Proactive Structural Simulation of Financial Crisis, Recession, Monetary, Economic Stimulus, Bailout Policy Impact on Asian Economy and Asset Prices Bubbles, Opportunities and Risks

1
Proactive Structural Simulation of Financial
Crisis Recession Monetary Economic Stimulus
Bailout Policy Impact on Asian Economy and
Asset Prices Bubbles Opportunities and Risks

• By Dr Warren Huang() Pioneer OSA website
  www.osawh.com/ wh3928_at_yahoo.com/ osawhh_at_sina.com
  
• Presented to Asian Finance Capital Market
  Conference Singapore Nov. 5 2003 by
  Euro-eventsRevised for China Fund World 2008
  Mar.5 2008 Shanghai and Euromoney China
  Derivative Summit Pudong March 24-25 2009

2
Proactive Structural Crisis Recession Monetary
Economic policy impact on China Economy Asset
price Bubbles Risks Early Warning

• China money supply growth soared to 22 in 2003
  due to excessive foreign capital inflow into the
  coastal area and booming export with auto
  housing lead demand exceeds 30 leading to
  China Peoples Bank credit tightening raised bank
  reserve ratio to 7 in 2003 Housing stock
  prices soared 500 2007as 18 rate hikes and
  bank deposit ratio to 18.5 cut excessive
  liquidity due to stock housing wealth gain to
  reduce money supply growth to 12 GDP slowdown
  to 6.1 in 2008. Starting rate cuts and 567
  billion stimulus money supply soared to 29
  to boost demand responding to US recession CPI
  plunged to -1.2 PPI to -7.2 to
• Excessive liquidity ( money supply growth
  doubled from 15 to 29 with banking loan
  growth of 15 trillion in 2009 already leading
  to stock market ( up from 1660 to 3400) and
  housing price bubble Beijing housing prices up
  100 in 2009 leading to credit tightening in
  second mortgage with first down payment raised to
  60 and single home buying restriction and
  property tax can not stock housing pirce bubble
  still up 10 in 10 cities Feb 2011
• Housing Bank loanAuto steel construction
  material enjoy good growth as US Global
  recession recovery .
• IT upstream/downstream prices rebound due to
  export market recovery in 2009-2011
• Oil upstream/downstream facing high oil price
  peaking out at 99 Feb ( due to Lybya turmoil)
  will setll to 73- 92 in 2011 as OPEC raised
  production Asian credit tightening fighting
  housing bubble inflation
• China stocks facing correction due to continued
  credit tightening fighting inflation and housing
  bubbles Shanghai A 2300- 2930 Shenzhen A
  10000 - 13000

3
Recession monetary Economic policy impact on S.
Korean economic Asset Price Bubbles challenges
Risks

• Korea overheated housing auto industry with
  excessive credit demand and 13 default rate
  will push Korean central bank credit
  tightening fighting facing housing bubble burst
  risk in 2011 Housing bubbles with housing
  price up 100-260 auto demand up 40 facing
  housing bubble burst 20011 in global recovery.
• Falling demand and prices in as Asian credit
  tightening and strong Won appreciation resulted
  Korea shrinking trade surplus Won appreciation
  1000- 1150 Steel construction material will
  facing falling price demand in housing bubble
  Asian slowdown
• IT upstream/downstream suffered by China/Asian
  economic slowdown falling demand and prices war
  demand in 2011
• Oil upstream/downstream facing oil prices bubble
  burst at 100 soaring feedstock energy cost
  falling products prices shrinking profit
• Korean listed stocks earning suffered by
  liquidity and global uncertain recovery market
  correction Seoul index 1500- 1910

4
Proactive Structural Simulation of Monetary
policy impact on Japan economy and Asset Price
Bubbles opportunities Risks

• Japan money supply growth creeping up to 3
  due to China export rebound improved business
  demand stock prices doubled Nikkei 7500 to
  15000 finally getting out of recession and
  deflation with GDP up 3.9 2003. US credit
  crisis global recession China credit tightening
  and overvalued Yen drag consumer business demand
  plunge Nikkei bear market correction to 7000-
  9000 Nikkei following US stock rebound from
  7000 to 9700 speculating US China economic
  stimulus resulted recession recovery however
  GDP plunge to -6.5 in 2009
• As Japan getting out of deflation ( benefited by
  soaring import oil commodities prices bond
  yield soared to 1. 5 Soaring Japan trade
  surplus zero interest rate leading Yen rebound
  to 85- 98.in 2007 but drag into deflation in
  2009 global recession
• However strong yen will hurt Japan export
  corporate profit stock pricesGDP and finally
  cutting into trade export surplus weakening
  Yen strength and stock price plunge High
  jobless rate plunging consumer demand drag
  housing auto demand prices IT upstream /
  downstream suffered by by global economic
  recession facing falling demand prices profits
• Falling demand prices in oil upstream/downstream
  cutting into profit margin stock prices.

5
Proactive Structural Monetary Policy impact on
Hong Kong Economy Asst Price Bubbles
Opportunities Risks

• Hong Kong money supply growth soared to 41 in
  2007 China IPO Shenzhen stock index soared 500
  to 19000 and housing price soared 500 in 2007
  GDP up 7 .. HK m1 Growth plunged to 11 Nov
  2008 following China credit tightening US
  global recession drag HK export and Shanghai
  Shenzhen Hang seng index plunged 75
• Soaring oil commodities prices and housing
  stock wealth gain pushed HK inflation up 6.5
  forced monetary authority credit tightening in
  2008 US credit financial crisis recession led
  to commodities price bubble burst drag inflation
  to 1.8 and Hong Kong into recession 3Q2008
  GDP contracted by 2 will be down 4 2009
• HK housing price up 200 facing bubble burst in
  China US slowdown
• IT upstream/downstream benefited by global
  economic recovery but facing demand price plunge
  due to global recession and severe competition in
  2009
• Oil upstream/downstream facing soaring oil
  price raw material costs and falling prices
  demand in global recession
• Banking stock prices will plunged 50- 70
  facing credit default
• plunging properties demand and prices but no
  strong rebound in sight
• Hengseng index 8000- 16000 in 2009 red chipsH
  shares follow China stock bear market correction

6
Proactive Structural Monetary Policy impact on
Singapore Economy Housing Capital market
opportunities challenges

• Singapore money supply growth creeping up from 0
  to 3.5 due to export rebound and drug
  industry pick up getting out of SARS improved
  business demand stock prices rebound 50 from
  1200 to 1800 in 2003 facing overheating credit
  tightening after 5 year low interest rate
  expansion soaring oil commodity prices pushed
  inflation at 7.8 Global recession in 2008-9
  drag Singapore 3Q GDP continue into 2009 down 6.8
  
• Soaring housing prices bubble burst 2007 down
  26 facing US recession following stock market
  bear market correction However it rebound 29
  overheating in 1 H 2009 rate cuts stimulus
  facing credit tightening in 2010IT
  upstream/downstream benefited by global economic
  recovery but facing plunging demand prices in
  global recession.
• Oil upstream/downstream facing soaring raw
  material energy costs weak product prices
  shrinking profit margin 2009.
• Banking stock prices rebound sharply will be
  down 30-50 correction due to mortgage default
  facing housing price bubble burst 2009-2010 .
• Singapore ST index facing bear market correction
  2010 index 1550- 2500
• Singapore dollar supported by 18 billion trade
  surplus at 1.45- 1.55

7
Proactive structural simulation of Vietnamese
monetary policy impact on economy and housing
financial market prices bubbles

• Vietnam facing continued credit tightening cut m2
  growth below 30 raising interest rate to 14
  fighting 28 inflation supporting Dong 16700
  with trade deficit of 16 billion facing
  depreciation.
• Vietnam cut interest rate in Nov 2008 to 12
  responding to inflation drop to 24 due to
  global recession to maintain 2009 GDP at 6.2
• Housing price bubble burst price slump by 50
  in June 2008 following stock market bear market
  correction
• Oil upstream/downstream facing high oil price
  peaking 145 soaring raw material energy costs
  weak product prices shrinking profit margin
• Banking finance housing stock prices continue
  slump are overheated economy demand facing
  housing prices slump and mortgage default
• Stock index bear market rally is over for
  continued correction into 250- 350 area in 2009
  

8
Proactive Structural Monetary Simulation of India
Economy Asset Bubble prices

• Indian facing credit tightening with interest
  rate at 9 over serious housing price bubble with
  appreciation 400 ( Mombai price double Shanghai
  and US prices) excessive liquidity from equities
  ( stock price doubled from March low 7500 to
  15000 recently and housing market prices in
  economic stimulus cut interest rate from 7.5
  to 3.3 leading to the asset bubbles gain
  facing bubble burst risks 2009- 2010. when US
  global entering recession recovery credit
  liquidity tightening facing inflationary
  recession. 8.5 inflation will be much higher
  and 109 billion trade deficit due to soaring oil
  commodities price import Currency facing
  depreciation to 47- 49in 2009 Despite
  recession global financial crisis recession
  2008- 2009 lead IndiaGDP slowdown to 5.5 2009.
  
• Its IT software outsourcing also facing demand
  and export decline and job loss through 2009
  impact from US slowdown and profit squeeze
  through 2009
• Oil and downstream industries facing weakening
  demand and pricing profit squeeze.
• Banking finance industry facing mortgage
  housing default credit crisis.
• BSE stock index follow US NASDAQin bear market
  correction to 7500-10000- 50 from peak. in
  March follow US NASDAQ rebound to 15000 are
  overpriced facing summer correction to 12000-
  14000
• Indian GDP will be slowdown to 5
  unemployment to 8

9
Proactive Structural Inflation interest rate bond
yield simulation

• Despite core consumer inflation is relatively
  flat commodity and housing prices soared
  reaching bubble burst due to low interest rate
  and easy credit falling dollar lead to
  inflationary recession.( Stagflation)

currency
Inflation interest rate bond yield
Consumer spending
Inflation rates
Money supply growth
currency
Oil commodityasset prices
10
Proactive structural Monetary Policy impact on
Taiwan Economy Asset Prices Bubbles
opportunities risks

• Taiwan money supply growth up from 2.5 to 4.5
  due to export rebound getting out of SARS
  threat improved business demand stock prices
  rebound 50 from 3500 to 6000 in 2003.
  Continued global expansion and export boom stock
  market 300 appreciation to 9900 lead to housing
  price up 100 bubble soaring oil commodities
  price and inflation at 5.9 forced central
  bank raised interest rate and bank deposition
  ratio money supply growth to 3-5 global
  recession drag export and GDP slowdown facing
  recession to 1.0 in 2009
• It facing housing and equities wealth gain
  bubbles ( up 100 since 2003 Taiwan stock index
  soared from 3100 to 9900 in 2008 facing credit
  tightening global recession bubble burst 2009
  
• Soaring oil commodities price hot money
  speculation in stock housing pushed inflation to
  5 this summer forcing central bank raise
  interest
• IT upstream/downstream benefited by global
  economic recovery declining export facing
  price plunging demand prices due to global
  recession and competition till 2009
• Oil upstream/downstream facing high oil price
  peaking at 145plunging oil price products
  price shrinking profit in global recession
• Banking stock prices properties demand and
  prices facing bubble burst facing default risks..
• Taiwan index stock following US credit crisis
  Nasdaq bear market correction to 3300- 4600 OTC
  55- 85 China concept stocks follow China stock
  consolidation shrinking trade surplus drag NT
  exchange rate 32.5- 33.7

11
Proactive structural Asian currency/RMB future
derivatives prices market forcesMechanism OSA

• End of US interest rates cut cycle due to
  soaring inflation support US dollar lead to RMB
  depreciation US economic slowdown recession
  drag US dollar push RMB for appreciation
• By cutting trade surplus with US RMB will be
  traded 6.8- 7.0

Integrating into Black-Schole for derivatives
risk hedging
US trade deficit
Daily US dollar Asian and RMB exchange rates
and futures prices
your country trade surplus/deficit
Interest rate spread between US and yours
12
Proactive Structural Asian housing prices bubble
wealth effect mechanism simulation

• Asian countries benefited by excess credit low
  rates capital inflow
• lead to China Hong Kong Thailand Vietnam
  India Taiwan housing equities wealth bubble
  excessive liquidity and soaring inflation

Housing prices bubble wealth simulation
Money supply growth
Mortgage interest rate
Stock market wealth
Stock index changes
13
Proactive Structural Two master hands controlling
Asian stock prices and volume simulation

• Co-integrating US economystock prices into Asian
  stock prices and domestic economy

Integrating Black-Schole for derivative
calculation
Money supply growth Consumer spending
Shanghai/Shenzhen Hong Kong Henseng Nikkei
Taiwan Singapore ST Seoul stock indices
futures investor sentiment and trading volume
Interest rate/inflation rate
US investor sentiment
NY Dow Jones/Nasdaq stock index
14
Proactive Structural Information industry post
bubble burst recovery simulation

• Left master hand controlling IT industry
  performance facing sharp price war but
• Supported by improved demand

IT industry chips PC tele- Communication Demand
and spot prices profit margin stock prices
IT industry business spending
Consumer spending
IT industry excess capacity and Products
market innovation
15
Proactive Structural Auto and steel demand
prices mechanism simulation

• Left master hand controlling auto steel industry
  performance

Consumer spending
Auto demand and prices mechanism simulation Steel
demand prices simulation
Auto loan interest rate
Steel prices import duty energy prices
16
Proactive Structural Oil /Downstream
petrochemicals demandprices mechanismperformance
simulation

• Increased demand leading to soaring oil and
  feedstock prices and costs cutting into
  downstream profits stock prices

Consumer spending
Oils heating oil gasoline petrochemical
plastics prices simulation
Currency
Gasoline heating oil petrochemical
feedstock Prices costs
17
Proactive Structural Banking Finance Corporate
Reform and merger/acquisition performance
simulation

• Post merger integration profit market hold the
  key to stock prices performance

Pre and post merger profit margin and
stock Prices simulation
Pre-merger reform goal setting targeting
Post merger profit margin
Investor sentiments
Post merger integration performance
18
Proactive Structural Corporate governance bubble
burst early warning simulation

• Asian/Global corporate scandals bubble early
  warning

Cost accounting bubble tracking
Strategic and execution corporate governance
OSA teams tracking internal/ external auditing
stock prices
financial accounting earning tracking Balance
sheet and off-balance sheet Derivatives IPO
merger activities tracking
Investor sentiments stock index
19
Proactive Structural Banking Securities insurance
riskearly warning simulation

• Asset prices bubble earning warning provide
  solution to banking finance reform

Equities market asset Bubble price
Banking Basel II nonperformance credit
default Consumer business credit market price
risks Resulted market bubble burst risks
simulation
Housing market asset Prices bubble
Industrial sectors Asset bubbles
Business consumer demand Sentiment bubble
20
Proactive Structural Causes spread recovery of
housing credit financial currency energy
bubble burst crisis

• Asset prices bubble earning warning provide
  solution Asian financial currency bubble burst
  crisis

Excess money supply Consumer spending
Strong Export growth
leading to financial currency bubble
burst Crisis recovery will begin until trade
surplus currency rebound interest rate cuts
stock prices rebound
Excess foreign capital Inflow resulted currency
appreciation
Runaway inflation and interest rate hike Stock
prices and consumer demand plunge
Export decline and currency plunge
21
Proactive Structural Strategic QFII and QDII
investment risk management early warning

• Two mater hands controlling global capital
  markets asset prices and QFII/QDII investment
  strategy and risk management

Domestic and global market prices And risks
simulation for QFII/QDII Investment strategy
risk management
Money supply interest rates
Currency exchange rates
Investors sentiments
Industrial sectors asset prices Bubble simulation
22
Conclusions and recommendations

• Proactive Structural Monetary economic fiscal
  policy for sustainable Asian profit growth and
  consumer housing equities commodities asset
  prices and currency stability optimal trilemma
  solution.
• Proactive Structural Monetary economic fiscal
  policy WTO impact on Asian capital markets asset
  prices bubble burst simulation provide years
  ahead of major asset bubble cycles trend and 3-6
  month ahead of daily capital market industrial
  sectors bull/bear trend early warning is the key
  to sustainable profit growth avoided trillion
  dollar loss due to betting on the wrong side of
  interest rateas and asset prices bubbles burst
  supporting strategic banking finance market
  enterprises reform and risk management