Professor John Ross: Economic ‘Hard Landings’ Were Only in Western Economies and Not in China

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Professor John Ross is Senior Fellow at Chongyang Institute for Financial Studies, Renmin University of China and runs a blog called Key Trends in Globalisation. His work regularly appears in Chinese and Western media.

In an article posted yesterday he argues that economic hard landings have occurred in the past in Western economies and not in China. In addition , he predicts they will not happen in China. In the Western media, we constantly hear about pundits worrying about the state of the Chinese economy. In the past few years, with the collapse in commodity markets not a day goes by without some guy blaming China for everything. If one were to believe all this non-sense it would appear that China is the cause of all the problems that plague western economies when in reality most of them self-inflicted issues. Here is Mr.Ross quoting billionaire  George Soros in the introduction to this article:

The media outside China periodically carries predictions of a China ‘hard landing’. For example George Soros grabbed headlines earlier this year by declaring of China: ‘A hard landing is practically unavoidable.’ Soros himself has an inaccurate record of investing in Communist Party led, and ex-Communist, countries such as Russia and China – having lost approximately $1 billion in Russia’s Svyazinvest telecommunications company. But similar claims regularly appear in other media.

To anyone dispassionately examining the facts these claims are extremely curious – as they are clearly the exact reverse of reality.  The facts show the only real modern serious economic ‘hard landings’ were not in China but in so called ‘Western’ economies – for example the US after 2007, Japan after 1990, Russia after the introduction of capitalism in 1991. China’s economy for example has not suffered a year of negative growth for at least half a century – in contrast to every major Western economy. Therefore, the real question which has to be explained, and which is examined here, is why do Western economies suffer ‘hard landings’ but China doesn’t?

Using the example of U.S. , Japan and Russia, Mr.Ross demonstrates how the economies have had hard landings. From the article:

What causes a Western economy’s ‘hard landing’?

A seriously erroneous assumption is sometimes repeated in parts of the media that because consumption is the largest percentage of GDP it must be consumption which is the decisive influence in business cycles – including in ‘hard landings’. This is simply an elementary arithmetic error. Fluctuations in investment are so much more extreme than changes in consumption that although investment is a smaller proportion of the economy it is investment changes which dominate large scale economic downturns. This will be demonstrated in the three largest modern economic ‘hard landings’ – the US ‘Great Recession’ after 2007, Japan’s prolonged stagnation after 1990, and Russia after 1991. Analysing these three cases clearly demonstrates that the same mechanism operated in each – and also shows why China has not and will not have any serious hard landing.

The entire article is worth a read.

Source: 

Why do Western economies have hard landings but China doesn’t? by Professor John Ross Key Trends in Globalisation

South Africa’s FTSE JSE All Share Index: Revenue Exposure by Country

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The FTSE/JSE All Share Index is the benchmark index of the South African equity market. According to the index provider FTSE:

The FTSE/JSE All-Share Index represents 99% of the full market capital value i.e. before the application of any investability weightings, of all ordinary securities listed on the main board of the JSE, subject to minimum freefloat and liquidity criteria.

Currently there are 163 constituents in the index and the dividend yield is 3.23% in the domestic currency. The Top 10 holdings account for 56% of the index. The top three sectors represented in the index are: Food & Beverage, Personal & Household Goods and Basic Resources.

Global Exposure of South African firms:

Similar to the FTSE 100 index of the UK, many South African firms in the FTSE/JSE All Share index earn a high portion of their revenues from overseas. In fact, according to a report by Factset only 45% of the total 5,387 billion rand revenue of the firms in the index is earned locally. This shows the global exposure of major South African firms.

Click to enlarge

South African Firms Global Exposure

Source: Tethered South African Investors Seek Gains Beyond Borders, FactSet

From an investment standpoint, though only some sectors are heavily dependent on the local economy. For example, resource companies such as those in mining have major operations within the country. But large South African banks such as Nedbank (NDBKY) or Standard Bank (SGBLY)on the other hand have substantial presence in other African countries. So their performance is not totally dependent on the state of the South African economy.

The Top 10 Constituents of the FTSE JSE All Share Index are shown below:

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Top 10 FTSE JSE Components

Source: FTSE

The full list of South African ADRs trading on the US markets can be found here and also check out the historical performance of the index.

Disclosure: No Positions

You may also like:

  1. South Africa’s FTSE/JSE All-Share Index Returns By Year 
  2. A Review FTSE/JSE All-Share Index of South Africa (TFS, Mar 2014)
  3. JSE All Share Index, SA Shares
  4. Graphic: 50 years of the FTSE All-Share index, The Telegraph
  5. Monthly Closing Values of FTSE JSE All Share Index 2002 Thru 2017 (in E

Three Charts On The Food Grown By Developing Countries

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Developing countries are home about 80% to the world’s population. For example, the population of China and India alone are approximately 1.35 bn and 1.25 bn respectively. According to a research report John McArthur and Krista Rasmussen of Brookings, 98% of world’s hungry people live in the developing countries. 78% of the harvested croplands are also in these countries.

1.The following chart shows the types of food grown in developing countries:

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Crops with areas Harvested

Data Source: Authors’ calculations based on FAO data

Cereals are the most common crop grown in most of the countries. Argentina and Brazil are large growers are oil crops like soy.

2. The type of cereal grown by region:

Predominant Cereal

Geography plays an important role in determining the type of cereal grown. Wheat is grown mainly in Europe and Central Asia while rice is the top cereal grown in tropical environments like South and South East Asia.

3. Cash crops grown by region:

The majority of the cash crops grown mostly in certain parts of the emerging world. For instance, Latin American and the Caribbean are major producers of sugar, coffee, and cocoa. A few West African countries thrive in the production of cocoa which is used in the manufacture of chocolates. Countries in the South East Asia such as Malaysia are major producers of oil palm which is used as a substitute for vegetable or peanut oil.

Lead cash crop

Source: Where does the world’s food grow? by John McArthur and Krista Rasmussen of The Brookings Institution

Knowledge is Power: Buy and Hold, Mutual Fund Lesson, Fintechs Edition

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SpaceWalk

Astronaut  Steve Robinson on the International Space Station doing work in a damn office cubicle 

Courtesy: Wikipedia

Notes on the Myanmar Stock Market

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Myanmar can be considered as one of the latest entrant to the category of frontier markets. For many decades the country formerly known as Burma was a closed economy run by a military junta. After many elections and years of waiting the Burmese yearning for democracy is slowly taking shape as Myanmar open its economy to domestic and foreign investors. Burma used to be famous for its high-quality rice, teak wood, precious gems, etc.

Myanmar’s stock exchange started trading on March 25, 2016. The Yangon Stock Exchange(YSX) opened for business with just one listing.  From a Deutsche Welle article:

“We can now proudly and mightily proclaim to the world that we are no longer a backward nation,’ Maung Maung Thein, the head of Myanmar’s Securities and Exchange Commission, told a group of business elites who had gathered at the Yangon Stock Exchange’s refurbished colonial-era headquarters in downtown Yangon.

Here are few facts about the stock market of Myanmar:

  • Only one company is listed on the exchange. First Myanmar Investment Co, known as FMI, is a conglomerate operating in financial-services, real-estate and health-care industries. After the first day of trading, FMI had a market cap of $598 million.
  • FMI has a sister firm that is listed in Singapore.
  • Cambodia’s stock exchange opened in 2012 and has only three firms listed.
  • Five companies trade on the Laos stock exchange.
  • Regional markets such as Thailand and Vietnam have 517 and 307 firms listed.

Relevant websites:

Sources: 

Yangon Stock Exchange

Yangon Stock Exchange, Yangon, Myanmar