Macro overview The end of an era? Jon Hille-Walle, 01.09.2015.

Macro overview

The end of an era?

Jon Hille-Walle, 01.09.2015

Jon Hille-Walle • 01.09.2015

2 •

So someone in China decided to «support» the stock market:

Chinese Gross Domestic Product

• Growth has come down form previous stellar levels

• Still, 7% sounds rather good?


3 •

China, some reasons to worry

• Credit growth has been high, large parts of which in the unregulated «shadow bank system»

• Levels of debt are now high by any comparison

• Indications that industrial production is slowing down.


4 •

…and some more:


5 •

Where are we coming from?


6 •

Chinese GDP

• Investments have historically been a large, and growing part of GDP. Currently constitutes 45% of GDP.

• Net Exports is about 5%

• Public and private consumption makes out the remaining 50%.

• The official growth rate of 7% is made out of roughly 3% points investments and 4% points consumption.

• Is this a problem?


7 •

What is the problem with continued high investments?

• Over time there is a risk of diminishing returns

• That risk is not smaller in a planned economy


8 •

This has happened before

• Anyone remember the Asian Crisis in 1998? Back when investments stalled…


9 •

Why we don’t think China is headed for a hard landing (at least not today or tomorrow...)

Lots of «dry gun powder» in the shape of:

• Monetary policy (interest rates)

• Fiscal policy

• State controlled banks, with high margins (for now), and large reserves.

• Limited capital movement abroad

• High domestic savings

• Continued urbanisation


10 •

The way forward

• China will invest MUCH less aggressively

• The economic growth will be driven by consumption, but at a significantly lower rate than today.

• This is bad news for commodity prices.


11 •

Currencies – Can anyone spot a trend?


12 •

Oil - demand

• Over the past 15 years + , increase in demand has come from the non-OECD part of the world.

• Reason: weaker economic growth in OECD coupled with efficiency gains, environmental challenges and substitutive technology


13 •

Oil – Supply – Plenty of oil

• US-onshore (shale) oil has increased production by roughly 1 million barrels per day, per year since 2010.

• Iraq is coming back on stream

• Finally – Saudi Arabia got tired of defending the oil price by cutting its own production to balance supply-demand and decided to fight for market share.


14 •


15 •

Oil – US production

They just won’t quit…


16 •

Oil – will low investments reduce output and support prices?

Yes – but that takes time

Implications for shipping


17 •

The good – Oil transport, product & chemicals

• Low price triggers increased demand. High oil-volumes to be shipped

• Increasing distances in major trades

• Spill over effect to smaller tank, product and chemicals

• And hey; bunker is low!


18 •

The good – LPG

• High US oil production generates excess LPG.

• High supply drives prices down. This generates a large arbitrage to Asia and currently ship owners take all the profits.

• What’s next – Ethane export?


19 •

The bad - Bulk

• The China investment party coming to an end. Construction is currently 50% of steel demand, infrastructure is 8%.

• The dry bulk fleet is relatively young, and low speed puts a roof on rates.

• The super cycle is over.


20 •

The ugly – Oil / Offshore / Seismic


21 •

Oil companies spending


22 •

What does the fixed income part of the word think?


23 •

Offshore Supply and AHTS companies

Drilling companies


24 •


Seismic companies


25 •


Shipping companies


26 •


Luckily it’s not all about China


27 •

ROW: 50.090. bln USD, 64%

USA: 17,419. bln USD, 22%

China: 10.360. bln USD, 13%

The oil burden on the global consumer


28 •

77.869 bln USD * 2,5% = 1.679 bln USD

Thank you!

Jon [email protected]

Macro overview The end of an era? Jon Hille-Walle, 01.09.2015.

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