)
120
100
Bil$ Change
since Jan 07
80
60
40
20
0
-20
World
-40
Advanced
-60
Growth and
Emerging Markets
-80
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: National Sources, GS Global ECS Research.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
20
China GDP and its Changes
2001, $bn
2011, $bn
Nominal % yoy
Real % yoy
1,290
7,300
15.1
10.1
Exports (net)
30
190
24.1
18.7
Investment
460
3,330
18.4
13.3
Private Consumption
600
2,510
12.2
7.4
Public Consumption
210
960
13.4
8.5
GDP
Source: IFS and GSAM calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
21
China Retail Sales Versus IP
4.5
Ratio
4.0
3.5
3.0
Ratio of Retail Sales
Growth to IP Growth
2.5
2.0
1.5
1.0
0.5
0.0
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: Haver Analytics and GSAM calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
22
China BBoP and Current Account
Surplus
16
% GDP 4mma
CA
14
BBoP
BBoP = Current Account + Net FDI +
Net Portfolio Investment
12
10
8
6
4
2
0
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: Haver Analytics and GSAM calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
23
China Export and Import Growth
80
3M MA,
% yoy
60
40
20
0
Exports
-20
Imports
-40
01
02
03
04
05
06
07
08
09
10
11
12
Source: Haver Analytics and GSAM calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
24
Growth Markets Consumption
2010 USD trn
2011
2015
2020
US
10.6
11.0
12.4
Euro Area
6.6
6.8
7.5
BRICs
5.4
7.8
11.0
Growth Markets
7.7
10.5
14.5
N-11
3.2
3.9
5.3
China
2.5
3.9
5.7
16
14
2010
US$trn
2011
2015
2020
12
10
8
6
4
2
0
US
Euro
Area
BRICs
Growth
Markets
N-11
China
Source: GS Global
ECS Research,
Haver Analytics
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
25
Germany’s Exports to Asia Rising –
Stabilisation Elsewhere
230
210
Index
Jan07=100
China
India
190
Russia
170
France
150
Italy
Japan
130
US
110
Spain
90
BRIC
70
N-11
50
Jan-07
Sep-07
May-08
Jan-09
Sep-09
May-10
Jan-11
Sep-11
May-12
Jan-13
Source: Haver Analytics and GSAM calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
26
Euro Area CA vs BBoP
5
4
% GDP 4-qtr
ma
Current Account
BBoP
3
2
1
0
-1
-2
-3
-4
-5
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Haver Analytics
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
27
US Exports to Key Destinations
215
Index
Jan07=100
World
195
BRIC
N-11
175
Canada
155
Mexico
China
135
Japan
Germany
115
UK
95
Brazil
75
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Haver Analytics and GSAM Calculations.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
28
US Export and Import Growth
30
25
3M MA,
% yoy
20
15
10
5
0
-5
Real exports
-10
Real imports
-15
-20
-25
01
02
03
04
05
06
07
08
09
10
11
12
Source: Haver Analytics
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
29
UK Exports to Key Destinations
160
Index
Jan 07 = 100
China
Netherlands
140
BRICs
India
120
N-11
Germany
100
Ireland
France
80
U.S.
60
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Haver Analytics and GSAM Calculations.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
30
UK Composite PMI
65
Index
60
55
50
45
UK Composite PMI
40
Expansion > 50
35
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: Haver Analytics
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
31
‘Crisis’ Indicator
6
Index
5
4
GS FSI (Financial Stress Index)
3
2
1
0
-1
-2
90
92
94
96
98
00
02
04
06
08
10
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
32
Credit Spreads
300
1800
bp
bp
1600
250
CDX IG (lhs)
1400
CDX IH (rhs)
200
1200
150
1000
800
100
600
50
400
0
200
06
07
08
09
10
11
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
33
OECD Financial Conditions
103.5
Index, Jan
2000 = 100
103
102.5
OECD FCI
Oil Augmented FCI
102
101.5
101
100.5
100
99.5
99
98.5
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
34
Momentum of the GLI
1.5
% mom
1.0
0.5
0.0
-0.5
-1.0
Global Industrial Production*, 3mma
-1.5
GLI Momentum
-2.0
-2.5
*Includes OECD countries plus BRICs,
Indonesia and South Africa
-3.0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
35
ISM Manufacturing Index
65
35
Index
Index
30
60
25
55
20
50
15
45
10
40
5
0
35
30
PMI Composite Index (50+ =
Econ Expand) [lhs]
25
New orders - Inventories Index
(rhs)
-5
-10
-15
20
-20
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
36
US Weekly Job Claims
700
Claims (000s)
600
4-Week Moving
Average
500
400
300
200
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
37
US House Prices vs Income
Percent
Ratio
4.5
3.0
House Price/Income Ratio* (left)
4.0
4.0
Mortgage Rate (right, inverted)
5.0
3.5
6.0
7.0
3.0
8.0
2.5
9.0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
* S.a. median home price divided by median family income.
Source: Department of Commerce. FRB. NAR.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
38
Inflation Expectations in US
3.6
%yoy
3.4
University of
Michigan 5-10 yr
Inflation
Expectations
3.2
3.0
2.8
2.6
2.4
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
39
US BBoP vs Current Account
2
1
% GDP 4-qtr
ma
0
-1
-2
-3
-4
-5
-6
Current Account
-7
BBoP
-8
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
40
Five Year Forward Oil Price
160
$/barrel
140
120
5 Yr Forward Oil Price
100
Spot price
200 day ma of 5yr
forward
80
60
40
20
0
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: GS Global ECS Research
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
41
Current Estimates for the Equity
Risk Premium*
US
Real
GDP
Growth
2.5
Real
Earnings
Growth
2.5
2.2
Expected
Real
Return
4.7
UK
2.3
2.3
3.7
5.9
-1.2
7.1
2.0
7.9
Europe ex UK
2.0
2.0
4.2
6.2
0.9
5.3
2.0
8.2
Japan
1.5
1.5
2.6
4.1
0.6
3.5
1.0
5.1
Brazil
5.0
5.0
3.9
8.9
4.6
4.3
4.5
13.4
China
8.0
8.0
4.3
12.3
0.4
11.9
3.0
15.3
India
8.0
8.0
1.7
9.7
4.3
5.4
4.0
13.7
Russia
5.0
5.0
4.1
9.1
2.6
6.4
6.0
15.1
Advanced
2.1
2.1
3.1
5.2
0.1
5.2
1.8
7.1
BRICs
7.0
7.0
3.8
10.8
2.0
8.8
3.8
14.7
World
3.5
3.5
3.3
6.8
0.6
6.2
2.4
9.2
Advanced
2.2
2.2
3.0
5.2
0.0
5.2
1.9
7.1
BRICs
7.3
7.3
3.6
11.0
2.0
9.0
3.7
14.7
World
4.2
4.2
3.3
7.5
0.8
6.7
2.6
10.1
+
Dividend
Yield
=
-
Real
Bond
Yield
-0.6
=
Implied
ERP
Expected
Inflation
5.4
2.0
Expected
Nominal
Return
6.7
GDP-weighted
PPP-weighted
* As of 13 June 2012
Source: GSAM Calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
42
ERP for Growth Market
Economies
Real
GDP
Growth
Real
Earnings
Growth
Implied
ERP
Expected
Inflation
Expected
Nominal
Return
Brazil
5.0
5.0
3.9
8.9
4.6
4.3
4.5
13.4
China
8.0
8.0
4.3
12.3
0.4
11.9
3.0
15.3
India
8.0
8.0
1.7
9.7
4.3
5.4
4.0
13.7
Russia
5.0
5.0
4.1
9.1
2.6
6.4
6.0
15.1
Mexico
3.0
3.0
1.8
4.8
3.0
1.8
3.0
7.8
Korea
4.8
4.8
1.5
6.3
0.7
5.6
3.0
9.3
Indonesia
5.8
5.8
2.5
8.3
1.4
6.9
5.0
13.3
Turkey
5.0
5.0
2.5
7.5
3.6
3.9
5.5
13.0
+
Dividend
Yield
=
Expected
Real
Return
-
Real
Bond
Yield
=
* As of 13 June 2012
Source: GSAM Calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
43
Trend in Forward P/Es
35
30
12mth forward
PE
US
Japan
China
India
25
Europe
Russia
Brazil
20
15
10
5
0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Source: Datastream
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
44
Cyclically Adjusted PE (CAPE)
Ratios
Latest
CAPE
Forward PE
Average
CAPE
Deviation
from avg.
CAPE vs
FY1 PE
CAPE
History
USA
20.1
11.8
18.7
8%
71%
1973
Indonesia
18.2
11.8
21.7
-16%
54%
2001
Japan
17.4
10.8
46.6
-63%
61%
1975
Mexico
17.2
15.4
19.3
-11%
12%
2001
Canada
14.5
11.4
19.3
-25%
27%
1975
India
14.1
12.3
22.3
-37%
15%
2001
Australia
13.5
10.6
15.8
-15%
27%
1975
China
12.5
8.4
17.6
-29%
50%
2001
Korea
12.4
8.3
16.6
-26%
49%
2001
Germany
9.7
9.0
19.0
-49%
8%
1976
UK
9.5
9.2
13.8
-31%
3%
1975
Brazil
9.3
8.6
15.4
-39%
8%
2001
France
8.2
9.0
19.8
-59%
-9%
1975
Turkey
7.8
8.3
15.4
-49%
-7%
2001
Russia
5.8
4.3
14.3
-60%
33%
2001
Italy
5.2
7.0
22.3
-77%
-26%
1989
Spain
4.7
7.6
18.1
-74%
-38%
1985
Source: Datastream and GSAM Calculations. As of 06 June 2012
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
45
GSAM Equity Benchmark
Allocation in Growth Market World
Group GDP
Share
Market Cap
GS GIVI™
Global
Growth
China
10.3%
2.6%
5.4%
Brazil
3.7%
2.1%
2.5%
India
2.7%
1.3%
1.7%
Korea
1.8%
2.2%
2.1%
Russia
2.6%
0.8%
1.9%
Turkey
1.3%
0.3%
0.8%
Mexico
1.8%
0.6%
1.2%
Indonesia
1.2%
0.3%
0.6%
Developed Markets
70.2%
87.1%
80.4%
Growth Markets
25.3%
10.2%
16.1%
Emerging Markets
4.5%
2.7%
3.5%
Source: GSAM
S&P GIVI™ is a trademark of Standard & Poor's Financial Services LLC (“Standard & Poor's”) and have
been licensed for use by The Goldman Sachs Group, Inc. and its affiliates. Any products associated with
GIVI are not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor’s does not
make any representation regarding the advisability of investing in such products.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
46
GDP Index Weights vs Market Cap
25
pp
20
Difference, GDP Weight
vs Market Cap
15
10
5
0
-5
-10
-15
-20
-25
Growth
Markets
EM
Rest of
DM
US
Europe
UK
Japan
Source: Barclays, Haver Analytics and GSAM Calculations
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
47
Disclaimer
Jim O’Neill is the Chairman of GSAM, which is a separate operating division and not part of Global Investment Research. The views expressed herein by Mr. O’Neill do not constitute research, investment advice
or trade recommendations and may not represent the views and/or opinions of GSAM’s portfolio management teams and/or Global Investment Research.
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verification, the accuracy and completeness of all information available from public sources. Economic and market forecasts presented herein reflect our judgment as of the date of this presentation and are subject
to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not
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© 2011 Goldman Sachs. All rights reserved.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.. Any reference to a specific company
or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Copyright © 2011, Goldman Sachs. All rights reserved
48