Downunder Daily : If Everyone Wants To Save
The
macro debacle has many causes. One,
consistently emphasized by Stephen Roach, was the symbiotic imbalance between
the spendthrift and the thrifty. The (relatively) painless way to correct this
imbalance is for the spendthrift to start saving and the thrifty to save less.
That may not happen. Yes, the over-leveraged saving-short will start to save,
but there's little sign that the thrifty will willingly offset that adjustment
for an extended period. We could face a time when everyone wants to save.
Unfortunately, that's not possible...
One feature of the bubble cycle was
national-level saving imbalances. The absolute sum of current account balances
captured this trend (Exhibit 1). The largest dis-saver was the US, but other
Anglo countries and the European periphery also over-spent. The largest saver
was China, but the rest of Asia, core Europe and oil producers also saved
(Exhibit 2).
All we can observe is the ex post
saving and borrowing. Ex ante, there may have been a mis-match between
desired saving and borrowing. As is always the case, prices had to move to
ensure that the supply of, and demand for, saving balanced. Currency shifts
played a part. But the key variable, in my view, was asset prices. The excess
savings of the thrifty nations were recycled into pumped-up asset prices, which
encouraged the spendthrifts to save less.
These imbalances were, for a while, mutually
convenient. But it could not go on forever because asset bubbles inevitably
pop. If something's unsustainable, it won't be sustained. So it has proved. As
asset prices fall, saving rises. This is typical in financial crises (Exhibit
3), and is clearly occurring now.
It would greatly help to reduce the pain of
this adjustment if, as the saving rate in the low-saving countries rises, the
high savers reduced their saving.
To some extent that will occur. In
particular, the high saving commodity-producing countries will see their saving
fall as commodity prices decline. But it seems very unlikely that this will be
enough. In particular, it seems unlikely that the high-saving household sectors
in, say, China and core Europe will reduce their saving now if they were not
willing to reduce their saving through a period of strong global growth,
buoyant asset prices and full employment. In short, we may be entering a period
where far too many people want to save.
A few things follow:
First, if private sectors want to
increase their saving, it seems likely that public sectors will aim to
make up the slack. This is typical of major crises. The IMF expects that
advanced economies will run significant budget deficits - leading to
significant increases in public debt - over an extended period (Exhibit 4).
Second, there is an obvious template for this
private thrift/public spending: Japan. The message from Japan is that, so long
as the private sector is willing to recycle its saving to fund the public
sector, large deficits can be funded. Japan was, as a net saving nation,
self-funding. So is the globe, in aggregate. But increasing public sector
deficits will likely see investors discriminate between public sector balance
sheets. Countries judged to have weak balance sheets may not be able to
maintain public sector dis-saving, so will be relative growth laggards.
Third, if the desire to save outweighs the
desire to invest, then something will have to adjust. In the boom part of the
cycle, it was rising asset prices that led to a balance between saving and
investment. I doubt, however, that asset prices can play the same role in the
next phase of the cycle. Once again, Japan could point the way: in a world of
weak asset prices, the key adjustment is interest rates. They stay low enough
to discourage some saving, and encourage some investment. This, therefore,
points to a world of persistent low rates. In fact, as Teun Draaisma has noted,
in big busts long-rates stay low for an extended period (Exhibit 5).
Finally, this is a scenario that is in many
respects the opposite of the alternative adjustment route: high-inflation that
erodes high debt levels. Arguably, which route the world takes will be in the
hands of policy makers. They can, if they want, ensure a high-inflation outcome
(over the medium term). But that is not, in my view, the only plausible
end-game. One alternative is a world of low rates, low inflation, private
thrift, and structurally higher public debt.
Back
to Top
END OF RESEARCH ABSTRACT
Disclosure Section
The information and opinions in Morgan Stanley Research
were prepared or are disseminated by Morgan Stanley Asia Limited (which accepts
the responsibility for its contents) and/or Morgan Stanley Asia (Singapore)
Pte. (Registration number 199206298Z, regulated by the Monetary Authority of
Singapore, which accepts the responsibility for its contents), and/or Morgan
Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H,
regulated by the Monetary Authority of Singapore, which accepts the
responsibility for its contents), and/or Morgan Stanley Taiwan Limited and/or
Morgan Stanley & Co International plc, Seoul Branch, and/or Morgan Stanley
Australia Limited (A.B.N. 67 003 734 576, holder of Australian financial
services license No. 233742, which accepts responsibility for its contents),
and/or Morgan Stanley India Company Private Limited and their affiliates
(collectively, "Morgan Stanley").
For important disclosures, stock price charts and rating
histories regarding companies that are the subject of this report, please see
the Morgan Stanley Research Disclosure Website at
www.morganstanley.com/researchdisclosures, or contact your investment
representative or Morgan Stanley Research at 1585 Broadway, (Attention: Equity
Research Management), New York, NY, 10036 USA.
Analyst Certification
The following analysts hereby certify that their views
about the companies and their securities discussed in this report are
accurately expressed and that they have not received and will not receive
direct or indirect compensation in exchange for expressing specific
recommendations or views in this report: Gerard Minack.
Unless otherwise stated, the individuals listed on the
cover page of this report are research analysts.
Global Research Conflict Management Policy
Morgan Stanley Research has been published in accordance
with our conflict management policy, which is available at
www.morganstanley.com/institutional/research/conflictpolicies.
Important US Regulatory Disclosures on Subject
Companies
The research analysts, strategists, or research associates
principally responsible for the preparation of Morgan Stanley Research have
received compensation based upon various factors, including quality of
research, investor client feedback, stock picking, competitive factors, firm
revenues and overall investment banking revenues.
Certain disclosures listed above are also for compliance
with applicable regulations in non-US jurisdictions.
STOCK RATINGS
Morgan Stanley uses a relative rating system using terms
such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions
below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the
stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not
the equivalent of buy, hold and sell. Investors should carefully read the
definitions of all ratings used in Morgan Stanley Research. In addition, since
Morgan Stanley Research contains more complete information concerning the
analyst's views, investors should carefully read Morgan Stanley Research, in
its entirety, and not infer the contents from the rating alone. In any case,
ratings (or research) should not be used or relied upon as investment advice.
An investor's decision to buy or sell a stock should depend on individual
circumstances (such as the investor's existing holdings) and other
considerations.
Global Stock Ratings Distribution
(as of April 30, 2009)
For disclosure purposes only (in accordance with NASD and NYSE
requirements), we include the category headings of Buy, Hold, and Sell
alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight.
Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we
cover. Overweight, Equal-weight, Not-Rated and Underweight are not the
equivalent of buy, hold, and sell but represent recommended relative weightings
(see definitions below). To satisfy regulatory requirements, we correspond
Overweight, our most positive stock rating, with a buy recommendation; we
correspond Equal-weight and Not-Rated to hold and Underweight to sell
recommendations, respectively.
|
Coverage Universe |
Investment Banking Clients (IBC) | ||||
|
Stock Rating Category |
Count |
% of Total |
Count |
% of Total IBC |
% of Rating Category |
|
Overweight/Buy |
668 |
30% |
205 |
35% |
31% |
|
Equal-weight/Hold |
1005 |
45% |
272 |
46% |
27% |
|
Not-Rated/Hold |
33 |
1% |
8 |
1% |
24% |
|
Underweight/Sell |
517 |
23% |
108 |
18% |
21% |
|
Total |
2,223 |
593 | |||
Data include common stock and ADRs currently assigned
ratings. An investor's decision to buy or sell a stock should depend on
individual circumstances (such as the investor's existing holdings) and other considerations.
Investment Banking Clients are companies from whom Morgan Stanley or an
affiliate received investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O or Over) - The stock's total return is
expected to exceed the total return of the relevant country MSCI Index, on a
risk-adjusted basis over the next 12-18 months.
Equal-weight (E or Equal) - The stock's total return is
expected to be in line with the total return of the relevant country MSCI
Index, on a risk-adjusted basis over the next 12-18 months.
Not-Rated (NR) - Currently the analyst does not have
adequate conviction about the stock's total return relative to the relevant
country MSCI Index on a risk-adjusted basis, over the next 12-18 months.
Underweight (U or Under) - The stock's total return is
expected to be below the total return of the relevant country MSCI Index, on a
risk-adjusted basis, over the next 12-18 months.
Unless otherwise specified, the time frame for price
targets included in Morgan Stanley Research is 12 to 18 months.
For Australian Property stocks, each stock's total return
is benchmarked against the average total return of the analyst's industry (or
industry team's) coverage universe, instead of the relevant country MSCI Index,
on a risk-adjusted basis, over the next 12-18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his
or her industry coverage universe over the next 12-18 months to be attractive
vs. the relevant broad market benchmark, as indicated below.
In-Line (I): The analyst expects the performance of his or
her industry coverage universe over the next 12-18 months to be in line with
the relevant broad market benchmark, as indicated below.
Cautious (C): The analyst views the performance of his or
her industry coverage universe over the next 12-18 months with caution vs. the
relevant broad market benchmark, as indicated below.
Benchmarks for each region are as follows: North America -
S&P 500; Latin America - relevant MSCI country index or MSCI Latin America
Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.
.
Other Important Disclosures
Morgan Stanley produces a research product called a
"Tactical Idea." Views contained in a "Tactical Idea" on a
particular stock may be contrary to the recommendations or views expressed in
this or other research on the same stock. This may be the result of differing
time horizons, methodologies, market events, or other factors. For all research
available on a particular stock, please contact your sales representative or go
to Client Link at www.morganstanley.com.
For a discussion, if applicable, of the valuation methods
used to determine the price targets included in this summary and the risks
related to achieving these targets, please refer to the latest relevant
published research on these stocks.
Morgan Stanley Research does not provide individually
tailored investment advice. Morgan Stanley Research has been prepared without
regard to the individual financial circumstances and objectives of persons who
receive it. The securities/instruments discussed in Morgan Stanley Research may
not be suitable for all investors. Morgan Stanley recommends that investors
independently evaluate particular investments and strategies, and encourages investors
to seek the advice of a financial adviser. The appropriateness of a particular
investment or strategy will depend on an investor's individual circumstances
and objectives. The securities, instruments, or strategies discussed in Morgan
Stanley Research may not be suitable for all investors, and certain investors
may not be eligible to purchase or participate in some or all of them.
Morgan Stanley Research is not an offer to buy or sell or
the solicitation of an offer to buy or sell any security/instrument or to
participate in any particular trading strategy. The "Important US
Regulatory Disclosures on Subject Companies" section in Morgan Stanley
Research lists all companies mentioned where Morgan Stanley owns 1% or more of
a class of common securities of the companies. For all other companies
mentioned in Morgan Stanley Research, Morgan Stanley may have an investment of
less than 1% in securities or derivatives of securities of companies and may
trade them in ways different from those discussed in Morgan Stanley Research.
Employees of Morgan Stanley not involved in the preparation of Morgan Stanley
Research may have investments in securities or derivatives of securities of
companies mentioned and may trade them in ways different from those discussed in
Morgan Stanley Research. Derivatives may be issued by Morgan Stanley or
associated persons
Morgan Stanley and its affiliate companies do business
that relates to companies/instruments covered in Morgan Stanley Research,
including market making and specialized trading, risk arbitrage and other
proprietary trading, fund management, commercial banking, extension of credit,
investment services and investment banking. Morgan Stanley sells to and buys
from customers the securities/instruments of companies covered in Morgan
Stanley Research on a principal basis.
With the exception of information regarding Morgan
Stanley, research prepared by Morgan Stanley Research personnel are based on
public information. Morgan Stanley makes every effort to use reliable, comprehensive
information, but we make no representation that it is accurate or complete. We
have no obligation to tell you when opinions or information in Morgan Stanley
Research change apart from when we intend to discontinue research coverage of a
subject company. Facts and views presented in Morgan Stanley Research have not
been reviewed by, and may not reflect information known to, professionals in
other Morgan Stanley business areas, including investment banking personnel.
Morgan Stanley Research personnel conduct site visits from
time to time but are prohibited from accepting payment or reimbursement by the
company of travel expenses for such visits.
The value of and income from your investments may vary
because of changes in interest rates or foreign exchange rates, securities
prices or market indexes, operational or financial conditions of companies or
other factors. There may be time limitations on the exercise of options or
other rights in your securities transactions. Past performance is not necessarily
a guide to future performance. Estimates of future performance are based on
assumptions that may not be realized. Unless otherwise stated, the cover page
provides the closing price on the primary exchange for the subject company's
securities/instruments.
To our readers in Taiwan: Information on
securities/instruments that trade in Taiwan is distributed by Morgan Stanley
Taiwan Limited ("MSTL"). Such information is for your reference only.
Information on any securities/instruments issued by a company owned by the
government of or incorporated in the PRC and listed in on the Stock Exchange of
Hong Kong ("SEHK"), namely the H-shares, including the component
company stocks of the Stock Exchange of Hong Kong ("SEHK")'s Hang
Seng China Enterprise Index; or any securities/instruments issued by a company
that is 30% or more directly- or indirectly-owned by the government of or a
company incorporated in the PRC and traded on an exchange in Hong Kong or
Macau, namely SEHK's Red Chip shares, including the component company of the
SEHK's China-affiliated Corp Index is distributed only to Taiwan Securities
Investment Trust Enterprises ("SITE"). The reader should
independently evaluate the investment risks and is solely responsible for their
investment decisions. Morgan Stanley Research may not be distributed to the
public media or quoted or used by the public media without the express written
consent of Morgan Stanley. Information on securities/instruments that do not
trade in Taiwan is for informational purposes only and is not to be construed
as a recommendation or a solicitation to trade in such securities/instruments.
MSTL may not execute transactions for clients in these securities/instruments.
To our readers in Hong Kong: Information is distributed in
Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia
Limited as part of its regulated activities in Hong Kong. If you have any
queries concerning Morgan Stanley Research, please contact our Hong Kong sales
representatives.
Certain information in Morgan Stanley Research was sourced
by employees of the Shanghai Representative Office of Morgan Stanley Asia
Limited for the use of Morgan Stanley Asia Limited.
Morgan Stanley Research is disseminated in Japan by Morgan
Stanley Japan Securities Co., Ltd.; in Hong Kong by Morgan Stanley Asia Limited
(which accepts responsibility for its contents); in Singapore by Morgan Stanley
Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley
Asia (Singapore) Securities Pte Ltd (Registration number 200008434H), regulated
by the Monetary Authority of Singapore, which accepts responsibility for its
contents; in Australia by Morgan Stanley Australia Limited A.B.N. 67 003 734
576, holder of Australian financial services licence No. 233742, which accepts responsibility
for its contents; in Korea by Morgan Stanley & Co International plc, Seoul
Branch; in India by Morgan Stanley India Company Private Limited; in Canada by
Morgan Stanley Canada Limited, which has approved of, and has agreed to take
responsibility for, the contents of Morgan Stanley Research in Canada; in
Germany by Morgan Stanley Bank AG, Frankfurt am Main, regulated by
Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan
Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the
Spanish Securities Markets Commission (CNMV) and states that Morgan Stanley
Research has been written and distributed in accordance with the rules of
conduct applicable to financial research as established under Spanish regulations;
in the United States by Morgan Stanley & Co. Incorporated, which accepts
responsibility for its contents. Morgan Stanley & Co. International plc,
authorized and regulated by Financial Services Authority, disseminates in the
UK research that it has prepared, and approves solely for the purposes of
section 21 of the Financial Services and Markets Act 2000, research which has
been prepared by any of its affiliates. Private U.K. investors should obtain
the advice of their Morgan Stanley & Co. International plc representative
about the investments concerned. In Australia, Morgan Stanley Research, and any
access to it, is intended only for "wholesale clients" within the
meaning of the Australian Corporations Act. RMB Morgan Stanley (Proprietary)
Limited is a member of the JSE Limited and regulated by the Financial Services
Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint
venture owned equally by Morgan Stanley International Holdings Inc. and RMB
Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand
Limited.
The information in Morgan Stanley Research is being
communicated by Morgan Stanley & Co. International plc (DIFC Branch),
regulated by the Dubai Financial Services Authority (the DFSA), and is directed
at wholesale customers only, as defined by the DFSA. This research will only be
made available to a wholesale customer who we are satisfied meets the
regulatory criteria to be a client.
The information in Morgan Stanley Research is being
communicated by Morgan Stanley & Co. International plc (QFC Branch),
regulated by the Qatar Financial Centre Regulatory Authority (the QFCRA), and
is directed at business customers and market counterparties only and is not
intended for Retail Customers as defined by the QFCRA.
As required by the Capital Markets Board of Turkey,
investment information, comments and recommendations stated here, are not
within the scope of investment advisory activity. Investment advisory service
is provided in accordance with a contract of engagement on investment advisory
concluded between brokerage houses, portfolio management companies, non-deposit
banks and clients. Comments and recommendations stated here rely on the
individual opinions of the ones providing these comments and recommendations.
These opinions may not fit to your financial status, risk and return
preferences. For this reason, to make an investment decision by relying solely
to this information stated here may not bring about outcomes that fit your
expectations.
The trademarks and service marks contained in Morgan
Stanley Research are the property of their respective owners. Third-party data
providers make no warranties or representations of any kind relating to the
accuracy, completeness, or timeliness of the data they provide and shall not
have liability for any damages of any kind relating to such data. The Global
Industry Classification Standard ("GICS") was developed by and is the
exclusive property of MSCI and S&P.
Morgan Stanley has based its projections, opinions,
forecasts and trading strategies regarding the MSCI Country Index Series solely
on publicly available information. MSCI has not reviewed, approved or endorsed
the projections, opinions, forecasts and trading strategies contained herein.
Morgan Stanley has no influence on or control over MSCI's index compilation
decisions.
Morgan Stanley Research, or any portion hereof may not be
reprinted, sold or redistributed without the written consent of Morgan Stanley.
Morgan Stanley Research is disseminated and available primarily
electronically, and, in some cases, in printed form.
Additional information on recommended
securities/instruments is available on request.
IMPORTANT LEGAL NOTICE
This document is copyrighted by Morgan Stanley and is
intended solely for the use of the Morgan Stanley client, individual, or entity
to which it is addressed. This document may not be reproduced in any manner or
re-distributed by any means to any person outside of the recipient's
organization without the express consent of Morgan Stanley. By accepting this
document you agree to be bound by the foregoing limitations.
This is not an offer to buy or sell or the solicitation of
an offer to buy or sell any security/instrument or to participate in any
particular trading strategy. Morgan Stanley may advise the issuers mentioned
herein or deal as a principal in or own or act as a market maker for
securities/instruments mentioned herein. The research and other information
provided herein speaks only as of its date. We have not undertaken, and will
not undertake, any duty to update the research or information or otherwise
advise you of changes in the research or information. This email message and
any attachments are being sent by Morgan Stanley and may be confidential. If
you are not the intended recipient, please notify the sender immediately by
email an delete all copies of this message and any attachments.
This communication is intended for the addressee(s) and may contain confidential information. We do not waive confidentiality by mistransmission. If you have received this communication in error, any use, dissemination, printing or copying is strictly prohibited; please destroy all electronic and paper copies and notify the sender immediately. We are required by applicable rules to advise you that we may own or act as market maker for securities/instruments mentioned or may advise the issuers; and that past performance is not indicative of future returns. We may monitor and store emails to the extent permitted by applicable law.
