1. Beyond building BRICS A world of opportunity September 2011 Chris Hart Chief Strategist Ave E CW DSAI Metamorphosis of risk

2. Contrasting paths of BRICS/EM and the Developed World..

3. Spending the problem. Consumption vs Production Source: INet

4. Fundamental problem: governments have grown too big Source: INet

5. The systemic Ponzi – dynamics At the 11 th hour, as government compensates Systemic collapse Time Debt needed to sustain the system BCA: the debt super cycle Systemic instability Credit worthy capacity Debt

6. From 2010: The debt trap: more debt no solution Source: INet

7. From 2010: Projected debt burdens: US and UK servicing requirements in a worse position than Greece in 2040. The Argentine disease

8. The EM contrast: yield, growth, solvency 2007 EM Crisis Interest Rates Government Spending Sovereign Debt Bubble Resolution Difference in economic performance very stark

9. Crisis and risk Market response and the changes.

10. Financial Markets and safe-havens: …swinging between risk and reward Source: INet

11. Debt Distressed Italian Financial Markets – no swing but general exodus. Repeated in … Greece, Ireland, Portugal & Spain!!

12. Risk and the USD. Source: INet

13. Euro: convergence and divergence trade. Source: INet

14. French Spreads over German Bunds. …..France as well!!!!??? Source: INet

15. EUR vs USD – Range Trading Source: INet

16. A chart for the generation: USD vs Swiss franc. Source: INet

17. EUR vs CHF – huge move over the past year. Source: INet

18. S&P: Bearish? Source: INet

19. S&P: Long Term Outlook Turning Bearish as well Source: INet

20. JSE: Bearish! Source: INet

21. JSE: better long term outlook, but bearish s/t. Contrast with S&P very stark! Source: INet

22. The rand. Very Volatile. Really???? Source: INet

23. SA Bonds: yield and solvency!! Source: INet

24. The EM opportunity: changing nature of risk Investment Opportunities Growth Yield Solvency Differentiation BRICS and EM becoming safe-havens Relative risk diminishing

25. A Soft Patch…. ….or Double Dip? Slowdown aggravates debt distress.

26. Quantitative Easing. …1, 2 and maybe 3?? Otherwise better described as printing money Record budget deficits also added to the mix

27. …and deficit spending Source: INet As far as the eye can see. Anyone for tea?? Record budget deficits also destabilizes

28. OECD Lead indicator: no recovery; pointing to stagnant 2 nd half at best. Source: INet

29. Risk metamorphosis Historic experience problematic.

30. Governments - becoming the investor’s enemy …but are friends when emerging from the restructure RisingTax Burden Investment Incentives Pragmatic regulation Labour Instability Hostile Regulation Low Labour Costs Bankruptcy Blame game US; UK; Japan; PIIGS Brazil; Zambia; Turkey, Thailand ProtectionismConcentration

31. Challenge to asset management doctrine and foundation Does ‘risk free’ rate become redundant? Cash Risk ReturnReturn Bonds Equity Property “aggressive/growth”“Defensive”

32. Inflation adjusted and the model falls apart Does ‘risk free’ rate become redundant? Cash Risk ReturnReturn Bonds Equity Property Submarine assets “Cheap”“Expensive”

33. Risk hierarchy. Source: INet Gold Cash Bonds

34. Gold – a safe haven Source: INet

35. Conclusion EM investors get growth, yield and solvency Market response to risk is changing fundamentally Conventional Investment Wisdom needs a rethink to deal with systemic risk Twitter: chrishartza

36. Thank You Chris Hart Chief Strategist Ave E CW DSAI Twitter: chrishartza

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