Nomura China

Multi-Strategy | A S I A
ASIAN BANK REFLECTIONS: VOLUME 4

NOMURA INTERNATIONAL (HK) LIMITED
Paul Schulte +852 2252 1409 paul.schulte@nomura.com

Nomura Asia Financials Research Team NEW
THEME
R E P O R T
A N C H O R
Enter the ‘S’ curve: Bank picks

Savers become consumers Name Ticker Rating Price
Stan Chart STAN LN BUY £13.96
The few banks in the West that can lend do not want to lend in the West because of CCB 939 HK BUY HK$5.85
unsafe collateral values. So they are diverting their balance sheets to under-leveraged BoC 3988 HK BUY HK$3.77
emerging markets with defensive collateral values, specifically in Asia. ICBC 1398 HK BUY HK$5.29
UOB UOB SP BUY S$16.7
At the same time, China is going through a phase of development (the $6,000 PNB PNB IN BUY INR682.5
GDP/capita S-curve) whose hallmarks are powerful surges of credit and stock market BoC HK 2388 HK BUY HK$15.5
capitalisation. (Indonesia and India are right behind.) Note: Pricing as of 31 Aug 09
It enters this growth phase with the largest absolute pool of household savings ($3tn)
Strategist
and the largest savings/GDP (55%) ever recorded in the post-War period.
Paul Schulte
The global credit crisis is providing a backdrop of non-inflationary price trends. This +852 2252 1409
removes a core problem for countries during this period: high inflation. paul.schulte@nomura.com
In this phase, China has a loan/deposit ratio of 67% and a leverage ratio of 17x – both
Analysts
of which are among the lowest in the world.
Mixo Das
Sectors which are likely to thrive during this period are banks, broker-dealers, hotels, +852 2252 1424
retail, protein producers, health care and clothing. Laggards are phones, oils and coal. mixo.das@nomura.com
The risk is neither inflation nor excess lending. Leverage levels are near all-time lows. Sayan Datta (Associate)
The real risk is a lack of renewal and preservation of air, soil, river and sea resources +852 2252 1412
from overuse. Massive investment is urgently needed to deal with contamination from sayan.datta@nomura.com
toxic nitrogen, sulfur and carbon compounds.
And the Regional Financials Team
On August 10, we advised investors to take profit on A shares, in particular the banks.
This report offers a fresh perspective on the market as it finishes its consolidation.
Any authors named on this report are strategists unless otherwise indicated.
See the important disclosures and analyst certifications on pages 85 to 88.
Nomura 3 September 2009

Multi-Strategy | A S I A
ASIAN BANK REFLECTIONS: VOLUME 4
NOMURA INTERNATIONAL (HK) LIMITED
Paul Schulte +852 2252 1409 paul.schulte@nomura.com

Nomura Asia Financials Research Team NEW
THEME
Our View Bank picks

Every country was or is an emerging market. We went back to see how these Name Ticker Rating Price
countries behaved and conclude that they have similar patterns. China is at $6,000 Stan Chart STAN LN BUY £13.96
GDP/capita and is entering a high growth phase. The biggest difference is its CCB 939 HK BUY HK$5.85
mammoth savings, which are double other GEMS savings at the same point of time. BoC 3988 HK BUY HK$3.77
ICBC 1398 HK BUY HK$5.29
Anchor themes UOB UOB SP BUY S$16.7
For China to achieve the same level of per-capita GDP as Thailand, we should PNB PNB IN BUY INR682.5
expect an average of US$3bn per day in new credit for the next five years. Protein BoC HK 2388 HK BUY HK$15.5
demand will result in an increase of 19mn pounds of meat consumption per day. Note: Pricing as of 31 Aug 09
Health and environmental damage present a drag of more 10% of GDP per year. We add BoC HK to our bank picks.
A very substantial commitment of tens of billions of US dollars should reduce the
damaging effects of high growth.
Enter the ‘S’ curve: Strategist

Paul Schulte
Savers become consumers +852 2252 1409
paul.schulte@nomura.com
We put China alongside 23 countries which already have or are currently going
through the $6,000 GDP per capita phase of development. On average, China’s
Analysts
current high growth levels are mostly ‘normal’, despite very high absolute numbers.
Mixo Das
If China grows anything like past and present emerging markets in this $6,000- +852 2252 1424
$9,000 GDP/capita corridor, we believe we should see average increases of mixo.das@nomura.com
consumption PER DAY of the following: 1) $3bn in credit, 2) $1.4bn in market cap.,
3) $116mn in hotel spending, 4) $65mn in health care, 5) $105mn in retail spending, Sayan Datta (Associate)
6) 19mn lbs of meat, 7) 62bn gallons of water for meat production alone, 8) 188mn +852 2252 1412
lbs of plants for cattle, 9) 90,000 tonnes of steel and 10) 30,000 tonnes of cereal. sayan.datta@nomura.com
We believe that underleveraged Hong Kong will be a major beneficiary of this high Mahrukh Adajania
growth in services. The fastest-growing sectors going forward are likely to be all in +91 22 6785 5704
services, including financials, hotels, clothing retail and health care. Despite these mahrukh.adajania@nomura.com
large increases, China only gets to per-capita levels of consumption seen in
Colombia or Thailand. Anand Pathmakanthan, CFA
+65 6433 6986
China’s service sector will likely grow at the expense of trade. Consumption will
anand.pathmakanthan@nomura.com
grow as net exports fall. (The flip-side is that the US will do the opposite).
Investment/GDP should taper off. The make-up of the stock market will change a lot. Srikanth Vadlamaniu
All this growth is, indeed, possible. But it comes with an ever-rising price tag – +65 6433 6957
unsustainable demands on land, water and air resources, as well as high emissions srikanth.vadlamani@nomura.com
of carbon, sulfur and nitrogen compounds. In our view, China should create a multi-
Grace Wu
billion dollar environmental super-fund, couching it in terms of national security.
+852 2252 1565
Otherwise, it will jeopardize its much-desired wealth trajectory.
grace.wu@nomura.com
If nothing is done to preserve and renew air, water, land and public health resources,
however, the long-term consequences are very dangerous. The pressure on May Yan
commodities will be enormous. Let’s not forget: India and Indonesia are right behind. +852 2252 6190
may.yan@nomura.com
Also inside:
Our banks universe in Appendix I, Global Signals for Equities in Appendix IV.
G3 Sovereign Bullish GEMS Sovereign Bullish TED spread Bullish
US HY credits Bullish Asia ex-Japan IG Bullish VIX Neutral
US IG credits Bullish GEMS Currencies Bullish TIPS Alert-falling
Nomura 1 3 September 2009

Multi-Strategy | Asia Paul Schulte
The Good News

"[There is] a rarely discussed consequence of the aspirations of China's people, and
other developing countries to a First World lifestyle. This might mean acquiring a
house, appliances, utensils, clothes, consumer products. And it also means access to
doctors and dentists educated at much expense; eating abundant food grown at high
production rates with synthetic fertilizers; eating industrially processed food; and
travelling by car instead of bike or on foot. And, China will not tolerate being told not to
aspire to First World levels.
China has the largest population in the world and its economy is growing the fastest. If
China's per capita consumption rates rise to First World levels, and even if nothing
else about the world changes, (then) China's achievement of First World standards will
approximately double the world's human resource use and environmental impact. But
it is doubtful whether even the world's current human resource use and impact can be
sustained. “
The Bad News

“Marring the superlative achievements of China are the environmental problems,
among the most severe of any major country. The long list ranges from air pollution,
biodiversity losses, cropland losses, desertification, disappearing wetlands, grassland
degradation, invasive species, overgrazing, river flow cessation, salinization, soil
erosion, trash accumulation, and water pollution and shortages.
Like the rest of the world, China is lurching between accelerating environmental
damage and accelerating environmental protection. These lurches involve more
momentum than those of any other country … China may conclude that its interests
require environmental policies as bold, and as effectively carried out, as its family
planning policies.“
“Something has to give."
Jared Diamond, Collapse: How Societies Choose to Fail or Survive, PP 359-377.

(Pulitzer Prize winner)

Contents
‘S’ Curve Portfolio 4
Looking Ahead 5
I. How much can China grow? 8
II. Defining the ‘S’ curve 11
III. Comparing China with other countries 12
IV: Comparing the Chinese Financial Sector to the Rest of the World 15
V. China and the Rest of the World 21
VI. The birth of the services sector 23
VII. Power 25
Appendix I: Valuation comparisons 29
Appendix II: Time frame for data 31
Appendix III: Data by Category 32
Appendix IV: Global signals for equities 79
Appendix V: Portfolios 82

Portfolio
‘S’ Curve Portfolio
Exhibit 1. ‘S’ Curve Portfolio

CCB 939 HK BOC HK 2388 HK
7 18
BoC HK
China Construction Bank CCB
BOC Hong Kong (Holdings) 16
6
Corporation provides a complete Limited provides a comprehensive 14
range of banking services and 5

range of financial products and 12
other financial services to 4

services to retail and corporate 10
individual and corporate 3 customers. Its products include 8
customers. The bank's services 2 retail banking, corporate banking, 6
4
include retail banking, international 1 and treasury services. The
2
settlement, project finance, and 0
Company operates its branches in 0
credit card services. Oct-08 Jan-09 Apr-09 Jul-09 Hong Kong and China. Oct-08 Jan-09 Apr-09 Jul-09
HK & Shanghai Hotels 45 HK 10 HK&Shanghai Hotels Jin Jiang 2006 HK

9 3
Jin Jiang
8
Shanghai Jin Jiang International 2.5
The Hong Kong and Shanghai 6
7
Hotels (Group) Company Ltd. 2
Hotels, Limited, through its 5 owns and operates hotels.
subsidiaries, operates and 4 1.5
manages hotels, food, beverage 3

1
2
outlets, and clubs. The Company 1
also invests in properties. 0
0.5
Oct-08 Jan-09 Apr-09 Jul-09

0
Hang Lung 101 HK 30 Hang Lung Li Ning 2331 HK 30 Li Ning

25
Hang Lung Properties Limited, Li Ning Company Limited 25
20
through its subsidiaries, invests in, researches, designs, 20
develops and manages properties. 15 manufactures, distributes, and

15
The company also manages 10 retails sports footwear, apparel
parking lots. and accessories for sport and 10
5
leisure use. 5
0
Oct-08 Jan-09 Apr-09 Jul-09 0
Mindray MR US 40
M indray Beijing Ent. Water 371 HK
35 2 Beijing Ent. Water
Mindray Medical International 30 Beijing Enterprises Water Group 1.8

1.6
Limited develops, manufactures, 25 Limited, through its subsidiaries, 1.4
and markets medical devices. The 20 trades computer-related products. 1.2
company offers patient monitoring 15 The company also trades mobile 1
devices, diagnostic laboratory 10 phones and in-door telephones. 0.8
instruments, and ultrasound 5 The company is targeting 0.6

0.4
imaging systems. 0
investment in and development of 0.2
water treatment and environment 0
business. Oct-08 Jan-09 Apr-09 Jul-09
China Everbright 257 HK 3.5

China Everbright Int. Shun Tak 242 HK 7 Shun Tak
3 6
China Everbright International 2.5 Shun Tak Holdings Limited, 5
Limited provides environmental 2
through its subsidiaries, develops,
4
protection project management 1.5
invests and manages properties.
and consultancy services. The The company also provides 3
1
company's operations are broken shipping and related services. 2
into environmental energy, water, 0.5

In addition, Shun Tak operates 1
construction and technology. 0

hotels and invests in securities. 0
Netease NTES US 50 Netease China Agri 606 HK 7 China Agri

45
6
40
NetEase.com Inc. provides an China Agri-Industries Holdings 5
35
Internet community for Chinese 30
Ltd. produces biofuel and
4
users. The company's Web site 25 biochemical. The company also
offers email, online auctions, online 20 processes oilseed and wheat, and 3
chat rooms, personalized Web 15

produces malt used for beer 2
10
sites, instant messaging, Web 5
brewage. 1
hosting, and e-commerce services. 0 0

Oct-08 Jan-09 Apr-09 Jul-09 Oct-08 Jan-09 Apr-09 Jul-09
Source: Bloomberg, Nomura research

Executive Summary
Looking Ahead
China is behaving like an ‘average’ emerging market at $6,000 per
capita GDP. (However, it is about 20 times larger than any other
emerging market previously known)
S-curves measure change or growth over time. Science uses it for research in S curves measure change or
embryos, viruses, productivity and economics. The development of emerging markets growth over time; our 23
to mature markets typically goes like clockwork and is a classic ‘S’ curve. They really countries ranged from $6,000
GDP/capita to $35,000 GDP/capita;
are not that different. The major phenomenon is a surge of growth at around the
the fastest growth period is
$6,000 to $9,000 GDP per-capita range (a sideways ‘S’) followed by a tailing off of $6,000-9,000 per capita; China is
growth in the $10,000 and above per capita level. There is a period of catch-up and there now
then another surge. The period of growth from $6,000 to $9,000 per-capita GDP is
arguably the fastest growing period in a country’s development. China entered this
phase in the past 12 months.
To help quantify what happens during this phase, we went back and examined 23 We also performed the same
countries (ones that are now developed but were emerging markets in 1960s, 1970s exercise for 20 sectors
and 1980s and ones that are currently emerging). We examined several thousand
national data points from the late 1960s to now. We did the same for 20 sectors in the
same time period. These economies faced many perils as they moved from emerging
to developed status: inflation, deflation, export slowdowns, stagflation, recession and
boom times. They are large and small – domestic and export-oriented. The uncanny
conclusion is that there is a clear and undeniable pattern to development. If we place
these developments next to those of China, we can ‘triangulate’ to see if China is
growing too fast – or too slow?
The conclusion we draw is that China is actually growing at a ‘normal’ rate – the issue China shows mostly normal
is that this is a country which is growing at a ‘normal’ rate for a young emerging market. ‘symptoms’ of an emerging
market at the $6,000 GDP/capita
It is just that it is about 20 times larger that the ‘normal’ emerging market. If the past is
range
anything to go on, we should expect this growth rate to stay high – and very likely
accelerate.
We say accelerate because while China is very similar to other countries in terms of Economies seem to ‘come
the pace of growth, it is very different in a few areas. The most stark and profound together’ at the $6,000 GDP/capita
level; it is a consumer and
difference is its savings rate. Young countries are savers – there is uncertainty, limited
services take-off
wealth, no social security net and little credit. In other words, there is no ‘nouveau
riche’ who spend like crazy. At a certain point, however, many things coalesce to
produce a consumer boom – something which is happening in China right now. This
consumer boom happens after a long boom in infrastructure (this arguably happened
in the past 12-14 years in China).
The sheer size of China’s savings, however, is astonishing. While the average savings Young emerging markets all have
rate of emerging markets globally at the $6,000 per capital level is very high at 25%, high savings rates, but China’s is
China’s is at 55%. Average deposits for emerging market countries at that level are the highest on record times two
$2,800 per capita, while China’s is at $4,700 per capita. China currently has one of the
lowest loan/deposit ratios in the world – even after the recent boom in credit.
Given this large pool of savings, we believe that China can endure a multi-year surge With exceptionally high savings,
of credit (we think it will be in excess of $4tn) in what is currently a non-inflationary the loan/deposit ratio can stay
under 1 for a multi-year period as
environment and still end up with among the lowest loan/deposit ratios in the world.
credit grows
(We remind investors of our major theme – as Western leverage falls, Asian leverage
rises). As Western leverage falls, this puts more pressure on the healthy banks that
are still on their feet to lend to places such as China without any leverage (and,
therefore, secure collateral values).
Exhibit 2 shows the difference when it comes to savings and leverage; as the West
consumes less and saves more, China will (and must) spend more and save less.

The quick summary table in Exhibit 2 highlights the only real differences between
China and other emerging countries before it. We want to illustrate that China’s level of
savings is the highest seen in the post-war era and could produce an unprecedented
consumer boom – IF IT WANTS THIS. Our conclusion is that it clearly wants to and,
therefore, will.
Exhibit 2. China is similar to emerging countries before it, except that it

saves more and invests more
Savings Deposits Investment Consumption Services
% of GDP per capita % of GDP % of GDP % of GDP
China at $6000 54% $4,700 40% 35% 40%
World at $6000 25% $2,800 28% 58% 55%
China current trend FALLS FALLS FALLS TAKES OFF TAKES OFF
West current trend RISES RISES RISES FALLS FALLS

Source: Nomura research
On the sectoral front, China’s development, on average, is quite in line with other
emerging markets at this $6,000 take-off stage. (Of course, we are mindful of the
adage that, on average, you do not need a raincoat in Buffalo, New York). So, we want
to highlight the few industries which showed the greatest expansion in our study.
There are five industries which consistently show the greatest amount of growth during The big surprises of our study
this take-off stage. These are hotels, credit, health care, clothing and retail. In Exhibit 1, were the fast growth of health
we highlight a portfolio of our favourite stocks in these sectors (and others discussed care, hotels and clothing
further into this report).
The fastest growing parts of the economy going forward should be services, in our The service sector will be the
view. And China is coming from a very low contribution of services to overall GDP. We fastest growing part of the
Chinese economy for the next 5
would include leisure activities, such as vacations, gambling, second homes, golf and
years
recreation. This just happens. As one famous economist put it: “Economies go
because they are ‘a-goin’. They gather momentum as success builds on success.”
This is China. Western companies that can provide China with leisure activities,
medical and dental services and fashionable retail will also be winners, in our view.
There are other industries, however, which look as if they might be saturated in China Phones, TVs, motorcycles
if we look at the per-capita ownership of goods. These include telephones, exhibiting signs of saturation
motorcycles and TVs. Bringing more TVs, motorcycles or phones to China is ‘bringing
coal to Newcastle’. Speaking of coal, China is also using much higher per-capita levels
of coal than other emerging markets in this same stage of development.
The trends discussed above are all on the upside (which increase during this phase). Trends of past and current GEMS
There are also some definite trends which are to the downside: show a rise in consumption and a
fall in investment at this $6,000 to
1) Savings rates go down during this period of time, typically by 3%, as people $9,000 GDP/capita stage
discover credit, mortgages, lay-away plans and the consumer-led joys of new
money.
2) Investment as a percent of GDP goes down, typically by about three

percentage points. The infrastructure build-out is finishing up (roads, highways,
airports, sewerage, etc).
3) Inflation has a tendency to go down after a rise during the initial $4,000 to
$7,000 per capita surge. It tends to fall by about 25% into the $9,000 per capita
level.

There is one vital caveat. We start and end this research with the all-important issue of The one main risk to an otherwise
environmental sustainability. China is going through an emerging markets growth inevitable trend of powerful
growth is an inability or
phase similar to Japan in the late 1970s. The problem is that China’s absolute starting
unwillingness of the government
level of output is equal to Japan NOW. This means that it is entirely conceivable for to tackle air, river, sea and land
China to produce the equivalent of yet another Japan by 2014. This has profound contamination
implications for environmental sustainability. We highlight a litany of well-flagged
problems which confront China. Jared Diamond has written compellingly on this in his
Pulitzer Prize-winning book called Collapse: How Countries Choose to Fail or Survive.
The business of environment will be the number-one way in which the West can help
China develop. This is really the exciting industry for investors and Western countries –
making China’s growth sustainable. We also include Asian counters that are prominent
in this business in our portfolio.
Exhibit 3. Executive summary: If the PRC is anything like 23 other emerging market during the $6,000 to
$9,000 per capita phase, below shows how much change we should see by industry (2009-13)
Category Increase Comment
Financials
Credit(US$) 5.5 tn CAGR of 14%;among the highest CAGR for any item
Deposits(US$) 5.2 tn 11% CAGR
Market cap(US$) 2.6 tn Market cap (%GDP) should reach 100%
Consumer
TVs .2 bn Surprisingly unexciting;TV/capita already high

Spending on hotels(US$) 211.0 bn Highest CAGR
Spending on clothing(US$) 99.6 bn Very high CAGR
Spending on retail(US$) 192.0 bn CAGR of 7.5%
Spending on health(US$) 123.0 bn CAGR of 13%;among the highest CAGR for any item
Utilities
Electricity(KWH) .8 tn CAGR of about 4%

Natural gas(tonnes oil equivalent) 38.0 mn CAGR of about 8%
Telephones 146.0 mn 5.8% CAGR;surprisingly unexciting category
Transport
Cars 16.0 mn Around 5.5% CAGR same as Singapore

Motorcycles 32.6 mn 3.5% CAGR;lower than expected
Food and water
Meat(kg) 15.7 bn Increase of 35 bn lbs of meat

Cereals(tonnes) 63.3 mn Probably conservative estimate
Water for meat (gallons)* 114.0 tn Demand for protein creates huge strain on water
Plants for meat (lbs)* .4 tn 400 bn lbs of plants to be consumed by cattle is a lot of manure
Industrials
Oil(barrels) .7 bn Increase of about 150 mn barrels of oil per year

Steel(tonnes) 161.0 mn More than 150 mn tons increase after 5 years
Coal(tonnes oil equivalent) .2 bn Increase of 40 mn tons a year
Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, Food and Agriculture Organization (FAO), British Petroleum website (BP), World Steel Association
(WSA), International Monetary Fund (IMF), Nomura research

China on the S-Curve
I. How much can China grow?

We measure China against 23 other previous and current emerging
markets in the same phase of growth
Trying to understand just how big China is – and just how much it has grown and can We try to estimate China’s growth
still grow – can seem incomprehensible and futile. We liken it to reading a book on path from here by comparing it to
23 other countries that have gone
astronomy. We read about distant galaxies where stars blow up and leave black holes
through this same phase
which are the same size as our solar system. We read about other stars which, when
they finally “burn out", create an explosion which lasts 10,000 years and leaves
gaseous nebulae which are, literally, trillions of miles long.
So, we thought it would be a good idea to do what the astronomers do when they try to
figure out just how big things are and how where in the life cycle they are. They
measure how big a thing is by triangulating. They know how big a star is by measuring
it against something else. Then they measure how much energy comes from a star
and compare that to ones which are smaller and/or closer. That is what we do here
with China.
We have placed China's growth trajectory next to the growth trajectory of 23 other
countries which have been exactly where China is now. In other words, all countries in
the OECD were once emerging markets with $6,000 per capita GDP on a purchasing
power parity (PPP)-adjusted basis. And emerging markets have very similar
characteristics – just as stars near and far have similar characteristics. In that way, we
can see how big China is (or actually how small it is AND how young it is) relative to
the experience of other advanced and emerging markets.
The interesting thing is that countries – like stars or people – have life cycles. We use This $6,000 to $9,000 per capita
the ‘S’ curve to describe a life cycle. The ‘S’ curve is a nice way to explain the early GDP phase is the period of the
part of the life cycle. It measures performance or development over time. In the highest growth; China is there
now
economic sense, it shows that the early part of a country’s development will tend to
have a very steep slope (a big surge of consumption relative to shifts in income) if we
look at per capita income (from $6,000 to $9,000) and measure consumption. This will
subsequently level off. This is the classic reason why investors love emerging markets.
This is the point in a country's life cycle when it is growing the fastest and when
consumption is also growing the fastest. It is, incidentally, the point where market
capitalization as a percentage of GDP grows the quickest and tends to reach an
average peak of 100% before levelling off. This is the secular bull market phase. This
is intuitively easy to understand. When a young economy reaches a certain size, more
people have better jobs and begin to save more but without any credit.
At some point, however, the stars align enough and wealth accumulates. Good Good policies and stable prices
policies, good products and low wages are usually the cause. And people get credit are the simple ingredients for a
cards, mortgages, lay-away plans. Men buy new Levi’s at the same time as they buy a take-off phase
motorcycle. Women buy new furniture at the same time they buy new and more
expensive dresses, make-up or shoes. At this time, people get fillings filled and can
visit a doctor regularly for the first time. And so on. Durables rise, and so do retail and
services.
So, we took a look at China's development now and placed it against the development China really does walk and talk
of other countries in a similar point in their histories. When we place China's per like a $6,000 GDP/capita country
capita consumption of various items, we can draw one important conclusion. The per
capita GDP of China as calculated by the World Bank, IMF and CIA is about $6,000
per capita on a PPP-adjusted basis. We placed where China is now against other
countries in similar phases of their development and, in most cases, China is behaving
exactly like a country with per-capita GDP of about $6,000.

Exhibit 4. China summary: How much will China grow if it is like the 23 other emerging markets?
2008 2013
Population(mn) 1328 1395
GDP/capita(US$) 6012 9088
Evolution of Consumption by Category
Per capita Per capita

(2008) Total (2008) (2013) Total (2013) Increase Increase / day
Financials
Credit(US$) 3860 5.1 tn 7600 10.6 tn 5.5 tn 3.0 bn
Deposits(US$) 5045 6.7 tn 8500 11.9 tn 5.2 tn 2.8 bn
Market cap(US$) 74(%GDP) 85(%GDP) 2.6 tn 1.4 bn
Currency (CNY/US$) 6.9 6.6 4%
Inflation(%) 6.0 4.5 -25%
Consumer
TV s per 100 41 0.5 bn 51 0.7 bn 0.2 bn 90000
Spending on hotels(US$) 122 162 bn 268 373 bn 211 bn 116 mn
Spending on clothing(US$) 91 121 bn 158 220 bn 99.6 bn 54 mn
Spending on retail(US$) 290 385 bn 414 578 bn 192 bn 105 mn
Spending on health(US$) 96 124 bn 177 247bn 123 bn 65 mn
Utilities
Electricity(KWH) 2405 3.2 tn 2888 4.0 tn .8 tn 457 mn
Natural gas per 100(tonnes oil equivalent) 5.5 73 mn 8.0 111 mn 38 mn 21000
Telephones per 100 29.0 384 mn 38.0 530 mn 146 mn 80000
Transport
Cars per 100 3.0 39.8 mn 4.0 55.8 mn 16.0 mn 10000
Motorcycles per 100 7.0 92.9 mn 9 126 mn 32.6 mn 20000
Food and water

Meat(kg) 67.0 89 bn 75.0 105 bn 15.7 bn 8.6 mn
Cereals(tonnes) 0.3 425 mn 0.4 488 mn 63.3 mn 30000
Water for meat (gallons)* 486420 646 tn 544500 760 tn 114 tn 62 bn
Plants for meat (lbs)* 1474 1.9 tn 1650 2.3 tn .4 tn 188 mn
Industrials
Oil(barrels)* 2.1 2.8 bn 2.6 3.5 bn .7 bn 40000
Steel(tonnes) 0.3 438 mn 0.4 599 mn 161 mn 90000
Coal(tonnes oil equivalent) 1.1 1.4 bn 1.2 1.6 bn .2 bn 130000
Note: Assumptions for Exhibit 2: 1% annual growth for China population, 9% CAGR for China GDP/capita (Source: IMF), 1 kg = 2.2 lb, 3300 gallons of water = 1 lb of
meat (Source: UCLA), 10 lb of plant =1 lb of meat (Source: Jared Diamond, Collapse: How Societies Choose to Fail or Survive), 7.5 barrels = 1tonne of oil
Growth rate in per capita figures for all categories (China) is based on a study of 23 countries moving from GDP/capita 6K US$ to 10K US$. Data has been collected
for these countries over a time period of last 40 years. Details are provided in page xxx.
Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, IMF, Nomura research
Exhibit 4 is the result of months of picking around to find the most reliable data we Exhibit 4 shows our findings. A
could muster. It meant looking through dozens of central bank data series, national similar growth path would see
accounts, Internet surfing and lots of questions. We asked ourselves where we are China expand the services sector
significantly
with regard to China’s latest full-year data. Next, we aggregated the data for all of the
23 countries in our study and looked at the development in consumption of 20 items
over the time period when these countries were in the same take-off phase as China.
Then we aggregated these data and got an average of, say, trends in oil consumption
for all 23 countries during the time when these 23 countries were going through their
$6,000 to $9,000 per capita phase of development, i.e. what China should experience
over the next few years. After we got the CAGR of oil consumption for each country,
we then arrived at an average CAGR which we think is a fair representation of the
behaviour of an emerging market prior to reaching the $9,000 per capita GDP level.

Then we used the CAGR for each of these groups and applied it to China between The five most explosive sectors
now and 2013. Incidentally, we feel quite confident that these numbers are, if anything, are hotels, credit, health, clothing
and retail
on the lower side. THE AVERAGE CAGR FOR ALL COUNTRIES FOR ALL
PRODUCTS DURING THIS PERIOD OF TIME IS ABOUT 7%. We have a starting
point and we have an end point. We use the growth rate of historical emerging market
experience of both (now) developed and (current) emerging markets. In fact, we think
the numbers are quite robust because they represent countries which have gone
through good times and bad times, i.e. boom times in the 1990s, inflation in the 1970s,
market crashes in the late 1990s, and the stable 1980s.
Exhibit 5. Top five fastest growing industries for GEMS in the US$6K-9K
GDP/capita corridor and how much per day China will likely spend
Industry CAGR US$/day
Hotels 17% 116 mln
Credit 14% 3 bln
Health 13% 65 mln
Clothing 12% 54 mln
Retail 8% 105 mln
The end product shows just how much change should occur if China is anything like Our favourite stock picks for the
the many emerging markets which have gone before it. The changes are all stark. We ‘S’ curve portfolio come from
these sectors
want to add, however, that the net changes by industry will only get China to a level of
wealth (about $9,500 per capita GDP) equivalent to Colombia, Thailand or Romania.
This still leaves China squarely in the GEMS camp. We see, for instance, that we
should expect the following between now and about 2013:
1) Credit in China should increase by more than $5tn. This should still leave the
country with a loan/deposit ratio under 100%. This is equivalent to about $3bn in
loans per day for the next several years.
2) Deposits should also grow by $5tn, i.e. at a CAGR of 11%.
3) The biggest surprise of our study was the consistent phenomenon of very high
increases in health care and hotel spending. This is followed by retail. The CAGR
of hotel spending was 17% – the highest of any industry we examined. The
second highest was credit. Health care was third.
4) We were surprised to see that when phones per capita were placed next to the
average phones per capita of countries in the same growth phase, China was way
above. This would suggest some degree of phone saturation. The same is true for
motorcycles.
5) The staggering numbers come in food. China is right on the average line for the Staggering but true: one pound of
other 23 markets we examined. We all know the drill when it comes to creating one beef requires 15,000 litres of
pound of meat. This has been catalogued exhaustively. One pound of meat requires water and at least 10 pounds of
plants
15,000 litres of water and 10 pounds of plant life for cattle to be brought to maturity
and slaughtered. Here is where the numbers become frightening and where the
warnings of Jared Diamond need to be heard. If China’s per capita meat
consumption grows anything like other emerging markets, daily meat consumption
will be 8.6mn kilograms. The daily water requirement from this will be 62bn gallons.
And the amount of plant life will be 188mn pounds. That leads to a lot of manure –
another issue which has consequences for water runoff to streams, rivers and
oceans. We are very certain these numbers are on the conservative side.
Let’s explore further and quantify where China is and how far it can go by using a
virtual tour of charts.

II. Defining the ‘S’ curve

Very large increases in consumption as per capita GDP moves from
$6,000 to $9,000
Exhibit 6. A Typical ‘S’ curve: NICs average credit (y-axis) vs GDP per
capita (x-axis) (US$ 1979-1993) (HK, Korea, Singapore, Taiwan)
9800
7800
5800
3800
1800
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: UN data, Nomura research
We have incorporated several thousand data points for 23 countries and for 20 The ‘S’ curve defines the growth
categories. These countries range from Singapore to Brazil – from the US as an path for consumption of just
about anything as GDP per capita
emerging market in the 1960s to Thailand today. The categories we chose range from
increases
clothing and bank loans to health care and hotel rooms. The ‘S’ curve for all of these
groups has a very strong tendency to show a sharp acceleration between $6,000 and
$9,000 per capita GDP.
We never use statistics which show up results that defy logic or common sense. But
this trend clearly reflects common sense: $4,000 to $6,000 per capita GDP and a
savings rate of 25% for a population of 40mn people (GDP of $200bn) will create a
critical mass of funds to bring about the creation of a banking system capable of
funding an infrastructure build out. If savings are an average of 25%, then the savings
pool would be $50bn. Investment/GDP will be very high at about 35%, or $70bn.
These are the numbers one needs to create meaningful infrastructure. (A metropolitan
mass transit system, for instance, is about $5bn alone, on our estimates).
After that period of fulfilling basic infrastructure needs, life gets more expansive. This $6,000 to $9,000 phase sees
People can get to work quickly on public transit. They have savings which is about an evolution from an investment-
25% of income (too much!). So, they begin to buy luxury items, Levi’s, make-up kits, driven economy to a
TVs and durables. They buy new fillings and get small medical problems looked after. consumption-driven economy as
more wealth security enables
They get credit cards and take small vacations in hotel rooms.
spending
So, Exhibit 6 for the newly industrialized countries (NICs) (when they were baby
emerging economies) is very much like what China is going through now. We must not
forget that these countries had very high credit growth during this period. The average
increase in credit creation was 150% from the $6,000 to the $9,000 level. Most of the
NICs got through this period in three to four years. In the case of Korea, it had an
annual growth rate of more than 30% during its take-off phase in 1987-1989.
Incidentally, the take-off for Korea in 1988 and China today both revolved around
hosting the Olympics.
Our point is simple: China is there right now! Let’s go through various countries, It is clear, therefore, that China’s
industries and then triangulate China’s position by comparing it to other ‘stars’ and see credit growth is quite in sync with
which industries are likely to be super-charged at this point in time and which ones its current phase of growth; there
is nothing unnatural about it!
actually may be surprisingly lacklustre. We want to make money for investors. The way
to make money is to be first to spot the trends and position for the future.

III. Comparing China with other countries

For details on categories, markets and time periods please refer to Appendix II.
Exhibit 7 shows the average evolution of consumption for all the categories in our China’s growth is not unnatural; it
study across all 23 countries put together. So, this is our ‘S’ curve line – the change in is very much in line with other
consumption relative to the change in GDP. Put simply, this slope is very steep during economies in their past
this period and then tapers off after about $10,000 per capita. Starting from a small
number, the growth rate is enormous. Subsequently, however, another sofa will not fit.
And there are no more cavities left to fill. And one already has enough shoes.
When we place China on the chart (the blue dot) we see that as a country with a
$6,000 per-capita income, its current consumption fits nicely. People no longer focus
on buying make-up and Levi’s. They focus on their stock investments. Or they buy an
expensive pair of glasses or an expensive iPod.
If we look at Exhibit 8, we can see where China is now relative to where the US was
when the US was an emerging market in the 1960s and early 1970s. China is actually
a bit ahead in terms of consumption relative to where Americans were when they had
per-capita GDP of $6,000. So, we need to be careful about the Confucian savings
ethic stereotype. (We will see later that despite being a little ahead on consumption,
China’s savings are in a different league compared to any other country during its
take-off phase in the post-War world.)
Exhibit 7. Average consumption/capita across all Exhibit 8. Comparison between where China is now
17 consumption categories (1972 – now) and where the US was in consumption/capita
Average change in consumption across 17 categories in 23 170 USA average change in consumption across 17
markets betw een 1972 and 2008 (GDP/capita 5K US$ ==100) categories from 1972 to 1978.(GDP/capita 5K US$
190 ==100)
150
170
150 130
China
130
China 110
110
90
90
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita GDP per capita
Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA,
IMF, Nomura research IMF, Nomura research
Again, we want to place China near something else in order to see how large or small
it really is. This is the triangulation that astronomers do when they are trying to see
how big a star is. Exhibits 9 and 10 show the EU and the UK. Exhibit 9 more explicitly
shows the steepening slope of the ‘S’ curve. We can see that from about $5,500 to
$9,000, there was a sharply steepening slope. After that, it tends to have a pause. The
same is true for the UK in Exhibit 10.

Exhibit 9. Comparison between where China is Exhibit 10. Comparison between where China is
now and where the EU was in consumption/capita now and where the UK was in consumption/capita
EU average change in consumption across 16

190 UK average change in consumption across 16
categories from 1974 to 2004(GDP 5K/capita US$ 190 categories from 1976 to 1982(GDP 5K US$/capita
==100)
170 == 100)
170
150
150
130 130
China China
110 110
90 90
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Exhibit 11 shows the current crop of emerging markets. These include Brazil, Malaysia,
Thailand, Mexico and Chile. The recent history of emerging markets is very interesting.
These emerging markets which were in their take-off stage over the past 15 years
(from the late 1980s to 2007) show a wild ‘S’ curve. Between per-capita income levels
of $6,000 and $10,000, there is a change of more than 100% in consumption. We will
explore the many categories which go to making up this aggregated line later.
Exhibit 11. Comparison between where China is Exhibit 12. Comparison between where China is
now and where the EM were in consumption/capita now and where the NICs were in
consumption/capita
EM average change in consumption across 16 NICS average change in consumption across 17

categories from 1986 to 2008 (GDP/capita 5K US$ categories from 1980 to 1993 (GDP/capita 5K US$
330 ==100) ==100)
170
290
250 150
210
130
170 China
110
130 China
90 90
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000
Exhibit 12 shows the NICs when they were in their emerging market phase. The
results are similar. These markets are Singapore, Korea, Taiwan and Hong Kong.
Their period of tremendous growth ($6,000 to $9,000) was in the Ronald Reagan
years. Each of these economies has some eerily similar qualities to it. We say eerie
because the focus of industries, the population density and the export intensity among
and between them is very different. Yet they have grown in similar ways to that of the
Euro-zone and the US. This is remarkably similar to recent discoveries by astronomers
that stars in the galaxy (and other galaxies) are actually not very different from each
others in terms of size and life span – and that there are only about three or four
different types of stars.

Exhibit 13. Comparison between where China is Exhibit 14. China average consumption/capita
now and where the Japan was in consumption/ forecast based on the experience of past and
capita present GEMS
China average change in consumption across 17

180 Japan average change in consumption across 16
categories (GDP/capita 5K US$ ==100)
categories from 1976 to 1982 (GDP/capita 5K US$ ==100) 200
160
170
140
140
120 China
Current
110
100
80 80
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Lastly, we can look at Exhibit 13 and see Japan’s trajectory during its take-off period in
the period of 1976-77 to 1982. The economy was in a state of powerful growth. The
total growth in consumption during this phase was in the neighborhood of 70%.
The conclusion we draw from this section is that countries are actually pretty plain Life cycles of countries are very
vanilla. Their life cycles are remarkably similar whether they have large or small similar; this consumption growth
phase always occurs at this time
populations or whether they are export-oriented or domestically oriented. We also wish
to point out these similar trends have occurred irrespective of global slowdowns, long
bull markets, periods of high or low inflation.
Countries have a powerful start at $6,000 to 9,000 per capita GDP. Prior to this is a
very powerful surge in investment, high savings, low services, heavy manufacturing
and below-average government spending. At the $6,000 per capita GDP level, there is
a tremendous surge in credit, services, tourism, leisure and durables. They then slow
down for a bit.

IV: Comparing the Chinese Financial

Sector to the Rest of the World
Exhibit 15. Average market cap (%GDP) Exhibit 16. Average investments (% GDP)
120 Average market cap(%gdp) 50% Total average investments(%GDP)
China
100
40%
80
China
30%
60
20%
40 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000 GDP per capita
GDP per capita
Source: World Bank, Nomura research Source: economicwebinstitute.org, pwt.econ.upenn.edu, Nomura research
Here is where it gets interesting. As with other economic and industry phenomenon, China’s current stock market cap
the development of the financial sector has an uncanny pattern as well. Exhibit 15 as a percentage of GDP is right in
shows the trend in stock market capitalization over time as per capita GDP grows. The line with past and present GEMS –
a move to 100% would be normal
period of $6,000 GDP/capita to $9,000 GDP/capita has a strong tendency to see rising
stock market capitalization relative to GDP. China’s current stock market cap/GDP is
almost exactly where we would expect it to be given its current GDP/capita of $6,000.
We should expect China’s market cap to rise to about 90% of GDP if it behaves like
any other emerging market. We caution investors that our numbers are very much on
the conservative side. We have never seen a savings pool like China has today. And
we also need to mention that China’s savings pool (like all savings pools) is constantly
seeking returns. And young savings pools are more inclined to seek out risk compared
to older savings pools (Japan). Young savings pools are more tolerant of inflation and
risk. Older savings pools are intolerant of inflation and risk. So, policies will tend to
reflect this.
Our conclusion here is twofold: We make no apologies for our

optimism. This is what the current
1) There is a bottled up savings pool of about $3tn in household savings deposits
facts allow us to conclude
looking for returns in a country which has a closed capital account – a de facto non-
convertible currency. The world has never before seen a savings pool this large – this
pool of savings is over 50% of GDP. China needs to let the currency open up and it
needs to let the private sector create opportunities for returns on these savings. It is
entirely possible – we should expect given the facts – that China’s stock market cap/
GDP could easily exceed 100% of GDP in short order.
2) All this is happening during a time when inflation is currently NEGATIVE. So we Low global inflation is a powerful
would make the case that real interest rates are artificially high and need to come tailwind for China to ride the high
growth momentum that is normal
down. So, China is deploying credit and public debt in an environment of non-
and expected
inflationary growth. This is a global phenomenon – not a Chinese deflationary
phenomenon. So, this global disinflationary credit crisis is a ‘gift from the gods’. Other
emerging markets during this phase had one major problem: inflation. Inflation during
this period of growth has always been very high at about 10-12%. China should expect
higher inflation next year. It can put on the brakes then – not now.

Exhibit 16 also reinforces our optimism. China’s investment is about 40% of GDP. The
global average during this phase of development is also very high at about 30%. If we
take the NICs, though, the average investment/GDP at their $6,000 pre capita mark is
very high at 34%. So, this number should clearly come down. China’s infrastructure
build-out can bring about non-inflationary growth (increases in output not to be slowed
down by bad roads, ports, highways and shipping).
Exhibit 17. Average consumption (% GDP) Exhibit 18. Average services (% GDP)
70% Total average consumption(% GDP) 70 Average services(%GDP)
65
60%
60
55
50%
50
40%
45
China 40 China
30% 35
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: economicwebinstitute.org, pwt.econ.upenn.edu, Nomura research Source: World Bank, Nomura research
We have written much on the topic of shifts in consumption in China relative to the rest With deposits above average and
of the world. China’s consumption is currently about 35% of GDP. Of all the 23 credit below average, trends
countries we look at in this study, we did not come across one country in the past 50 suggest $4tn in credit with L/D <1
years which had as low a level of consumption as China. The same is true of services.
While sectoral trends between China and other GEMS in a similar trajectory of growth
are similar, the trends in consumption and savings are, shall we say, out of whack.
China’s services as a percentage of GDP are also unusually low. This is so low that
when we put China’s current level against other GEMS in a similar period of time, the
changes in the service sector (and they are BIG) are barely perceptible. During the
$6,000 to $9,000 per capita take-off phase, we have recorded changes in the service
sector’s contribution to GDP of 7-10 percentage points.
Exhibit 19. Average credit/capita (US$) Exhibit 20. Average deposit/capita (US$)
10000 Total average credit per capita Average deposit per capita
China
8000 4500
6000
2500
4000 China
2000 500
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
Source: UN data, Nomura research Source: UN data, Nomura research

Exhibit 21. Average savings (% GNI) Exhibit 22. Average annual inflation (%)
65% 14% Total average inflation %

Total average savings (%GNI)
55% 12%
China
45% 10%
35% 8%
China
25%
6%
15%
4%
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
Source: World Bank, Nomura research Source: World Bank, Nomura research
Exhibit 17 also shows a classic change in the ‘S’ curve. We have been very vocal
about this throughout 2009. Growth rates in credit for China as it goes through this per-
capita corridor are absolutely normal. In fact, many countries have had growth rates in
credit that exceed those of China during this similar phase of growth.
Furthermore, we want to increase the volume of the microphone here and reiterate Key point: China entering a hot
that China is entering a high-credit-growth phase of economic growth at a time when point of growth with super high
five very important developments are occurring - savings rate and low leverage.
1) Banks in the West that can lend (and there are very few) do not want to lend in the
West because of unsafe collateral values. So they are diverting their balance
sheets to emerging markets that are under-leveraged and have more secure
collateral values;
2) China is going through a phase of development which is traditionally one of the
strongest periods in a country’s growth for credit and for stock market growth.
3) China is entering this period of growth with one of the largest absolute pools of
household savings ever recorded (double the levels of the 23 countries we
examined, which is most of the world’s GDP) in the post-War period as well as the
largest savings/GDP ever recorded in the post-War period. (Exhibit 21)
4) The global credit crisis is providing a backdrop of non-inflationary price trends.

This is a vital link because the number-one problem traditionally for countries
during this period is high and sticky inflation which has tended to be 10-12%.
(Exhibit 22)
5) Lastly, we want to reiterate the starting point of this new growth phase. China has
a loan/deposit ratio which is one of the lowest in the world (Exhibit 23) – and it has
a leverage ratio which is also one of the lowest in the world.
The five points above are the core for our bull case for China. We also strongly feel
that ALL FIVE OF THESE CRITERIA apply to Hong Kong as well. To add to that,
Hong Kong has a currency board which forces it to receive US interest rates (which we
believe will remain lower for longer than many other observers believe). So, Hong
Kong is potentially similar to China, only with more liquidity!

Exhibit 23. China’s Loan/Deposit Ratio is the lowest in the world

160
Loan/Deposit 2H09
143
140
140
123
116
120
107
100
81 82 84
80 71
67
60
40
20
0
US
UK
China
Indonesia
Japan
India
Europe
Brazil
Korea
Australia
Exhibit 24. Avg. credit/capita for 23 nations(US$) Exhibit 25. USA credit per capita (US$)
10000 Total average credit per capita 10000 USA credit per capita
8000 8000
6000 6000
4000 4000 China

China
2000
2000
5000 6000 7000 8000 9000 10000 110
5000 6000 7000 8000 9000 10000 11000
To sum it up, we take a look at China’s current level of credit (on a PPP-adjusted basis) Exhibit 26 our best attempt to
and conclude that these levels should easily double over the next five years (Exhibit show how the world will change –
24). We would add that China’s loan/deposit ratio should still remain below 1 by the it is all about leverage
end of this phase.

Exhibit 26. It is all connected – as the US spends less, China will spend
more
9% Net Exports vs Consumption % GDP (1951-now )
China
7% Asia exJP
US
5%
3%
1%
-1%35% 45% 55% 65% 75% 85%
Consumption
Exports
Net
-3%
-5%
Source: CEIC, Nomura research
To square the circle, we can see that as consumption rises in China, exports as a Western banks held back by too
percent of GDP should fall. And the trade surplus should also fall. Inside the US, we little capital and too little savings;
see a banking system with: 1) insufficient capital and 2) insufficient savings. Therefore, Asia has the opposite problem –
equilibrium WILL be restored
the banking system is constrained in terms of offering new loans for credit cards,
mortgages, cars and durable goods financing. So, the US will consume less and
export more. And, the US banking system, because it is capital-constrained, will be
forced to put more riskless bonds (government debt) on its balance sheet.
We wish to reiterate that all this is related. And Exhibit 26 shows this. The only reasons With safe collateral and low
why the US was able to do what it did was because China did what it did. Now, that is leverage, China banks will grow
unusually fast as the world re-
changing. As China consumes more, its trade surplus will fall and it will be able to buy
balances
less US debt. As the US consumes less, its trade deficit will fall and it will be able to
buy more US debt. Exhibit 26 also shows that as savings rates in the US rise,
consumption falls, banks can replenish their savings pools and lend again (much later)
and the system can function again. But this healing process means that China’s
domestic economy will growth at a much faster pace than its export sector. And the
Chinese banking system (and Asia’s banks) will seek out defensive forms of collateral
as there are mostly unsafe collateral levels in the West (given oversupply in both
residential and commercial property). We strongly believe that Western banks that can
lend will seek out defensive collateral values in Latin America and Asia.
To round off this section, in Exhibits 28-30, we thought it would be fun to look at where China is bang in line with other
China is now relative to where the US, EU and NICs were during the same phase of markets which were in the $6,000
GDP/capita corridor and slightly
their development. We do this because we want to show that levels of credit in China
below the US and EU in the same
are actually very normal. So enjoy the virtual tour of credit for a few moments. The first
period
one shows were China is now and where we should expect it to be given the
experience of past and present emerging markets. China is actually below the level of
credit per capita for Europe at the same stage. It is right on par with the NICs. And it is
below where the US was at the same time it was going through its emerging-market
phase.

Exhibit 27. China credit per capita (US$) Exhibit 28. EU average credit per capita (US$)
10500 China credit per capita 14000

EU credit per capita
8500
11000
6500
8000
4500
5000
China current
China
2500
5000 6000 7000 8000 9000 10000 2000
5000 6000 7000 8000 9000 10000 11000
Exhibit 29. NICs average credit per capita (US$) Exhibit 30. US credit per capita (US$)
NICS credit per capita 10000 USA credit per capita

9800
8000
7800
6000
5800
4000 China
3800 China
2000
1800
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000

V. China and the Rest of the World

We often forget that all developed countries were once emerging
markets with huge poverty, disturbing differences in wealth and few
rich cities
Retail is way behind

Welcome back from your virtual tour of global credit. We briefly examine where China
is relative to the aggregate level of per capita consumption of several items of other
emerging markets. This will give us a good idea of two things. 1) ABSOLUTE. It will
show us where China stands NOW relative to other countries when they were at the
$6,000 per capita income level. 2) RELATIVE. It will also give us an idea of which
industries tend to have the greatest change over this high growth phase, i.e. from
$6,000 to $9,000 GDP/capita.
Exhibit 31. Average retail/capita (US$)

1300 Average retail value per capita
1100
900
700
500
300 China
100
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Exhibit 31 shows two important things. First, it shows that China is very far behind
other emerging markets during their start-up phase. Second, it shows that the retail
sector tends to have rates of growth which are among the highest of any of the
categories we examined. We want to add a cautionary note. Many people pooh-pooh
this phenomenon of increases in per capita income for China by saying “Most of China
is poor and always will be poor”. We want to offer two anecdotes.
The first is the presidential race of Robert Kennedy in 1968. He was a favourite to win We forget that in the 1960s, the
the presidential race before his assassination in July 1968. He wrote and spoke often US was six rich cities and 100
poor ones; pockets of poverty
about the appalling levels of poverty he encountered during his countrywide
everywhere
campaigns. The level of poverty in the Appalachians at that time was atrocious. The
Appalachian Mountains cover ten states along the eastern seaboard. Many of the
people in these states had no indoor plumbing, no access to medical care, no
education, no dentists. They were dirt poor – the American equivalent of peasants at
the time.
The second is the book called The Glory and the Dream by Pulitzer Prize winning William Manchester catalogued
author William Manchester. (It is an excellent book.) One of the main themes of his the mass poverty within the US
book is just how poor most of America was in the 1950s and 1960s. We forget, but into the 1960s
much of the US was a relatively poor country after World War II. There were six or
seven big cities, but most of the country in the 1950s did not even have indoor
plumbing. Indeed, the rich-poor gap in the US right now, while on a very different scale,
is arguably more acute than that of China.

So, the large differentiation between the rich and poor in China is quite ‘normal’. Again, China’s problems are very similar
the difference is that China is just so big. The number of people below the $1,000 to the US and other NICs in their
own emerging stage, except that
GDP/capita level in China is equivalent to the population of TWO Japans. But the
it is much larger
problems of income distribution in China are really not that different from many other
countries in their early ‘emerging market’ experiment.
Exhibit 32. Average TVs/1,000 of population Exhibit 33. Average telephones/1,000 of population
430 Average TV per 1000 410 Average telephones per 1000

China China
400 370
370 330
340
290
310
250
280
210
250
5000 6000 7000 8000 9000 10000 11000 170
5000 6000 7000 8000 9000 10000 11000
Source: World Bank, Earthtrends, Nomura research Source: World Bank, Earthtrends, Nomura research
Exhibit 32 and 33 show us that China may well have too much of two things: phones Phones and TV show a degree of
and TVs. Per-capita phone ownership is now almost two times the average of other saturation relative to past and
countries in their early take-off phase. And TV ownership is about 25% higher than current emerging markets
other countries in the similar phase of development. We would almost want to call
these two industries ex-growth in an emerging markets context. We should still see
large increases in TV and phone ownership, but the rate of change (in the emerging
market context) lies in other industries like hotels, retail and medical services.
Indeed, we can see from Exhibit 32 and 33 that the expected increase for phones and
TVs is relatively small – both in absolute amounts and in the rate of change. The
expected daily increase in phones is about 80,000 units. We imagine installed capacity
for phone production is much larger than this. Our assumed growth rate is about 6%
p.a. and we calculate this by taking the aggregate growth rate of phones of countries
during their $6,000 GDP/capita take-off experience.
We did the same for TVs and came up with an expected daily increase of TV sets of
about 90,000 over the next five years. This is a high number, of course. But the rate of
growth is slow and falling.

VI. The birth of the services sector

In an earlier section we saw that China’s service sector was currently about 40% of The fastest rate of change should
GDP, while the emerging market average was north of 55%. We should expect that come in the service sector –
the services sector not only grows to catch up with the average of the emerging starting now
markets, but it should continue to grow relative to other parts of the economy for a
sustained period. In fact, the biggest surprise of this study was that the services sector
is what tends to drive growth for these emerging markets as they reach that $6,000
GDP/capita level. This is because the move from $3,000 to $6,000 is dominated by
investment in infrastructure, heavy machinery, low-price exports, and the building
blocks of the economy. At the $6,000 level, people can begin to focus less on just
working and accumulating savings and more on actually spending those savings on
leisure activity.
Exhibit 34. Average spending on hotels /capita Exhibit 35. Average spending on clothing /capita
(scaled) (scaled)
400 Average personal spending on hotels 320 Average personal spending on clothing
360
270
320
280
220
240
200 170
160
120 China
120 China
80 70
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
So, Exhibit 34 and 35 show that China is very much in sync with many other countries A great surprise of this study was
when they were emerging markets (or current emerging markets) at the $6,000 per- the pre-eminence of the growth
capita level. In the case of hotels, we see the classic ‘S’ curve at work. The slope of rate of hotels and clothing
the line is moving up sharply when it passes the $6,000 level and continues to move
up until it doubles at the $9,000 level. In retrospect, we should not be surprised. Most
countries go from having few people traveling for vacation to very many traveling for
vacation in a short period of time, precisely as a function of the rapid accumulation of
savings which accompanies the early growth of an emerging market. We are keen on
Hong Kong & Shanghai Hotels and Jin Jiang. We include these in our portfolio.
Exhibit 35 shows the trends in clothing in emerging markets (past and present) relative Spending on health care was also
to China. Again, China’s growth is right in line with the emerging markets. If China intriguing as it has one of the
highest growth rates for current
grows anything like the 23 other markets we examined, we should see a doubling in
and past GEMS at this stage
clothing sales over the next few years. Our retail analyst Candy Huang likes Li Ning.
We include this in our portfolio.

Exhibit 36. Average spending on health care/capita (scaled)

470
Average personal healthcare spending
370
270
170 China
70
5000 6000 7000 8000 9000 10000 11000
GDP per capita
We save the best of this section for last. This was a big surprise to us as well. At the
$6,000 per capita level for emerging markets (past and present) we see in Exhibit 36 a
very nice ‘S’ curve. This shows a big jump in spending on healthcare. The average
goes from about $100 per capita to more than $200 in a short time. That number
accelerates sharply until $10,000 per capita GDP.
China is there right now. The remarkable thing is that these numbers show 100% Tremendous growth has already
growth in just a few years, but it is still $170 per capita. This represents a mere 2% of occurred, but it is only at
GDP for health care. This compares to about 5% for Thailand. The highest in the world $170/capita
is in the US, where it is 16%.
Yankun Hou is a big fan of Mindray, so we want to watch that one. We include this in Every developed country has
our portfolio. This is a very different phenomenon from the medical tourism movement gone through the same issue of
universal health care – China is
in South-East Asia. China is developing powerful momentum for the satisfaction of
no different, except in its scale
domestic medical and dental services. We have been to many seminars and
conferences on the monumental problems and difficulties in developing a medical
industry. Welcome to the real world! China is facing the same daunting problem of any
other emerging market, only the problem is 30-40 times larger. The government has
entered the fray here with a commitment in excess of $60bn for the funding of local
clinics and hospitals.
In the late 1980s, this writer was working with the Indonesian government and watched Indonesia’s success with
the country build a clinic in every single village throughout the country in a few years. If Puskesmas (village clinics) is
classic example of national
the government wants to do this, it can. Millions of pages have been written on early
healthcare; a clinic in every
medical services for adolescents and the way in which this helps produce healthier, village within 15 years – and
smarter and more productive adults. Nothing but good can come from significant Indonesia has 16,000 islands
investment in medical services.

VII. Power
Protein for humans and electricity for industry & transportation are
the heart of the environmental threat
Lastly, we discuss per-capita consumption of energy. This includes energy for industry
and transportation and energy for people.
A. Energy for Industry

First, we discuss energy for industry and transportation. Our utilities team under Ivan Lee We have written many trees worth
has catalogued China’s development over the past many years. China has one new of research on this – coal way
coal-fired power plant coming on line about every two weeks somewhere in the country. over-used on a per-capita basis;
Oil per-capita use may
And about 70% of the country’s power is fired with coal. China is now confronting
surprisingly go sideways or even
another environmental and human problem with coal and that is coal mining. More than fall
6,000 coal mines are expected to be closed over the next two years due to unsafe
conditions which put human life in peril, according to The Guardian ( 19 November
2008 ). So, China is increasingly importing more coal from Indonesia and Australia.
Despite this, Exhibit 37 shows that it is remarkable that China’s per-capita installed
capacity of electricity is still half that of current and past emerging markets. In addition,
the dependence of China on coal is reflected in the fact that per-capita reliance on coal is
almost double that of past and current emerging markets (Exhibit 38).
Exhibit 37. Average electricity/capita (KWH) Exhibit 38. Average coal/capita (tonnes oil eq.)
1.10 Average coal per capita

6800
Average electricity per capita (KWH) China
1.00
5600
0.90
4400 0.80
0.70
3200
0.60
China
2000 0.50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: World Bank, Earthtrends, Nomura research Source: BP, Nomura research
Exhibits 39 and 40 show that China’s per-capita usage of oil and natural gas is way China is way ahead of the curve in
below that of other past and current emerging markets. We were surprised by this natural gas usage
outcome, so we dug deep into the numbers and found that a significant number of
countries (mostly in Europe) went through their ‘emerging market’ phase before the oil
shock when oil consumption plummeted as governments forced energy conservation
and fuel efficiency upon its populations. Another important reason why China is below
the rest of the world is that its auto per-capita figures are way below the rest of the world.

Exhibit 39. Average natural gas (tonnes oil Exhibit 40. Average oil/capita (tonnes)
equivalent) /capita
2.2 Average oil per capita

80 Average natural gas per 100
1.7
60
40 1.2
20 0.7
China
0 China
0.2
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: BP, Nomura research Source: BP, Nomura research
In Exhibit 41 we see that per-capita ownership of cars is only about three per 100 The end of the combustion engine
people for China. The average growth rate here is not as high as we would have is nigh – you heard it here first
expected, but we would assume that due to the low starting point, growth in China’s
per-capita ownership of cars should be higher. (Motorcycles, on the other hand, show
the opposite trend; in fact the current numbers suggest a saturation effect in
motorcycles, as China’s per capita ownership is double that of past and current
emerging markets.)
We have a somewhat controversial take on the future of cars. China’s car industry is Japan, Korea and China may just
very tiny compared to the US car industry. It has no pension problems. It is highly be the innovators and mass
producers of the electric car – by
competitive and, therefore, highly flexible. It has one of the lowest HHI ratios
2011?
(Herfindahl-Hirschman Index) in the world, indicating extreme competitive pressures.
On a recent trip to Korea, we came across the CEO of a major conglomerate who told
us that a delegation from China recently made a trip to Korea and indicated that it
wanted to have full production of an electric vehicle (EV) by the end of 2010. This is
exciting news and makes us think that China may be the birthplace of the mass
production of the electric car within a few years. It makes us think that the era of the
combustion engine may be over within the next ten years. It is our strong hunch that
Japan, Korea and China may join forces and produce the technology for a mass-
produced electric car very soon.
Why? Jared Diamond explores this in his book Collapse: How Societies Choose to Fail Necessity is the mother of
or Survive. Air pollution in many cities in China is the worst in the world. Pollutant invention; lead and carbon
monoxide poisoning cost China
levels are several times higher than levels considered safe. Nitrogen oxides and
$54bn/year
carbon dioxide are rising due to cars and coal-fired power plants. Acid rain has spread
over much of the country. Average levels of lead in blood in China are more than
double what other cities around the world would consider dangerous. There are two
major considerations. The first is that these very high levels of pollution cause mental
and intellectual problems in the development of children. Second, about 300,000
deaths per year in China are attributed to air pollution (Source: Jared Diamond
Collapse: How Societies Choose to Fail or Survive.) Jared Diamond estimates this to
be about $54bn in health costs, or about 8% of GDP.
Hence, the urgent need to address the issue of the electric vehicle and clean coal Put BYD, Wonder Auto and
technologies. In accordance with this, we would include BYD in our portfolio, but at a Tianning on a buy list, just not yet
later date. Why? In our view, investors should place BYD, Wonder Auto (WATG US),
and Tianneng (819 HK) on a watch list. We think they are very attractive from a
fundamental point of view, but are technically vulnerable so we do not include them.

Exhibit 41. Average cars/100 of population Exhibit 42. Average motorcycles/100 of population
Average cars per 100 Average motorcycles/100

7.20
China
25
6.20
20
5.20
15
4.20
10
5 3.20
China
0
2.20
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000
GDP per capita
GDP per capita
Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, Nomura research Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, Nomura research
B. Energy for People
As people get richer, they will eat out more and eat more protein
Now, we discuss energy for people. There are two forms of energy – carbohydrates
and protein. Our work proves that protein intake increases dramatically starting at
about $5,000 per capita GDP and accelerates through the $10,000 GDP/capita range.
Simply put, people who get richer want to go out to dinner more often and want to eat
more beef, pork or chicken. And they want better quality meat or chicken which
requires larger and better fed pigs, cattle and chicken.
The net effect of this is overgrazing. Pork used to be the overwhelming meat in China. Problems that arise with
increased protein demand are
But affluence created demand for lamb, beef, chicken and eggs. This puts pressure on over-grazing, aquaculture
grasslands and the solid waste of livestock creates methane (contributing to pollution, over-fishing, and
greenhouse gases) and the animal droppings volumes are three times those of eutrophication
industrial solid waste. When we add to this the fish droppings and fertilizers for
aquaculture, we can see that the demand for protein has consequences which
reverberate through the ecosystem. The demand for protein from fish and shrimp has
caused over-fishing in both rivers and oceans.
The really astonishing thing is that the amount of water to create one pound of meat is Water for the creation of protein is
staggering. It requires about 15,000 litres of water to produce one pound of meat. This a very serious problem; this
is very well catalogued. And the use of water for agriculture is highly wasteful, both in reinforces Sean Darby’s Water
China and India. This is largely because water has no price, so no one conserves it. portfolio
Water shortages are completely preventable, but plant closures due to water
shortages are costing billions to the economy. The quantity of fresh water per capita in
China is 75% less than the average for the world. And the south gets most of it.
The issue of cereals is also significant. We expect growth in cereals to continue to Growth rate of cereals will be low,
remain high but not as high as one might expect. The increasing amounts of protein in but protein growth is far higher
diets means the growth rate of cereals could actually stagnate. Nonetheless, the rate than carbohydrates at this point
of change is still positive. If China’s rate of growth in cereals is anything like that seen
in past and present emerging markets, we should see a daily increase of about 30,000
tonnes. We will not go into detail here, but we should mention that increasing numbers
of scientific studies are showing concern about the excessive use of fertilizers and
pesticides in China. For instance, China uses about 14% of the world’s pesticides,
according to the USDA.

Exhibit 43. Average meat/capita (kg) Exhibit 44. Average cereals/capita (tons)
70 Average meat per capita 0.70 Average cereals per capita

China
66
62
0.50
58
54
China
0.30
50 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: World Bank, Earthtrends, FAO, Nomura research Source: World Bank, Earthtrends, FAO, Nomura research
All of these problems need solutions. We understand through Ivan Lee’s team that
revolutionary and creative moves are afoot to treat ground water. Centralized
intervention is increasingly common in China to settle contentious issues of land
contamination, soil erosion from invasive pollution sources, excessive use of
pesticides and fertilizers. Motivated by this, we include China Everbright and Beijing
Enterprise Water in our portfolio.
This writer has been conducting research on China for 20 years. It is clear that the China gets it! Expect the
authorities absolutely ‘get it’. When they do get their hands around a thorny and government to lurch in the
direction of environmental
politically difficult problem, there is usually a solution. The most important and most
protection in the near future
vital problem in China – and the world – is the environmental erosion from growing
industry, greater prosperity and better standards of living. Jared Diamond’s conclusion
is that China will lurch in the direction of environmental protection. We are beginning to
see this right now.

Appendices
Appendix I: Valuation comparisons

Exhibit 45. Valuation comparison – Asian Banks under coverage
Nomura Price P/E (x) P/BV (x) Yield (%) ROE (%) EPS growth (%)
Ticker Company Rating (local) FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F
CHINA
China (H-share)
1398 HK ICBC-H Buy 5.4 13.1 10.9 2.3 2.0 3.4% 4.1% 19% 19% 7% 15%
939 HK CCB-H Buy 6.0 12.6 10.5 2.2 1.9 3.6% 4.3% 19% 19% 3% 15%
3988 HK BOC-H Buy 3.6 11.6 10.0 1.6 1.4 3.9% 4.5% 14% 14% 5% 10%
3328 HK BOCOM-H Neutral 8.1 13.6 11.2 2.1 1.8 2.8% 3.5% 16% 17% -12% 16%
3968 HK CMB-H Neutral 16.7 15.9 13.2 2.9 2.3 0.9% 1.1% 20% 19% -37% 15%
998 HK CITIC Bank-H Buy 4.8 11.6 9.4 1.5 1.3 2.6% 3.2% 14% 15% 4% 18%
Average 13.1 10.9 2.1 1.8 2.9% 3.5% 16.9% 17.2% -5.0% 15.0%
China (A-share)
600000 CH SPDB Neutral 21.2 13.3 13.6 2.4 2.1 1.6% 1.6% 20% 17% -25% -3%
600016 CH Minsheng Reduce 7.7 22.2 22.6 2.4 2.2 0.5% 0.5% 11% 10% -14% -2%
000001 CH SZDB Buy 22.2 16.9 13.7 3.2 2.6 0.3% 0.4% 21% 21% 531% 24%
002142 CH Bank of Ningbo Neutral 11.4 24.5 21.8 3.1 2.8 1.4% 1.6% 13% 13% -13% 12%
601009 CH Bank of Nanjing Buy 15.5 20.4 18.4 2.7 2.4 2.0% 2.2% 14% 14% 1% 11%
Average 19.5 18.0 2.8 2.4 1.2% 1.2% 16% 15% 96% 9%
China Average 16.0 14.1 2.4 2.1 2.1% 2.4% 16% 16% 41% 12%
HONG KONG
11 HK HSB Neutral 110.10 16.3 14.8 3.7 3.5 5.7% 5.7% 24% 24% -16% 11%
2388 HK BOCHK Buy 15.54 13.1 10.4 1.8 1.7 4.6% 5.8% 14% 16% -16% 22%
23 HK BEA Neutral 25.00 17.9 13.7 1.4 1.3 2.8% 3.6% 8% 10% 944% 34%
302 HK WHB Buy 70.80 20.3 12.1 1.8 1.7 1.2% 4.1% 9% 15% -32% 72%
349 HK ICBC (Asia) Buy 15.62 10.9 9.8 1.3 1.2 5.5% 6.1% 12% 13% -10% 11%
440 HK DSF Buy 41.60 13.9 9.6 1.0 0.9 1.8% 3.1% 7% 10% -37% 114%
636 HK FBHK Neutral 3.17 36.5 9.4 0.8 0.7 1.9% 4.7% 2% 8% -72% 626%
1111 HK CHB Reduce 13.48 16.1 13.1 1.0 0.9 3.4% 4.2% 6% 7% 85% 23%
Average 18.1 11.6 1.6 1.5 3.4% 4.7% 10% 13% 106% 114%
KOREA
105560 KS KB Financial BUY 51,500 19.8 11.0 1.1 1.0 0.0% 0.0% 6% 10% -61% 80%
055550 KS Shinhan BUY 41,000 19.3 11.2 1.0 0.9 0.0% 0.0% 5% 9% -56% 73%
086790 KS Hana Financial NEUTRAL 32,750 1,167.0 1,167.0 0.8 0.7 0.3% 0.3% 0% 6% -99% 0%
053000 KS Woori REDUCE 14,050 26.9 11.8 0.9 0.8 0.0% 0.0% 3% 7% -7% 128%
024110 KS IBK REDUCE 13,500 42.6 15.1 0.9 0.8 0.0% 0.7% 2% 6% -79% 183%
004940 KS KEB NEUTRAL 11,150 57.8 12.4 1.0 1.0 0.0% 0.9% 2% 8% -84% 368%
005280 KS Busan Bank NEUTRAL 11,250 16.3 12.9 1.1 1.0 0.9% 0.9% 7% 8% -63% 27%
005270 KS Daegu Bank NEUTRAL 14,550 15.8 11.5 1.2 1.1 1.0% 1.4% 7% 10% -53% 38%
Average 170.7 156.6 1.0 0.9 0.3% 0.5% 4% 8% -63% 112%
SINGAPORE
DBS SP DBS Neutral 12.64 16.0 13.9 1.2 1.1 4.4% 4.4% 8% 8% -41% 15%
OCBC SP OCBC Buy 7.74 14.9 13.3 1.4 1.3 3.6% 3.6% 10% 10% 8% 12%
UOB SP UOB Buy 16.70 13.5 11.3 1.4 1.3 3.6% 4.2% 11% 12% -4% 19%
Average 14.8 12.8 1.3 1.3 3.9% 4.1% 10% 10% -12% 15%
MALAYSIA
AMM MK AMMB Holdings Buy 4.11 12.8 12.5 1.4 1.3 1.5% 2.2% 12% 11% 28% 3%
BCHB MK Bumi-Commerce Neutral 9.95 16.3 14.4 1.9 1.8 1.9% 1.9% 12% 12% 11% 13%
MAY MK Malayan Banking Reduce 6.51 17.6 17.1 1.7 1.6 1.5% 2.0% 11% 8% -47% 3%
PBKF MK Public Bank Buy 9.95 14.4 12.8 3.2 3.0 5.2% 5.9% 24% 25% 3% 13%
Average 15.3 14.2 2.1 1.9 2.5% 3.0% 15% 14% -1% 8%
THAILAND
SCB TB Siam Commercial Neutral 77.00 13.5 11.9 1.9 1.7 2.6% 3.2% 15% 15% -9% 13%
BBL TB Bangkok Bank Neutral 110.00 12.9 10.5 1.1 1.0 2.7% 2.7% 9% 10% -19% 22%
KBANK TB Kasikorn Bank Buy 72.50 12.9 11.3 1.4 1.3 2.8% 2.8% 11% 12% -12% 14%
BAY TB Bank of Ayudhya Reduce 17.80 19.3 15.6 1.3 1.2 0.8% 1.4% 7% 8% 14% 24%
Average 14.7 12.3 1.4 1.3 2.2% 2.5% 10% 11% -7% 18%
INDIA
AXSB IN Axis Bank Buy 923 18.2 15.1 3.2 2.7 1.1% 1.1% 19% 21% 69% 30%
ICICIBC IN ICICI Bank Neutral 751 22.2 19.1 1.7 1.6 1.4% 1.2% 8% 9% -10% 16%
HDFCB IN HDFC Bank Neutral 1457 27.6 22.8 4.1 3.1 0.7% 0.9% 17% 16% 18% 21%
SBIN IN SBI Reduce 1754 13.5 11.9 1.7 1.6 1.0% 1.0% 14% 14% -11% 13%
PNB IN PNB Buy 662 9.4 8.1 1.4 1.2 1.4% 1.4% 16% 16% -9% 16%
Average 18.2 15.4 2.4 2.1 1.1% 1.1% 15% 15% 11% 20%
Asia Average 45.1 40.1 1.8 1.6 2.1% 2.5% 12% 13% 18% 51%
Source: Bloomberg, Nomura Estimates; Note: Pricing as of 31 Aug 09

Exhibit 46. Key ratio comparison– Asian Banks under coverage

Nomura Chg in NIM (bps) Credit cost Impaired loan Cost-to-income Total CAR
Ticker Company Rating FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F
CHINA
China (H-share)
1398 HK ICBC-H Buy (71) 1 0.6% 0.7% 2.0% 2.1% 36% 36% 12% 12%
939 HK CCB-H Buy (77) 2 0.8% 0.8% 2.1% 2.2% 38% 38% 12% 12%
3988 HK BOC-H Buy (57) 1 0.5% 0.9% 2.4% 2.5% 43% 43% 12% 12%
3328 HK BOCOM-H Neutral (93) 10 0.8% 1.0% 1.7% 1.9% 40% 40% 12% 12%
3968 HK CMB-H Neutral (115) 9 0.4% 0.7% 1.2% 1.6% 45% 45% 13% 13%
998 HK CITIC Bank-H Buy (94) 15 0.6% 0.8% 1.3% 1.4% 41% 41% 11% 10%
Average (85) 6 0.6% 0.8% 1.8% 2.0% 41% 41% 12% 12%
China (A-share)
600000 CH SPDB Neutral (58) (3) 0.7% 1.0% 1.5% 2.3% 48% 47% 10% 9%
600016 CH Minsheng Reduce (74) 14 0.6% 0.6% 0.9% 1.0% 49% 47% 7% 6%
000001 CH SZDB Buy (52) 12 0.6% 0.5% 0.6% 0.6% 45% 45% 8% 8%
002142 CH Bank of Ningbo Neutral (46) 13 0.6% 0.7% 0.9% 0.9% 43% 42% 12% 11%
601009 CH Bank of Nanjing Buy (48) 8 1.0% 0.9% 1.4% 1.3% 31% 31% 14% 13%
Average (78) (3) 1.1% 1.3% 1.6% 2.6% 43% 42% 12% 11%
China Average (71) 7 0.7% 0.8% 1.4% 1.6% 42% 41% 11% 11%
HONG KONG
11 HK HSB Neutral (22) (4) 0.4% 0.4% 1.3% 1.4% 31% 30% 15% 14%
2388 HK BOCHK Buy (33) 4 0.1% 0.1% 0.4% 0.4% 40% 31% 15% 15%
23 HK BEA Neutral (29) 18 0.5% 0.4% 1.2% 1.4% 58% 57% 13% 14%
302 HK WHB Buy (2) 6 0.4% 0.3% 1.0% 1.1% 56% 41% 15% 16%
349 HK ICBC (Asia) Buy (1) (0) 0.3% 0.2% 1.0% 1.3% 35% 35% 14% 14%
440 HK DSF Buy (10) (3) 0.8% 0.6% 1.6% 1.6% 59% 45% 16% 16%
636 HK FBHK Neutral 19 (1) 1.0% 0.8% 1.9% 2.2% 70% 54% 14% 14%
1111 HK CHB Reduce (1) (3) 0.3% 0.3% 0.4% 0.4% 58% 54% 16% 16%
Average (10) 2 0.5% 0.4% 1.1% 1.2% 51% 43% 15% 15%
KOREA
105560 KS KB Financial Buy (26) (3) 1.3% 1.1% 1.9% 1.6% 48% 43% 14% 13%
055550 KS Shinhan Buy (25) (3) 1.2% 0.8% 2.3% 1.9% 42% 45% 12% 12%
086790 KS Hana Financial Neutral (37) 0 1.5% 1.4% 2.3% 1.9% 46% 40% 14% 13%
053000 KS Woori Reduce (30) (1) 1.3% 1.1% 2.8% 2.4% 47% 44% 10% 10%
024110 KS IBK Reduce (7) (2) 2.0% 1.8% 3.4% 2.9% 36% 34% 11% 11%
004940 KS KEB Neutral (59) (13) 2.3% 1.6% 2.2% 1.8% 44% 44% 11% 11%
005280 KS Busan Bank Neutral (30) 2 1.7% 1.6% 2.8% 2.3% 44% 43% 14% 14%
005270 KS Daegu Bank Neutral (28) (1) 1.8% 1.7% 2.6% 2.4% 46% 45% 12% 11%
Average (30) (3) 1.6% 1.4% 2.5% 2.1% 44% 42% 12% 12%
SINGAPORE
DBS SP DBS Neutral 6 3 1.2% 1.0% 4.5% 4.1% 42% 43% 17% 15%
OCBC SP OCBC Buy 10 (2) 1.0% 0.8% 3.5% 3.3% 37% 39% 15% 14%
UOB SP UOB Buy 8 (1) 1.2% 0.8% 3.6% 3.4% 38% 38% 17% 17%
Average 8 0 1.1% 0.9% 3.9% 3.6% 39% 40% 16% 15%
MALAYSIA
AMM MK AMMB Holdings Buy (23) (12) 0.6% 0.8% 5.1% 5.4% 51% 49% 14% 15%
BCHB MK Bumi-Commerce Neutral (14) 19 1.0% 0.6% 5.4% 5.9% 51% 51% 14% 13%
MAY MK Malayan Banking Reduce (2) (1) 0.7% 0.8% 4.0% 4.4% 52% 53% 14% 14%
PBKF MK Public Bank Buy (1) (16) 0.6% 0.5% 1.3% 1.8% 31% 32% 13% 13%
Average (10) (3) 0.7% 0.7% 4.0% 4.4% 46% 46% 14% 14%
THAILAND
SCB TB Siam Commercial Neutral (37) 7 0.9% 0.9% 6.5% 6.7% 48% 47% 12% 13%
BBL TB Bangkok Bank Neutral (37) 9 0.9% 0.7% 6.7% 7.3% 54% 53% 14% 14%
KBANK TB Kasikorn Bank Buy (38) 18 1.1% 0.9% 5.8% 6.5% 57% 59% 16% 15%
BAY TB Bank of Ayudhya Reduce (24) 12 1.3% 1.2% 12.1% 12.6% 60% 59% 16% 16%
Average (34) 12 1.1% 0.9% 7.8% 8.3% 55% 55% 15% 15%
INDIA
AXSB IN Axis Bank Buy 4 (2) 1.0% 1.1% 0.4% 0.8% 43% 42% 14% 12%
ICICIBC IN ICICI Bank Neutral 28 34 1.8% 1.9% 1.9% 0.6% 44% 41% 16% 15%
HDFCB IN HDFC Bank Neutral 2 (24) 1.7% 2.0% 0.6% 0.7% 61% 54% 15% 16%
SBIN IN SBI Reduce (10) (16) 0.8% 0.7% 2.6% 2.8% 47% 46% 13% 13%
PNB IN PNB Buy (11) (5) 0.7% 0.8% 0.4% 0.4% 47% 47% 12% 12%
Average 3 (3) 1.2% 1.3% 1.2% 1.1% 48% 46% 14% 14%
Asia Average (29) 2 0.9% 0.9% 2.5% 2.6% 46% 44% 13% 13%
Source: Bloomberg, Nomura Estimates; Note: Pricing as of 31 Aug 09

Appendix II: Time frame for data
Exhibit 47 lists the time frame for the data we have used. Each entry denotes the
starting year for the data set.
Exhibit 47. Time frame for data series for all categories
South Korea
South Africa
Netherlands
Hong Kong
Singapore
Germany
Malaysia
Australia
Thailand
Sweden
Canada
Norway
Taiwan
Mexico
France
Turkey
Japan
China
Spain
Brazil
Chile
Italy
US
UK
Meat 1972 1973 1986 1993 1975 1974 1976 - 1979 1992 1979 1987 - 2003 1974 - 1973 1975 1976 1979 1991 1996 1992 2007
Cereals 1972 1973 1986 1993 1975 1974 1976 - 1979 1992 - 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
TV 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 - 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Cars 1972 1973 - - 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 - - - 1975 1976 1979 1991 - 1992 2007
Motorcycles 1972 - - - - - 1976 1979 1979 1992 1979 1987 1985 2003 - - - 1975 1976 1979 1991 - - 2007
Oil 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Steel - - 1986 1993 - - - 1979 1979 1992 1979 1987 1985 2003 - 1974 - - - - - 1996 1992 2007
Coal 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 - 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Electricity 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Natural Gas 1972 1973 1986 1993 1975 1974 1976 - 1979 1992 - 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 - 1992 2007
Phones 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Spending on Retail 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Spending on Hotels 1972 1973 1986 - - 1974 1976 - - - 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 - 1996 - 2007
Spending on Clothing 1972 1973 1986 - 1975 1974 1976 1979 1979 - 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 - 1996 - 2007
Spending on Healthcare 1972 1973 - - 1975 1974 1976 1979 1979 - 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 - 1996 - 2007
Deposits 1972 1973 - - 1975 - - 1979 - - - 1987 1985 2003 - - - - - 1979 - - - 2007
Credit 1972 1973 1986 1993 1975 1974 1976 1979 - 1992 1979 1987 - 2003 - 1974 1973 1975 1976 - 1991 1996 1992 2007
Savings (%GNI) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Services (%GDP) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 - 1974 1973 1975 1976 1979 1991 1996 1992 2007
Consumption (%GDP) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Investments (%GDP) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Inflation (%) 1972 1973 - - 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007
Market Cap (%GDP) - - 1986 1993 - - - - - 1992 - 1987 - 2003 - - - - - - 1991 1996 1992 2007
Definitions of groupings
EU: UK, Germany, Netherlands, Norway, Sweden, France, Italy, Spain & Turkey
EM: Mexico, Brazil, Malaysia, Thailand & Chile
NICs: HK, Korea, Singapore & Taiwan

Appendix III: Data by Category

Exhibit 48. Order of Categories in Appendix
# Exhibit Category # Exhibit Category # Exhibit Category
1 49 Meat 8 56 Coal 15 63 Credit
2 50 Cereals 9 57 Electricity 16 64 Deposit
3 51 TV 10 58 Gas 17 65 Hotel
4 52 Cars 11 59 Phones 18 66 Clothing
5 53 Motorcycles 12 60 Services 19 67 Healthcare
6 54 Oil 13 61 Savings
7 55 Steel 14 62 Retail
Exhibit 49. Meat per capita (kgs)
USA meat per capita (kgs) 108 Canada meat per capita (kgs)
110
104
106
102
100
98 96
94 92
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
Source: Earthtrends, FAO Source: Earthtrends, FAO
76 Germany meat per capita (kgs)

UK meat per capita (kgs)
100
72
96
68
92
64
88
60
5000 6000 7000 8000 9000 10000 11000 84
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita
Brazil meat per capita (kgs) Japan meat per capita (kgs)
90 32
80
28
70
24
60
50 20
5000 5500 6000 6500 7000 7500 5000 6000 7000 8000 9000 10000 11000

Korea meat per capita (kgs) Malaysia meat per capita (kgs)
40
56
30
50
20
44
10
38
0 5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
31
Singapore meat per capita (kgs) Thailand meat per capita (kgs)
80
29
76
27
72
68 25
5000 5500 6000 6500 7000 7500 8000
5000 6000 7000 8000 9000 10000
Australia meat per capita (kgs) 104 France meat per capita (kgs)
70
100
60
96
50
92
40 88
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

90 Spain meat per capita (kgs) 80 Italy meat per capita (kgs)
76
80
72
70
68
60 64
60
50
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
84 China meat per capita (kgs)
76
68
60
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: Earthtrends, FAO, Nomura Research
Exhibit 50. Cereal per capita (tons)
2 Canada cereals per capita (tons)

1.1 USA cereals per capita (tons)
1.6
0.9
1.2
0.7
0.8
0.5 0.4
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

0.6 0.7
UK cereals per capita (tons) Germany cereals per capita (tons)
0.6
0.5
0.5
0.4
0.4
0.3 0.3
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
0.41 0.4 Japan cereals per capita (tons)

Brazil cereals per capita (tons)
0.37
0.35
0.33
0.3
0.29
0.25
0.25
5000 5500 6000 6500 7000 7500 8000
5000 6000 7000 8000 9000 10000 11000
0.5 Korea cereals per capita (tons) 0.32 malaysia cereals per capita (tons)
0.46 0.29
0.42 0.26
0.38 0.23
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000

0.87 France cereals per capita (tons) 1.60 Australia cereals per capita (tons)
0.67 1.20
0.47
0.80
0.40
0.27
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000
Spain cereals per capita (tons)

Italy cereals per capita (tons)
0.5
0.87
0.45
0.67
0.4 0.47
0.35 0.27
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
0.42 Thailand cereals per capita (tons) China cereals per capita(tons)
0.37
0.41
0.35
0.4
0.33
0.39
0.31
0.38
0.29
0.37
5000 6000 7000 8000 9000 10000
5000 5500 6000 6500 7000 7500
Source: Earthtrends, FAO Source: Earthtrends, FAO, Nomura research

Exhibit 51. TV s per 1,000 of population
560 USA tv per 1000 440 Canada tv per 1000
520
420
480
400
440
400 380
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
Source: Earthtrends Source: Earthtrends
420 UK tv per 1000 460 Germany tv per 1000
440
400
420
380
400
380
360
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
235 HK tv per 1000

370 Brazil tv per 1000
230
320
225
270
220
220
215
170
210
120
5000 5500 6000 6500 7000 7500 8000 205
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

650 Japan tv per 1000 Malaysia tv per 1000
220
550
190
450
160
350 130
100
250 5000 6000 7000 8000 9000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
320 Singapore tv per 1000 Korea tv per 1000

240
310
220
300
200
290 180
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000
450 Australia tv per 1000

316 Taiw an tv per 1000
314 410
312
370
310
330
308
306 290
304
250
5000 6000 7000 8000 9000 10000 11000
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita

410 France tv per 1000 410 Italy tv per 1000
400
370
390
330 380
370
290
360
250 350
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
340 Spain tv per 1000

China TV per 1000
570
320
530
300
490
280 450
260 410
370
240
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000
GDP per capita
GDP per capita
Source: Earthtrends Source: Earthtrends, Nomura research
Exhibit 52. Cars per 100 of population
54 USA cars per 100 42 Canada cars per 100
52
39
50
48
36
46
33
44
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

28 UK cars per 100 32 Germany cars per 100
27
26 28
25
24 24
23
22 20
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
11 HK cars per 100

25 Malaysia cars per 100
21 10
17 9
13
8
9
7
5
5000 6000 7000 8000 9000 10000 6
GDP per capita 5000 6000 7000 8000 9000 10000
GDP per capita
8 Singapore cars per 100

22 Japan cars per 100
20
7
18
6
16
14 5
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

Korea cars per 100 14 Taiw an cars per 100

10
8
10
4
6
0 2
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
6 35 France cars per 100

Thailand cars per 100
33
5
31
29
4
27
3 25
5000 6000 7000 8000 5000 6000 7000 8000 9000 10000 11000
Italy cars per 100 27

35 Spain cars per 100
32 23
29 19
26 15
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

China cars per 100

5
1
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: World Bank, CEIC, Eurostat, Nomura research
Exhibit 53. Motorcycles per 100 of population
2.4 USA motorcycles per 100 2.5 UK motorcycles per 100
2.2 2.4
2 2.3
1.8 2.2
1.6 2.1
1.4 2
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
0.33 HK motorcycles per 100 1.1 Japan motorcycles per 100
0.31
0.9
0.29
0.27
0.7
0.25
0.23 0.5
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000

4.5 Korea motorcycles per 100 4 Taiw an motorcycles per 100
3.5 3
2.5 2
1.5 1
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
26 Malaysia motorcycles per 100

5.5 Singapore motorcycles per 100
5 22
4.5
18
4
5000 6000 7000 8000 9000 10000 14
GDP per capita 5000 6000 7000 8000 9000 10000
GDP per capita
27 Thailand motorcycles per 100 1.3

France motorcycles per 100
25 1
23 0.7
21 0.4
5000 6000 7000 8000 9000 5000 6000 7000 8000 9000 10000

4 1.7
Spain motorcycles per 100 Italy motorcycles per 100
3 1.6
2
1.5
1.4
1
5000 6000 7000 8000 9000 10000
5000 7000 9000 11000 13000
9 China motorcycles per 100
8.4
7.8
7.2
6.6
6
5000 6000 7000 8000 9000 10000
GDP per capita
Source: World Bank, CEIC, Eurostat, Nomura research
Exhibit 54. Oil per capita (tons)
4.1 USA oil per capita (tons) 3.8 Canada oil per capita (tons)
3.9
3.7
3.7
3.6
3.5
3.5
3.3
5000 6000 7000 8000 9000 10000 11000 3.4
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: BP, IMF Source: BP, IMF

1.8 UK oil per capita (tons) 2.2 Germany oil per capita (tons)
1.6
2
1.4
1.2 1.8
1
5000 6000 7000 8000 9000 10000 11000 1.6
5000 6000 7000 8000 9000 10000
0.56 2.4 Japan oil per capita (tons)

Brazil oil per capita (tons)
0.51 2.2
0.46 2
0.41 1.8
0.36
1.6
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000 12000
2 Korea oil per capita (tons) 4.4 Singapore oil per capita (tons)
1.6
4.2
1.2
4
0.8
3.8
0.4
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

1.4 HK oil per capita (tons)

1.1 Malaysia oil per capita (tons)
0.9 1.2
0.7 1
0.5
0.8
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
1.6 Taiw an oil per capita (tons) 0.8 Thailand oil per capita (tons)
1.4
0.6
1.2
1
0.4
0.8
0.6 0.2
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000
France oil per capita (tons) 2.4 Australia oil per capita (tons)
2.4
2.3
2.2
2
2.1
1.6 2
5000 6000 7000 8000 9000 10000 11000 12000
5000 6000 7000 8000 9000 10000 11000

2 Italy oil per capita (tons) Spain oil per capita (tons)
1.6
1.8
1.4
1.6
1.2
1.4 1
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
0.36 China oil per capita (tons)
0.32
0.28
0.24
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: BP, IMF, Nomura research
Exhibit 55. Steel per capita (tons)
0.14 0.27
Brazil steel per capita (tons) Thailand steel per capita (tons)
0.12 0.22
0.1 0.17
0.08 0.12
0.06 0.07
0.04 0.02
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000
Source: WSA Source: WSA

0.6 Korea steel per capita (tons) 0.7 Japan steel per capita (tons)
0.6
0.4
0.5
0.4
0.2
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
0.4 Malaysia steel per capita (tons)

1.1 Singapore steel per capita (tons)
0.9
0.3
0.7
0.2
0.5
0.3
0.1
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 GDP per capita
GDP per capita
0.95 Taiw an steel per capita (tons) 0.38 HK steel per capita (tons)
0.75
0.34
0.55
0.3
0.35
0.15 0.26
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000

0.8 Australia steel per capita (tons) 0.51 China steel per capita (tons)
0.47
0.6
0.43
0.4 0.39
0.35
0.2
0.31
0
0.27
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
Source: WSA Source: WSA, Nomura research
Exhibit 56. Coal per capita (mn tons oil equivalent)
1.7 USA coal per capita 1.05 Canada coal per capita
0.95
1.6
0.85
0.75
1.5
0.65
0.55
1.4 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000 GDP per capita
GDP per capita
1.4 UK coal per capita 1.84 Germany coal per capita
1.35
1.3 1.76
1.25
1.2 1.68
1.15
1.6
1.1
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000

0.08 Brazil coal per capita 0.6 Japan coal per capita
0.5
0.07 0.4
0.3
0.06 0.2
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
0.62 Korea coal per capita 0.2 Malaysia coal per capita
0.16
0.58
0.12
0.54
0.08
0.04
0.5
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
0.8 HK coal per capita 0.8 Taiw an coal per capita
0.6
0.6
0.4
0.4
0.2
0 0.2
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

0.26 Thailand coal per capita 2 Australia coal per capita
0.22 1.9
0.18 1.8
0.14 1.7
0.1 1.6
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000
0.27 Italy coal per capita

0.7 France coal per capita
0.23
0.5
0.19
0.3
5000 6000 7000 8000 9000 10000 11000 0.15
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita
0.6 Spain coal per capita

China coal per capita
0.5 1.25
0.4
0.3
1.05
0.2
0.1
0.85
0
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: BP, IMF Source: BP, IMF, Nomura research

Exhibit 57. Electricity per capita (KWH)
13000 Canada electricity per capita

10500 USA electricity per capita
9500
11000
8500
7500
9000
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: World Bank Source: World Bank
5100 UK electricity per capita 6000 Germany electricity per capita
4900 5500
4700 5000
4500
4500
4000
4300
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
2100 5000 Japan electricity per capita

Brazil electricity per capita
4800
1900
4600
1700
4400
1500
4200
1300 4000
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000 12000

3900 Malaysia electricity per capita

3200 Korea electricity per capita
2900
2200
1900
1200
900
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
3100 HK electricity per capita 2300 Thailand electricity per capita
2700 2100
2300
1900
1900
1700
1500
1500
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000
4000 Singapore electricity per capita

7000 Australia electricity per capita
6000
3000 5000
4000
3000
2000 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000 GDP per capita
GDP per capita

3200 Italy electricity per capita

5000 France electricity per capita
3100
4000 3000
2900
3000 2800
2700
2000
2600
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
3100 Spain electricity per capita 3200 China electricity per capita
2900
2800
2700
2400
2500
2000
2300
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: World Bank Source: World Bank, Nomura research
Exhibit 58. Natural gas per 100 (tons)
310 USA gas per 100 196 Canada gas per 100
270
192
230
188
190
150 184
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

75 UK gas per 100 80 Germany gas per 100
71
67
60
63
59
55 40
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000
14 20 Japan gas per 100

Brazil gas per 100
12
16
10
8 12
6
8
4
4
2
0
0
5000 5500 6000 6500 7000 7500 8000 8500
5000 6000 7000 8000 9000 10000 11000
14 Korea gas per 100 120 Malaysia gas per 100
100
10
80
6
60
2 40
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

16 Taiw an gas per 100 55 Thailand gas per 100
12
8 45
0 35
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000
100 Australia gas per 100

50 France gas per 100
45 80
40
60
35
30 40
25
20
5000 6000 7000 8000 9000 10000 11000
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita
42 Italy gas per 100 8 Spain gas per 100

41.5 7
6
41
5
40.5 4
3
40
2
39.5 1
0
39
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000

9 China gas per 100
4
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: BP, IMF, Nomura research
Exhibit 59. Phones per 1,000 of population
410 420 Canada phones per 1000

USA phones per 1000
400
400
390
380 380
370
360 360
350
340
340
330 320
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
400 Germany phones per 1000

360 UK phones per 1000
350
320
300
280
250
240
200
200
150
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

250 Brazil phones per 1000 350 HK phones per 1000
210
310
170
270
130
230
90
50 190
5000 6000 7000 8000 9000 5000 6000 7000 8000 9000 10000 11000
360
310 Singapore phones per 1000
Japan phones per 1000
340 270
320 230
300 190
280 150
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
250 Malaysia phones per 1000

400 Korea phones per 1000
210
350
170 300
130 250
90 200
50 150
5000 6000 7000 8000 9000 10000 11000 12000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

380 Taiw an phones per 1000 120 Thailand phones per 1000
340 116
112
300
108
260
104
220 100
96
180 5000 5500 6000 6500 7000 7500 8000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
350 Australia phones per 1000 350 France phones per 1000
310 300
250
270
200
230
150
190 100
150 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
280 Italy phones per 1000 300 Spain phones per 1000
250
240
200
150
200
100
160 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

430 China phones per 1000
390
350
310
270
230
5000 6000 7000 8000 9000 10000 11000
GDP per capita
Source: World Bank, Nomura research
Exhibit 60. Services (% of GDP)
63 USA services (%GDP) 62 Canada services(%GDP)
63
60
62
58
62
56
62
54
61 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
59 UK services (%GDP) 60 Germany services (%GDP)
58
58
57
56
56
55 54
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000

80 Brazil services (%GDP) 72 HK services (%GDP)
70
70
60
68
50
66
40
30 64
5000 6000 7000 8000 9000 5000 6000 7000 8000 9000 10000
58 Japan services (%GDP) 64 Singapore services (%GDP)
63
56
62
54
61
52 60
59
50
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
60 Malaysia services (%GDP) 52 Korea services (%GDP)

55
50 50
45
40 48
35
46
30
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000
GDP per capita
GDP per capita

47 Thailand services (%GDP) 60 Spain services (%GDP)
58
46
56
54
45
52
50
44
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000
GDP per capita
GDP per capita
58 Australia services (%GDP) 66 France services (%GDP)
56 64
54 62
52 60
50 58
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
60 Italy services (%GDP)

44 China services (%GDP)
58 42
56 40
38
54
36
52 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000 GDP per capita
GDP per capita

Exhibit 61. Gross savings (% GNI)
22% USA savings (%GNI) 25% Canada savings (%GNI)
21%
24%
20%
23%
19%
22%
18%
21%
17%
20%
16%
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
21% UK savings (%GNI) 22% Germany savings (%GNI)
19% 20%
17% 18%
15% 16%
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
30% Brazil savings (%GNI) 37% HK savings (%GNI)
26%
34%
22%
31%
18%
28%
14%
10% 25%
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000

34% Japan savings (%GNI) Singapore savings (%GNI)
45%
31%
35%
28%
25%
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
45% Malaysia savings (%GNI) 41% Korea savings (%GNI)
40% 39%
35% 37%
30% 35%
5000 6000 7000 8000 9000 10000 5000 7000 9000 11000
32% Australia savings (%GNI)

33% Thailand savings (%GNI)
28%
31%
24%
29% 20%
5000 5500 6000 6500 7000 7500 8000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

25% France savings (%GNI) 29% Italy savings (%GNI)
24%
23% 26%
22%
21% 23%
20%
19% 20%
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
32% Spain savings (%GNI)

56% China savings (%GNI)
28%
55%
24% 54%
20%
53%
52%
16% 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000
GDP per capita
GDP per capita
Exhibit 62. Retail per capita (US$)
2100 USA retail per capita 1600 Canada retail per capita
1700
1200
1300
800
900
500 400
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: UN data Source: UN data

1500 UK retail per capita 1600 Germany retail per capita
1100 1200
700 800
300
400
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
1350 Brazil retail per capita 1500 HK retail per capita
950 1200
550 900
150 600
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000
1800 Japan retail per capita 1300 Singapore retail per capita
1500 1200
1200 1100
1000
900
900
600
800
300 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000

900 Malaysia retail per capita 1100 Korea retail per capita
700 800
500 500
300 200
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000
800 Thailand retail per capita 2100 Australia retail per capita
600 1800
400 1500
200 1200
5000 6000 7000 8000 5000 6000 7000 8000 9000 10000 11000
1600 France retail per capita 1600 Italy retail per capita
1200 1200
800 800
400 400
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

1200 Spain retail per capita 450 China retail per capita
1000 350
800 250
600 150
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Source: UN data Source: UN data, Nomura research
Exhibit 63. Credit per capita (US$)
10000 USA credit per capita

10000 Canada credit per capita
8000
8000
6000
6000
4000
4000
2000
5000 6000 7000 8000 9000 10000 11000 2000
5000 6000 7000 8000 9000 10000 11000
Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data
5200 18000 Germany credit per capita

UK credit per capita
4200
14000
3200
10000
2200
1200 6000
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000

8000 12000 HK credit per capita

Brazil credit per capita
10000
6000
8000
4000 6000
4000
2000
2000
0 0
5000 6000 7000 8000 9000 10000 5000 6000 7000 8000 9000 10000 11000
25000 7500 Malaysia credit per capita

Singapore credit per capita
6500
20000
5500
15000
4500
10000
3500
5000
2500
0 1500
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
4200 Thailand credit per capita

3500
Korea credit per capita
4000
2500
3800
1500
3600
3400
500
5000 5500 6000 6500 7000 7500 8000
5000 6000 7000 8000 9000 10000 11000

4800 Australia credit per capita 7000 Italy credit per capita
3800 6000
5000
2800
4000
1800
3000
800
2000
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
12000 France credit per capita 10000 China credit per capita
10000
8000
8000
6000 6000
4000
4000
2000
2000
0
5000 6000 7000 8000 9000 10000
5000 6000 7000 8000 9000 10000 11000
Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data, Nomura Research
Exhibit 64. Deposits per capita (US$)
4800 Canada deposits per capita

4900 USA deposits per capita
4300
4400
3800
3900
3300
3400
2800
2900
2300
2400 1800
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000

4500 Germany deposit per capita 3800 Korea deposit per capita
4000 3300
2800
3500
2300
3000
1800
2500 1300
2000 800
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
11500 HK deposit per capita 9000 Taiw an deposit per capita
9500 7000
7500 5000
5500 3000
3500 1000
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
10000 Spain deposit per capita

3200 Thailand deposit per capita
2700 8000
2200 6000
1700 4000
1200 2000
5000 5500 6000 6500 7000 7500 8000
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita

11000 China deposit per capita
9000
7000
5000
3000
5000 6000 7000 8000 9000 10000
GDP per capita
Source: CEIC, World Bank, Eurostat, Bundesbank, UN data, Nomura research
Exhibit 65. Personal spending on hotels per capita (GDP/capita 5K US$ = 100)
300 USA hotel spending per capita (GDP/capita 5K US$ = 350 Canada hotel spending per capita (GDP/capita 5K
100)
US$ = 100)
250 300
250
200
200
150 150
100 100
50
50 5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000 GDP per capita
GDP per capita
300 350 Korea hotel spending per capita (GDP/capita 5K US$ =

UK hotel spending per capita (GDP/capita 5K US$ =
100) 100)
300
250
250
200
200
150
150
100
100
50
50
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

150 150 Thailand hotel spending per capita (GDP/capita 5K

Singapore hotel spending per capita (GDP/capita 5K US$ = 100)
US$ = 100) 130
130
110 110
90 90
70 70
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000
France hotel spending per capita (GDP/capita 5K US$

= 100) 300 Australia hotel spending per capita (GDP/capita 5K
300 US$ = 100)
250
250
200
200
150
150
100
100
50
50
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000 GDP per capita
GDP per capita
Italy hotel spending per capita (GDP/capita 5K US$ =

1650 Spain hotel spending per capita (GDP/capita 5K US$ =
100)
400 100)
350
1250
300
250 850
200
150 450
100
50
50
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita

350 China hotel spending per capita (GDP/capita 5K US$ =100)
300
250
200
150
100
50
5000 6000 7000 8000 9000 10000
GDP per capita
Exhibit 66. Personal spending on clothing per capita (GDP/capita 5K US$ = 100)
190 USA spending on clothing per capita (US$ 5K Canada spending on clothing per capita (US$ 5K
250
GDP/capita = 100) GDP/capita = 100)
170
210
150
130 170
110
130
90
70 90
50
50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
Germany spending on clothing per capita (US$ 5K

450 UK spending on clothing per capita (US$ 5K GDP/capita = 190
100) GDP/capita = 100)
400 170
350 150
300
130
250
110
200
90
150
70
100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

350 Korea spending on clothing per capita (US$ 5K GDP/capita = Japan spending on clothing per capita (US$ 5K GDP/capita =
150
100) 100)
290 130
230 110
170 90
110 70
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
150 Singapore spending on clothing per capita (US$ 5K 250 HK spending on clothing per capita (US$ 5K GDP/capita =
GDP/capita = 100) 100)
130 210
110 170
90 130
70 90
50
50
5000 6000 7000 8000 9000 10000 11000
5000 6000 7000 8000 9000 10000 11000
210 Australia spending on clothing per capita (US$ 5K

105 Thailand spending on clothing per capita (US$ 5K
190 GDP/capita = 100)
GDP/capita = 100)
100 170
150
95
130
90 110
90
85
70
80
50
5000 5500 6000 6500 7000 7500 8000
GDP per capita 5000 6000 7000 8000 9000 10000 11000
GDP per capita

210 France spending on clothing per capita (US$ 5K 450 Italy spending on clothing per capita (US$ 5K
GDP/capita = 100) GDP/capita = 100)
190
170 350
150
130 250
110
90 150
70
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
350 Spain spending on clothing per capita (US$ 5K 300 China spending on clothing per capita (GDP/capita 5K
GDP/capita = 100) US$ = 100)
300 250
250
200
200
150
150
100
100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000
Exhibit 67. Personal spending on health care per capita (GDP/capita 5K US$ = 100)
USA spending on healthcare per capita (GDP/capita 300 Canada spending on healthcare per capita
300
5K US$ = 100) (GDP/capita 5K US$ = 100)
250 250
200 200
150 150
100 100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

400 210
UK spending on healthcare per capita (GDP/capita Germany spending on healthcare per capita
350 5K US$ = 100) (GDP/capita 5K US$ = 100)
300 170
250
130
200
150
90
100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
Spain spending on healthcare per capita (GDP/capita 5K

300 Korea spending on healthcare per capita (GDP/capita
210 US$ = 100)
5K US$ = 100)
250
170
200
130
150
90
100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
GDP per capita
GDP per capita
Japan spending on healthcare per capita (GDP/capita 5K 170 Singapore spending on healthcare per capita (GDP/capita
US$ = 100) 5K US$ = 100)
200
130
150
90
100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000

300 HK spending on healthcare per capita (GDP/capita 170 Thailand spending on healthcare per capita
5K US$ = 100) (GDP/capita 5K US$ = 100)
250 150
130
200
110
150
90
100 70
50 50
5000 6000 7000 8000 9000 10000 11000 5000 5500 6000 6500 7000 7500 8000
300 France spending on healthcare per capita (GDP/capita Australia spending on healthcare per capita (GDP/capita
300
5K US$ = 100) 5K US$ = 100)
250
250
200 200
150 150
100 100
50 50
5000 6000 7000 8000 9000 10000 11000 5000 6000 7000 8000 9000 10000 11000
400 China spending on healthcare per capita (GDP/capita

550 Italy spending on healthcare per capita (GDP/capita 5K 5K US$ =100)
US$ = 100) 350
450
300
350 250
250 200
150 150
100
50
5000 6000 7000 8000 9000 10000 11000 50
GDP per capita 5000 6000 7000 8000 9000 10000
GDP per capita

Appendix IV: Global signals for equities

Exhibit 68. Sovereign CDS
100 US Sovereign CDS 140 Japan Sovereign CDS
120
80
100
60 80
40 60
40
20
20
0 0
1-Jan 1-Mar 1-May 1-Jul 1-Jan 1-Mar 1-May 1-Jul
300 China Sovereign CDS

600 Eastern Europe Sovereign CDS
500 250
400 200
300 150
200 100
100 50
0
0
1-Jan 1-Mar 1-May 1-Jul
Exhibit 69. Corporate CDS
280 US IG CDX (125 IG corps.) 2100 US HY CDX (100 junk US corps.)

260 1900
240
1700
220
1500
200
1300
180
1100
160
140 900
120 700
100 500
600 ITRAXX Europe (Top 125 IG corps.) 500 ITRAXX Asia ex-Japan IG (Top 50 IG corps.)
ITRAXX Japan (Top 50 IG corps.)
450
500
400
400
350
300 300
250
200
200
100
150
0 100

Exhibit 70. Emerging markets indicators
900 EM CDX (15 countries) 750 EM Spread (USD GEMS bonds - Treasury)
700
800
650
700
600
600 550
500 500
450
400
400
300
350
200 300
8.0 4.0 USD/PLN 1,600

CNY/INR
3.8 USD/KRW 1,500
7.5 3.6
1,400
3.4
7.0 3.2 1,300
3.0
1,200
6.5 2.8
1,100
2.6
6.0 2.4 1,000
1-Jan 1-Mar 1-May 1-Jul 1-Sep 1-Jan 5-Feb 12-Mar 16-Apr 21-May 25-Jun 30-Jul
Exhibit 71. Liquidity, volatility, and recovery
1.4 Ted Spread 300 Equity Risk (VIX)

1.2 280
FX Risk (EUR/JPY Vol)
260
1.0 240
0.8 220
200
0.6 180
0.4 160
140
0.2 120
0.0 100
1-Jan 1-Mar 1-May 1-Jul 1-Sep
6.5 US Baa Spread over Treasury 13 US HY spread over IG

6.0 12
5.5 11
5.0 10
4.5 9
4.0 8
3.5 7
3.0 6
2.5 5
2.0 4
1-Jan 1-Mar 1-May 1-Jul 1-Sep 1-Jan 1-Mar 1-May 1-Jul 1-Sep

Exhibit 72. Global breakeven inflation

0.4 4 US Breakeven Inflation Curve (%)
0.2
3
0.0
29-May 12-Jun 26-Jun 10-Jul 24-Jul 7-Aug 21-Aug 2
-0.2
-0.4 1
Current
-0.6 0 - 1 month
-0.8 - 2 months
-1
US 1 year breakeven inflation (%) 2009-10 2010-11 2011-12 2012-13 2013-14
-1.0
2.0 UK 2 year breakeven inflation (%) 3.0 UK Breakeven Inflation Curve (%)
1.8
2.5
1.6
1.4 2.0
Current
1.2 - 1 month
1.5
1.0 - 3 months
1.0
0.8
0.6 0.5
1-Jun 15-Jun 29-Jun 13-Jul 27-Jul 10-Aug 24-Aug 2009-10 2010-11 2011-12 2012-13 2013-14
-1.5 Japan 7 year breakeven inflation (%) 2.1 Sweden 5 year breakeven inflation (%)
-1.7
1.9
-1.9
1.7
-2.1
1.5
-2.3
1.3
-2.5
1.1
-2.7
0.9
-2.9
-3.1 0.7
-3.3 0.5
2-Mar 2-Apr 2-May 2-Jun 2-Jul 2-Aug 2-Mar 2-Apr 2-May 2-Jun 2-Jul 2-Aug
Note: Breakeven inflation is the difference between the nominal bond yield and the real bond yield of closest maturity. Real bond yields based on CPI in the US,
Japan and Sweden; Retail Price Index in the UK; CPI ex-Tobacco in France; EU HICP ex-Tobacco in Germany and Italy; Weighted Average of Eight Capital Cities:
All-Groups Index in Australia.
Breakeven Curves based on extrapolation of best available maturities for each market.
Source for all charts: Bloomberg, Nomura research

Appendix V: Portfolios
Exhibit 73. ‘S’ Curve Portfolio

Mkt Cap Liquidity Altman P/B Div Yield P/E
Company Ticker Sector US$mn (US$mn) Z-Score FY09E FY09E FY 09E
CCB 939 HK Banks 176,383 348.4 n/a 2.3 4.1 n/a

BoC HK 2388 HK Banks 21,198 44.0 n/a 1.8 3.9 17.3
HK&Shanghai Hotels 45 HK Hotels 1,637 1.0 1.8 0.6 0.9 37.6
Jin Jiang 2006 HK Hotels 1,154 3.1 1.9 1.2 1.1 58.5
Hang Lung 101 HK Real Estate 12,917 26.9 4.0 1.5 NA 18.4
Li Ning 2331 HK Retail 2,904 12.5 8.0 8.0 2.1 n/a
Mindray MR US Health Care 3,346 24.1 6.3 6.0 0.8 23.2
Beijing Ent. Water 371 HK Water Treatment 651 4.5 2.2 2.3 0.0 33.4
China Everbright Int. 257 HK Environment Control 1,150 3.4 2.0 2.8 0.7 22.7
Shun Tak 242 HK Macau Property 1,350 7.2 1.6 0.9 2.7 n/a
China Agri 606 HK Food 2,708 5.4 3.4 1.3 2.3 9.9
Netease NTES US eServices 5,407 88.2 20.7 5.0 0.0 16.4
Average 52.0 3.8 2.9 2.0 30.2
Note: Priced as of 1 September 2009

Source: Factset, I/B/E/S, Worldscope, Nomura research
Exhibit 74. Solvency Portfolio

Mkt Cap Liquidity Altman P/B Div Yield Return since
Company Ticker Sector US$mn (US$mn) Z-Score FY09E FY09E Inclusion
Santos STO AU Energy 11,051 57.4 3.2 1.8 2.7 22%

Sinofert 297 HK Materials 3,177 16.3 3.0 1.7 0.4 0%
Petrochina 857 HK Energy 202,133 141.7 4.1 1.6 3.2 -9%
ONGC ONGC IN Energy 51,920 8.9 4.4 2.5 2.9 69%
SK Energy 096770 KS Energy 7,441 61.6 2.8 1.1 2.1 1%
POSCO 005490 KS Steel 32,218 114.1 4.2 1.4 2.1 7%
Ayala Corp AC PM Property 3,126 2.6 2.1 1.5 1.4 59%
China Agri 606 HK Food 2,708 5.4 3.4 1.3 2.3 32%
Parkway PWAY SP Health Care 1,561 4.8 1.4 1.7 1.9 50%
Average 45.9 3.2 1.6 2.1 29%*
Note: Priced as of 1 September 2009. Transaction costs not included in returns. Past performance should not and
cannot be viewed as an indicator of future performance. Complete record upon request.
Exhibit 75. Reflation Portfolio

Mkt Cap Liquidity Altman P/B Div Yield Return since
Company Ticker Industry Group US$mn (US$mn) Z-Score FY09E FY09E Inclusion
Standard Chartered STAN LN Bank 43,833 124 n/a 1.9 2.8 61%
BoC 3988 HK Bank 120,505 211 n/a 1.7 4.1 58%
ICBC 1398 HK Bank 227,082 277 n/a 2.3 4.0 53%
UOB UOB SP Bank 16,952 43 n/a 1.5 3.3 12%
PNB PNB IN Bank 4,277 3 n/a 1.3 2.9 31%
CCB 939 HK Bank 176,383 348 n/a 2.3 4.1 13%
BoC HK 2388 HK Bank 21,198 44 n/a 1.8 3.9 0%
Average 168 n/a 1.8 3.5 38%
China Coal 1898 HK Coal 16,745 45 4.2 1.8 2.1 30%

Yanzhou Coal 1171 HK Coal 7,220 43 7.4 1.7 2.6 42%
Average 44 5.8 1.8 2.3 36%
Great Eagle 41 HK Property 1,311 3 2.3 0.5 3.4 60%

Agile 3383 HK Property 4,304 31 2.7 2.1 1.8 105%
Ayala AC PM Property 3,043 3 2.1 1.4 1.4 47%
UOL Group UOL SP Property 1,832 4 1.7 0.7 2.6 77%
China Resources Land 1109 HK Property 11,081 53 n/a 2.1 0.8 39%
Soho China 410 HK Property 2,945 13 2.2 1.3 2.9 25%
Average 18 2.2 1.3 2.2 59%
Average 86 3.2 1.6 2.8 47%*
Note: Priced as of 1 September 2009. Transaction costs not included in returns. Past performance should not and
cannot be viewed as an indicator of future performance. Complete record upon request.
Please see Under the Hood, August 24, 2009, for details of the last change to our Model portfolios here



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Distribution of Ratings:
Nomura Global Equity Research has 1613 companies under coverage.
36% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 33% of companies with this
rating are investment banking clients of the Nomura Group*.
41% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 61% of companies with this
21% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 6% of companies with this
As at 30 June 2009.
*The Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin
America for ratings published from 27 October 2008:
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts
may also indicate absolute upside to price target defined as (fair value - current price)/current price, subject to limited management discretion. In
most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation
methodology such as discounted cash flow or multiple analysis, etc.
Stocks:
• A rating of "1", or "Buy", indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.
• A rating of "2", or "Neutral", indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months.
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Benchmarks are as follows: United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe: Please see valuation
methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page:
http://www.nomura.com/research); Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Sectors:
A "Bullish" stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.
A "Neutral" stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months.
A "Bearish" stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months.
Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX® 600; Global Emerging Markets (ex-Asia): MSCI Emerging
Markets ex-Asia.
Explanation of Nomura’s equity research rating system for Asian companies under coverage ex Japan
published from 30 October 2008 and in Japan from 6 January 2009:
Stocks:
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target – Current Price) / Current Price,
subject to limited management discretion. In most cases, the Price Target will equal the analyst’s 12-month intrinsic valuation of the stock, based
on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.
• A "Buy" recommendation indicates that potential upside is 15% or more.
• A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%.
• A "Reduce" recommendation indicates that potential downside is 5% or more.
• A rating of "RS" or "Rating Suspended" indicates that the rating and target price have been suspended temporarily to comply with applicable
regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic
transaction involving the subject company.
• Stocks labelled as "Not rated" or shown as "No rating" are not in Nomura's regular research coverage.
Sectors:
A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation.
A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral
A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative

Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and
ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008):
Stocks:
• A rating of "1", or "Strong buy", indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six
months.
• A rating of "2", or "Buy", indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next
six months.
• A rating of "3", or "Neutral", indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5%
over the next six months.
• A rating of "4", or "Reduce", indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over
the next six months.
• A rating of "5", or "Sell", indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months.
• Stocks labeled "Not rated" or shown as "No rating" are not in Nomura's regular research coverage. Nomura might not publish additional
research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other
information contained herein.
Sectors:
A "Bullish" stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months.
A "Neutral" stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months.
A "Bearish" stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months.
Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector —
Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe;
Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World
Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan
published prior to 30 October 2008:
Stocks:
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject
to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock
using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the
market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair
value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current
intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility
may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the
recommendation.
• A "Strong buy" recommendation indicates that upside is more than 20%.
• A "Buy" recommendation indicates that upside is between 10% and 20%.
• A "Neutral" recommendation indicates that upside or downside is less than 10%.
• A "Reduce" recommendation indicates that downside is between 10% and 20%.
• A "Sell" recommendation indicates that downside is more than 20%.
Sectors:
A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral
A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative
Price targets
Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price target may be impeded
by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's
earnings differ from estimates.

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Multi-Strategy | A S I A

ASIAN BANK REFLECTIONS: VOLUME 4

Paul Schulte +852 2252 1409 paul.schulte@nomura.com

Enter the ‘S’ curve: Bank picks

Nomura 3 September 2009

Paul Schulte +852 2252 1409 paul.schulte@nomura.com

Our View Bank picks

Enter the ‘S’ curve: Strategist

Nomura 1 3 September 2009

The Good News

The Bad News

“Something has to give."

Jared Diamond, Collapse: How Societies Choose to Fail or Survive, PP 359-377.

Nomura 2 3 September 2009

‘S’ Curve Portfolio 4

I. How much can China grow? 8

II. Defining the ‘S’ curve 11

III. Comparing China with other countries 12

V. China and the Rest of the World 21

VI. The birth of the services sector 23

Appendix I: Valuation comparisons 29

Appendix II: Time frame for data 31

Appendix III: Data by Category 32

Appendix IV: Global signals for equities 79

Nomura 3 3 September 2009

‘S’ Curve Portfolio

Exhibit 1. ‘S’ Curve Portfolio

range of banking services and 5

other financial services to 4

individual and corporate 3 customers. Its products include 8

customers. The bank's services 2 retail banking, corporate banking, 6

HK & Shanghai Hotels 45 HK 10 HK&Shanghai Hotels Jin Jiang 2006 HK

manages hotels, food, beverage 3

Oct-08 Jan-09 Apr-09 Jul-09

Hang Lung 101 HK 30 Hang Lung Li Ning 2331 HK 30 Li Ning

develops and manages properties. 15 manufactures, distributes, and

Mindray Medical International 30 Beijing Enterprises Water Group 1.8

company offers patient monitoring 15 The company also trades mobile 1

devices, diagnostic laboratory 10 phones and in-door telephones. 0.8

instruments, and ultrasound 5 The company is targeting 0.6

business. Oct-08 Jan-09 Apr-09 Jul-09

China Everbright 257 HK 3.5

into environmental energy, water, 0.5

construction and technology. 0

Netease NTES US 50 Netease China Agri 606 HK 7 China Agri

chat rooms, personalized Web 15

hosting, and e-commerce services. 0 0

Source: Bloomberg, Nomura research

Nomura 4 3 September 2009

Nomura 5 3 September 2009

Exhibit 2. China is similar to emerging countries before it, except that it

Savings Deposits Investment Consumption Services

% of GDP per capita % of GDP % of GDP % of GDP

China at $6000 54% $4,700 40% 35% 40%

World at $6000 25% $2,800 28% 58% 55%

West current trend RISES RISES RISES FALLS FALLS

2) Investment as a percent of GDP goes down, typically by about three

Nomura 6 3 September 2009

Category Increase Comment

TVs .2 bn Surprisingly unexciting;TV/capita already high

Electricity(KWH) .8 tn CAGR of about 4%

Cars 16.0 mn Around 5.5% CAGR same as Singapore

Meat(kg) 15.7 bn Increase of 35 bn lbs of meat