kotok's presentation nov 0905

614 Landis Avenue, Vineland, NJ 08360800-257-7013www.cumber.com

China in the 21st CenturyThe Global Interdependence Center’s

24th Annual Monetary and Trade ConferenceNovember 9, 2005

Federal Reserve Bank of Philadelphia

David R. KotokChairman & Chief Investment Officer

Cumberland Advisors


World Total 55,938,191 % World Total 40,887,837 % World Total 38,674,262 %

1. United States 11,628,083 20.8 1. United States 11,667,515 28.5 1. United States 16,750,440 43.3

2. China** 7,334,392 13.1 2. Japan 4,623,398 11.3 2. Japan 3,688,253 9.5

3. Japan 3,774,086 6.7 3. Euronext* 3,097,953 7.6 3. U.K. 3,046,675 7.9

4. India 3,362,960 6.0 4. Germany 2,714,418 6.6 4. Euronext* 2,598,094 6.7

5. Euronext* 2,793,365 5.0 5. U.K. 2,140,898 5.2 5. Canada 1,395,869 3.6

6. Germany 2,325,828 4.2 6. China** 1,812,334 4.4 6. China** 1,360,430 3.5

7. U.K. 1,832,252 3.3 7. Italy 1,672,302 4.1 7. Germany 1,193,972 3.1

8. Italy 1,621,372 2.9 8. Spain 991,442 2.4 8. Spain 990,333 2.6

9. Brazil 1,482,859 2.7 9. Canada 979,764 2.4 9. India*** 930,444 2.4

10. Russia 1,408,603 2.5 10. India 691,876 1.7 10. Switzerland 872,436 2.3

Rest of World 17,238,142 31.0 Rest of World 9,816,263 24.0 Rest of World 5,847,316 15.1(171 Countries) (36 exchanges)

2004 PPP 2004 GDP World’s 10 Largest($mm) ($mm) Stock Markets ($mm)

Measured in USD at 8/31/05 exchange rates

Three Ways to View The World


Changes in Share of World’s Output

0%

5%

10%

15%

20%

25%

1985 1988 1991 1994 1997 2000 2003 2006

United States - decreasing

Euro Area - decreasing

Japan - decreasing

China - increasing

India - increasing


Share of World GDP by Country

Percent of World Economy 1999 2000 2001 2002 2003 2004* 2005 2006 2007 2008 World 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Advanced Economies 58.6% 58.1% 57.4% 56.6% 55.5% 54.6% 53.7% 53.0% 52.3% 51.6% United States 22.2% 22.0% 21.6% 21.3% 21.1% 20.9% 20.8% 20.7% 20.5% 20.4% Euro Area 17.0% 16.8% 16.7% 16.3% 15.8% 15.3% 14.8% 14.5% 14.1% 13.8% Germany 4.9% 4.8% 4.7% 4.6% 4.4% 4.3% 4.2% 4.0% 3.9% 3.8% France 3.4% 3.4% 3.3% 3.3% 3.2% 3.1% 3.0% 2.9% 2.9% 2.8% Italy 3.3% 3.2% 3.2% 3.1% 3.0% 2.9% 2.8% 2.7% 2.6% 2.5% Spain 1.8% 1.8% 1.8% 1.8% 1.7% 1.7% 1.7% 1.7% 1.6% 1.6% Japan 7.8% 7.6% 7.5% 7.2% 7.1% 6.9% 6.7% 6.6% 6.4% 6.3% U.K. 3.3% 3.3% 3.2% 3.2% 3.2% 3.1% 3.0% 3.0% 2.9% 2.9% Canada 2.0% 2.0% 2.0% 2.0% 1.9% 1.9% 1.9% 1.9% 1.8% 1.8% Other Advanced 6.4% 6.5% 6.5% 6.5% 6.5% 6.5% 6.4% 6.4% 6.4% 6.4% Emerging & Dev. Countries 41.5% 42.0% 42.7% 43.4% 44.5% 45.4% 46.3% 47.0% 47.7% 48.4% Africa 3.2% 3.2% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.4% 3.4% Central & Eastern Europe 3.4% 3.4% 3.3% 3.3% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% C.I.S. 3.2% 3.3% 3.5% 3.6% 3.7% 3.8% 3.9% 4.0% 4.0% 4.1% Russia 2.2% 2.4% 2.4% 2.5% 2.5% 2.6% 2.7% 2.7% 2.7% 2.7% Other 1.0% 1.0% 1.0% 1.1% 1.1% 1.2% 1.2% 1.3% 1.3% 1.3% Developing Asia 21.1% 21.5% 22.2% 22.9% 23.9% 24.6% 25.4% 26.0% 26.7% 27.3% China 10.6% 10.9% 11.4% 12.0% 12.7% 13.2% 13.8% 14.2% 14.7% 15.2% India 5.4% 5.4% 5.5% 5.6% 5.8% 5.9% 6.0% 6.1% 6.3% 6.4% Other 5.2% 5.2% 5.3% 5.4% 5.5% 5.5% 5.6% 5.6% 5.7% 5.8% Middle East 2.7% 2.7% 2.7% 2.7% 2.8% 2.8% 2.8% 2.8% 2.9% 2.9% Western Hemisphere 8.0% 8.0% 7.8% 7.6% 7.5% 7.5% 7.5% 7.4% 7.4% 7.3% Brazil 2.7% 2.7% 2.7% 2.7% 2.6% 2.6% 2.6% 2.6% 2.5% 2.5% Mexico 1.9% 1.9% 1.9% 1.9% 1.8% 1.8% 1.8% 1.8% 1.8% 1.7%

Extrapolations using real GDP growth from published IMF "purchasing power parity" weights in 2004

PPP


US

Rest Of World

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1998 1999 2000 2001 2002 2003 2004 Aug-05

1998 US59.7% Aug 2005

US43.0%

1998 ROW40.3% Aug 2005

ROW57.0%

1998 marks the end of the LTCM crisis

Share of World Stock Market Value

US Share Shrinking


Share of World Stock Market Value

1998 (Total $25.683 MM)

ROW40.3%US

59.7%

1998(Total $25.683 MM)

Aug 2005(Total $38.970 MM)

2005 (Total $38.674 MM)

ROW57.0%

US43.0%


Share of World Stock Market Value:Focus on China

1998(Total $25.683 MM)

Aug 2005(Total $38.970 MM)

US 59.7%

ROW 38.0%

China2.3%

$579.4 MM

US 43.0%

ROW53.5%

China3.5%

$1360.4 MM


Market Cap of Hong Kong, Shanghai, Shenzhen Exchanges (USD)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Aug-05

USD

MM

Shenzhen Stock Exchange

Shanghai Stock Exchange

Hong Kong Exchanges


Number of Listed Companies – Hong Kong, Shanghai, Shenzhen Exchanges

1109

834

542

0

500

1,000

1,500

2,000

2,500

3,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Aug-05

No.

of L

iste

d C

ompa

nies

Shenzhen Stock Exchange

Shanghai Stock Exchange

Hong Kong Exchanges


Stock Market Statistics

2006 Forward P/E Ratio

China 10.7(Shanghai and Shenzhen)

Hong Kong 14.3


China Forward Earnings Growth Estimates

12-Months 5-years

China 9.1 11.0(Shanghai and Shenzhen)

Hong Kong 10.7 13.3

Analyst Earnings Expectations


China: What the “Bears” Say. . .

“…China’s financial markets are still relatively immature. Its banking system is rife with corruption and corporate governance is poor; its stock market is depressed and seemingly broken; its brokerage houses are insolvent; and its managed currency elicits outrage overseas because of trade disputes.”

David Barboza, Finance Firms Accelerating Their Moves Into China, The New York Times, Saturday, October 22, 2005.


China: What the “Bulls” Do. . .

Bank of America $3 Bn China Construction Bank

Royal Bank of Scotland/ $3.1 Bn Bank of ChinaMerrill Lynch

Goldman Sachs $3 Bn Industrial & CommercialBank of China

Temasek Holdings $4 Bn Two Chinese Banks

Recent Investments in Chinese Banks


2008 Forecast

• US PPP Share declines from 20.8% in 2004 to 20.4% in 2008

• China PPP Share increases from 13.1% in 2004 to 15.2% in 2008

• Chinese Stock MarketsIf current trend continues, China exchanges (Hong Kong, Shanghai, and Shenzhen) could be 4.5% - 5% of total world in 2008.

kotok's presentation nov 0905

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