Christopher Wood christopher.wood@clsa.

com +852 2600 8516

Institutional Investor 2019 All-Asia Research Poll

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Quackery begets quackery

Jakarta
The main topic discussed here last week was the return of the quacks to run US monetary policy
after a refreshing, albeit brief, interlude when Federal Reserve chairman Jerome Powell spoke in
simple English and was seemingly committed to the normalisation of US monetary policy. That was,
of course, before the infamous “Powell pivot”.

With money market futures still indicating no rate hike this year (see Figure 1), it is also important to
note that there is a political context to the change in tone in US monetary policy. GREED & fear
referred recently to the current competition amongst Democratic presidential candidates to sound
more socialist, and the related attack on share buybacks (see GREED & fear - American socialism and
discounting trade deals, 21 February 2019). But the resurgence of the political left, the subject of a
cover story in The Economist last month (“The Rise of Millennial Socialism”, 16 February 2019), also
has relevance for monetary policy. This is because of the growing popularity on the left of so-called
Modern Monetary Theory (MMT).

Figure 1
Fed funds futures implied probability of a rate hike in 2019

100% (%)
Fed funds futures implied probability of a rate hike in 2019
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19
Source: Bloomberg

What is MMT? A glance at Wikipedia defines it as “a heterodox macroeconomic theory that

describes the currency as a public monopoly and unemployment as the evidence that a currency
monopolist is restricting the supply of the financial assets needed to pay taxes and satisfy savings
desires”. If such a definition is not particularly satisfactory, a better one in GREED & fear’s view is
provided in the relevant article in the above mentioned issue of The Economist which described
MMT as a theory “which holds that the primary constraint on government spending is not how much
money can be raised through tax or bonds, but how much of an economy’s capital and labour the
state can use without sparking rapid inflation”.

The significance of the above is, clearly, that belief in MMT undermines all the arguments for
government austerity and fiscal rectitude. Indeed it turns such arguments completely on their head.
If this is the theory behind MMT, the practical reason why it is gaining traction on the left is because

Thursday, 7 March 2019 Page 1

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ten years of quantitative easing and surging fiscal deficits in the G7 world have not led to surging
inflation. In fact they have led to the opposite. This leads on to the tempting conclusion that there is
lots of room to increase government debt still further.

Indeed this theorising has been encouraged by the advocates of unorthodox monetary policy
themselves. For example, GREED & fear cited three years ago a book written by Adair Turner, a
former British financial regulator and chairman of an entity with the self-important title, the
“Institute for New Economic Thinking” (Between Debt and the Devil: Money, Credit and Fixing Global
Finance, October 2015, by Adair Turner, Princeton University Press). As noted by GREED & fear at
the time (see GREED & fear - The return of Billyboy, 7 April 2016), Turner argues in this book that in a
fiat paper money system the authorities can never run out of ammunition to stimulate demand. In
terms of his specific recommendation of central bank financing of fiscal deficits, he argued that the
authorities should make an explicit commitment that this increase in financing is “permanent”. How
would this work in practice? Say a government is running a fiscal deficit of 10% of GDP, the
authorities would make an explicit commitment that, say, 5% of this deficit is overtly financed with
central bank money; that this increase is permanent, and that the additional 5% does not increase
the formal measure of government debt as a percentage of GDP.

With such theories being advocated by conventional types, it is not surprising that the so-called
“radical left” has been tempted to take such arguments to their logical conclusion. Indeed MMT is
the logical consequence of the fundamental blurring of the distinction between monetary policy and
fiscal policy which was a central characteristic of quantitative easing. There is, of course, an irony
here since Ben “Billyboy” Bernanke’s aggressive pursuit of quanto easing after the global financial
crisis was, as discussed here on numerous occasions in the past ten years and more, the chief driver
of the growing inequality of wealth distribution which now so upsets the political left. This is
precisely because quanto easing in the developed world led to surging asset prices, and assets are
primarily owned by the rich either because they have the wealth to buy the assets or because they
have had, under QE, access to ultra-cheap credit to borrow lots of money to buy still more assets.

Figure 2
Top 1% US income share

26 (%) Top 1% US income share

24

22

20

18

16

14

12

10

8
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015

Source: World Wealth & Income Database, Emmanuel Saez, IRS Tax Data

The result of the above is that the Gini coefficient did not peak in America with the financial crisis in
2007, as it should have done and as it did with the Wall Street crash in 1929. The top 1% of
Americans’ share of US income has risen from 18% in 2009 to 22% in 2017, while it declined from a
peak of 24% in 1928 to 15% in 1931 (see Figure 2). So wealth inequality became further extended

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

as the rich were bailed out of the massive losses they would have sustained in leveraged credit
instruments in 2007 and 2008 if capitalism had been allowed to work as it should have been. Thus,
the Gini coefficient for US households has risen from 0.463 in 2007 to 0.482 in 2017 (see Figure 3).

Figure 3
US Gini coefficient

51 (%) US Gini coefficient

49

47

45

43

41

39

37

35
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
Note: The Gini coefficient is a statistical measure of income inequality. A coefficient of zero expresses perfect equality, while a coefficient of
1 expresses maximal inequality. Source: Census Bureau, Current Population Survey, The Chartbook of Economic Inequality

The above actions have discredited the system in the G7 world and therefore discredited the
political, financial and business elite in the G7, who can perhaps best be defined as the people who
show up at Davos or, at least, used to show up. One consequence was the election of Donald Trump
who, for all the antagonism directed at him by the millennial left in America, has nothing in common
with the Davos mob. Another consequence is the risk of a much more left-wing president in America
should Trump lose the next election; though GREED & fear’s personal view and hope is that
Americans in aggregate have still not lost their instinctive antagonism towards socialism and will
ultimately react against policies like 29-year-old Democratic Congresswoman Alexandria Ocasio-
Cortez’s advocacy of a 70% marginal tax rate on the highest incomes or for a “Green New Deal”.
Clearly, one aspect of the new millennial socialism is a politicised obsession with the environment
and “climate catastrophe”.

It is also the case that most people understand that “soak the rich” taxation, however appealing
personally, does not raise revenue meaningfully on a macroeconomic basis. But this is precisely why
the appeal of MMT is so strong because it allows for seemingly unlimited fiscal expansion so long as
inflation is quiescent. That is not surprising since, as already noted, advocates of unorthodox
monetary policy have already pushed the envelope out a long way.

On this point, in addition to what Turner proposed as discussed above, consider also a McKinsey
Global Institute report published in February 2015 (Debt and (not much) Deleveraging) and also
discussed here (see GREED & fear – Southbound, 9 April 2015). The main focus of this report, which
generated a lot of attention at the time, was on the extent to which aggregate global debt had
grown since the global financial crisis. The report found that it had then risen from US$142tn in
2007 to US$199tn at the end of the second quarter of 2014, raising the ratio of global debt to GDP
by 17 percentage points to 286% from 269% at the end of 4Q07.

If the above study highlighted that the issue of rising debt levels remained far from resolved, as
indeed is still the case today, much more interesting to GREED & fear at the time was a policy

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proposal buried at the end of the same report. Stating that a “broad range of debt resolution
mechanisms for governments may be needed” to address the debt problem, the McKinsey report
went on to raise the issue of the then rising amount of government debt owned by central banks,
with the Fed, the Bank of England and the Bank of Japan at that time owning 16%, 24% and 22%
respectively of government bonds outstanding. Arguing that this debt is, “in a sense” merely an
accounting entry, “representing a claim by one part of the government on another”, the McKinsey
report went on to float the idea of central banks cancelling their government bond holdings. To be
precise, it commented: “Whether central banks could cancel their government debt holdings –
without putting the government legally into default or sparking a loss of confidence and market
turmoil – is unclear.”

The above is, obviously, a critical point and raises the issue discussed here last week (see GREED &
fear - The return of the quacks, 28 February 2019), namely when does a government bond market in
the G7 world start reacting to supply concerns. Meanwhile the authors of the same McKinsey report
also went on to suggest a slightly less crude approach than the overt cancellation of central bank
owned government bonds. That was to replace the government debt on the central bank’s balance
sheet with a zero-coupon perpetual bond. Stating that this could risk triggering a market backlash
since the value of such a bond would be zero, the McKinsey report concluded that “a simpler but
equivalent measure would be for central banks to simply hold the government debt they have
accumulated in perpetuity and for the broader public to shift its focus to net debt rather than gross
debt”.

Figure 4
ECB and BoJ holdings of government securities

2,500(Euro bn) ECB holdings of public debt under the asset purchases programme (Yen tn) 500
Bank of Japan holdings of government debt (RHS)
2,000 450

1,500 400

1,000 350

500 300

0 250
May 15
Jul 15
Sep 15
Nov 15

May 16
Jul 16
Sep 16
Nov 16

May 17
Jul 17
Sep 17
Nov 17

May 18
Jul 18
Sep 18
Nov 18
Jan 15
Mar 15

Jan 16
Mar 16

Jan 17
Mar 17

Jan 18
Mar 18

Jan 19

Source: ECB, BoJ

By net debt, McKinsey meant excluding government bonds owned by the central bank and other
government agencies, an exercise which has the pleasant effect of making government debt look
smaller. If that benign outcome was significant at the time of the publication of this report, it has
become even more benign since central banks’ ownership of outstanding government debt has
grown in the interim. Thus, the ECB’s holdings of Eurozone government debt under its asset
purchases programme have soared from €198bn in mid-2015 to €2.1tn at the end of February,
while the Bank of Japan’s holdings of Japanese government securities rose from Y291tn to Y476tn
over the same period (see Figure 4). As for the Fed, its holdings of US Treasury securities rose from
US$475bn in March 2009 to a peak of US$2.466tn in October 2017 and have since declined to
US$2.182tn as a result of quanto tightening (see Figure 5).

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

Figure 5
Federal Reserve holdings of US Treasury securities

3,000 (US$bn)
Fed holdings of US Treasuries

2,500

2,000

1,500

1,000

500

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Federal Reserve

Figure 6
US, Japan and Eurozone government debt as % of GDP excluding central bank holdings (End 2018)

250 (%)
Government debt Excluding central bank holdings

201
200

150
114
107
97
100 86
68

50

0
Japan US Eurozone
Source: Bank of Japan, Federal Reserve, ECB, Eurostat, Japan Ministry of Finance, US Treasury, CLSA

If bonds owned by central banks are excluded, government debt to GDP ratios now decline from
201% to 114% in Japan, from 107% to 97% in America and from 86% to 68% in the Eurozone (see
Figure 6).

If the above theorising has been indulged in by the likes of McKinsey consultants, it is again scarcely
surprising that the political left has come up with MMT. Still if financial conjuring tricks were as
simple as outlined by McKinsey smoothies or by the advocates of MMT, it would really mean that
there is such a thing as a free lunch which, of course, there is not. This is why governments and
central banks who connive in such policies should ultimately be discredited along with the
currencies and the currency systems they preside over. In this respect, GREED & fear agrees with The
Economist in its editorial on millennial socialism when it opines on MMT that “the notion that
unlimited borrowing does not eventually catch up with an economy is a form of quackery”. Still
GREED & fear has also always believed, unlike The Economist, that quanto easing is another form of
quackery.

If all of the above is true, investors need to understand that MMT now exists as a theory to justify
ever more extreme unconventional policies in the next downturn, and that there will be plenty of
politicians willing to jump on that bandwagon. That is a political reality for those with capital to

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protect, which is why ownership of gold bullion remains essential as the financial equivalent of term
life insurance. It is also why the blockchain-enabled cryptocurrency approach remains an area of
promise for those who want to escape the statist nightmare which would be the practical
consequence of a government implementing MMT. In this respect, if MMT is taking the logic of
quanto easing to its ultimate conclusion by effectively eradicating the distinction between monetary
policy and fiscal policy, it is also the logical consequence of the current US dollar-based fiat paper
monetary system which has been in existence since former US President Richard Nixon broke the
last link with gold in 1971. This is simply because this 48-year-old system has no discipline attached
to it.

Returning to the subject of gold, in GREED & fear’s view investors should not believe that gold has
broken out into a new bull market until bullion convincingly breaks above US$1400 per oz (see
Figure 7). For now this has not yet happened while gold stocks are still not outperforming in a
convincing fashion. True, the NYSE Arca Gold BUGS Index has outperformed gold bullion price by
13% since September 2018. But it has still underperformed by 40% since August 2016 (see Figure 8).
This raises the risk of further near-term downside should, for example, a successful US-China trade
deal trigger more “risk on” action in markets and potentially renewed monetary tightening
expectations.

Figure 7
Gold bullion price

2000 (US$/oz) Gold bullion spot price

1900 200-day moving average

1800
1700
1600
1500
1400
1300
1200
1100
1000
Jul-10
Oct-10

Jul-11
Oct-11

Jul-12
Oct-12

Jul-13
Oct-13

Jul-14
Oct-14

Jul-15
Oct-15

Jul-16
Oct-16

Jul-17
Oct-17

Jul-18
Oct-18
Jan-10
Apr-10

Jan-11
Apr-11

Jan-12
Apr-12

Jan-13
Apr-13

Jan-14
Apr-14

Jan-15
Apr-15

Jan-16
Apr-16

Jan-17
Apr-17

Jan-18
Apr-18

Jan-19

Source: Bloomberg

Figure 8
NYSE Arca Gold BUGS Index relative to gold bullion price

0.22 (x) NYSE Arca Gold BUGS Index / Gold bullion price ratio
0.21
0.20
0.19
0.18
0.17
0.16
0.15
0.14
0.13
0.12
0.11
0.10
0.09
Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19
Jan-14

May-14
Jul-14

Jan-15

May-15
Jul-15

Jan-16

May-16
Jul-16

Jan-17

May-17
Jul-17

Jan-18

May-18
Jul-18

Jan-19
Sep-14
Nov-14

Sep-15
Nov-15

Sep-16
Nov-16

Sep-17
Nov-17

Sep-18
Nov-18

Source: Bloomberg, CLSA

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

Still GREED & fear continues to believe that a renewed bullish gold breakout is coming sooner or
later for all the obvious reasons discussed above. Meanwhile it is worth recording that, based on the
latest data from the World Gold Council, central bank buying of gold has reached its highest level
since Nixon’s suspension of dollar convertibility into gold in 1971. Central bank net purchases of
gold rose by 74% YoY to 651.5 tonnes in 2018 (see Figure 9). This is the second highest annual total
on record after the 1,404 tonnes bought in 1967, according to the World Gold Council. It is also
worth noting that a breakdown of which central banks have been buying the gold shows that it is all
by central banks outside the G7. Thus, the central banks of Russia, Turkey and Kazakhstan bought
274.3, 51.5 and 50.6 tonnes of gold respectively in 2018, while India, Hungary and Poland also
bought 40.5, 28.4 and 25.7 tonnes (see Figure 10). As for the G7, the only country with a change in
gold reserves last year was Germany where gold reserves declined by 3.9 tonnes in 2018.

Figure 9
Central bank net purchases of gold

800 (tonne)

600

400

200

(200)

(400)

(600)

(800)
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

Source: World Gold Council

Figure 10
Change in official gold holdings by central banks

300 (tonnes)

250
200
150
100
50
0
(50)
Czech Republic
Suriname

Pakistan
Russia

Bulgaria

Chile

Venezuela
Belarus

Mexico
Poland

Iraq
India

Qatar
Mongolia

Colombia

Serbia

Sri Lanka

Australia
Kyrgyz Republic

Egypt
Philippines

Brazil
Turkey

Hungary

Germany
Kazakhstan

Tajikistan

Greece
China

Malaysia

Ukraine
Indonesia
UAE

Source: World Gold Council, IMF

Meanwhile, it is also interesting that flows into gold ETFs have started to pick up. After recording a
net outflow of 43 tonnes in the first nine months of 2018, gold-backed ETFs saw a net inflow of 113
tonnes in 4Q18 and 71 tonnes in January 2019, though it retreated to a net outflow of 33 tonnes in
February. As a result, ETFs’ gold holdings rose by 8% from 2,328 tonnes at the end of September to

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2,512 tonnes at the end of January and were 2,479 tonnes at the end of February, though they
remain 11% below the peak level of 2,791 tonnes reached at the end of 2012 (see Figure 11).

Figure 11
ETFs gold holdings

3,000 (tonnes)
ETFs' gold holdings

2,500

2,000

1,500

1,000

500

0
Jul 04

Jul 05

Jul 06

Jul 07

Jul 08

Jul 09

Jul 10

Jul 11

Jul 12

Jul 13

Jul 14

Jul 15

Jul 16
Jan 17
Jul 17

Jul 18
Jan 04

Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Jan 18

Jan 19
Note: Data up to February 2019. Source: World Gold Council, Bloomberg

Another point on gold is that gold futures’ net speculative positions have risen from a net short of
38,175 contracts in October to a net long of 135,696 contracts in the week ended 26 February (see
Figure 12). Still this remains significantly below the recent peak of 315,963 contracts reached in
mid-2016 when the gold bullion price was running at around the same levels as the recent high of
US$1347/oz reached in mid-February.

Figure 12
COMEX Gold futures speculative net positions

350,000 (contracts) Gold futures speculative net positions (US$/oz) 1,400

Gold bullion price (RHS)
300,000
1,350
250,000
1,300
200,000
150,000 1,250

100,000 1,200
50,000
1,150
0
1,100
-50,000
-100,000 1,050
Jul 15

Jul 16

Jul 17

Jul 18
Apr 15

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

Oct 18
Jan 15

Jan 16

Jan 17

Jan 18

Jan 19

Note: Non-commercial traders’ net positions. Data up to the week ended 26 February 2019. Source: Bloomberg, Commodity Futures
Trading Commission (CFTC)

Returning to nearer-term subjects, GREED & fear has still not given up hope of a deal on North Korea
during the first term of the Trump administration despite the seeming failure of last week’s summit
in Hanoi. That this is not complete fantasy is suggested by the post-summit reaction on both sides.
The noises out of Pyongyang have not been hostile while Secretary of State Mike Pompeo said on
Monday that he hopes to have a negotiating team back in Pyongyang in the next couple of weeks.
More precisely, he said: “So I am hopeful, although I have no commitment yet, that we will be back
at it, that I’ll have a team in Pyongyang in the next couple weeks continuing to work to find those
places where there is shared interest.”

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Clearly a successful outcome on North Korea suggests also a successful resolution of the US-China
trade dispute. The two are certainly connected given the way Donald Trump thinks. But the deal
also requires in GREED & fear’s view some acceptance by America of North Korea’s de facto nuclear
status. This is where Trump’s deal making instincts, and his presumed desire to win the Nobel Peace
Prize, are in conflict with the national security obsessives and neo-conservatives in his
administration of which National Security Adviser John Bolton is the most extreme if not only
example.

How this plays out only time will tell but GREED & fear would bet on deal making prevailing. But that
requires Trump to remain president for the next two years. With the noise growing in the run up to
the presumed release of the Mueller report, GREED & fear remains underwhelmed by the revelations
so far disclosed, most particularly the media noise generated by last week’s Michael Cohen
testimony in Congress. But clearly the risk remains that something concrete is produced by special
counsel Robert Mueller which undermines Trump’s political authority domestically. This would be
extremely bearish since it would make it much more difficult for The Donald to agree to a trade deal
with China raising the risk of the implementation of the threatened increase in tariffs. And clearly
the Democrats have now become much more anti-China, having only seemingly just woken up to
the fact that Beijing has not signed up to a system of universal suffrage.

But the above is still not GREED & fear’s base case since the suspicion is that, if Mueller had come up
with a smoking gun on Russian “collusion” during the 2016 presidential election campaign, it would
have already been leaked to the obvious media outlets. Meanwhile, for anyone wishing to read a
trenchant pro Trump response to the recent Cohen generated noise, GREED & fear recommends the
following article written by the highly articulate Conrad Black (see National Review article: “The
Cohen Fiasco”, 4 March 2019). It also remains the case, as noted by Black, that with Trump’s
popularity rating still holding around the 40-44% level (see Figure 13), it is premature to write off
The Donald’s chances completely in 2020. One point is self-evident. The more left-wing the
Democratic presidential candidate the better the chance Trump has of winning.

Figure 13
President Donald Trump’s approval rating

48 (%)
President Donald Trump's approval rating
46

44

42

40

38

36
Dec 18
Apr 17

Jul 17
Aug 17
Sep 17
Oct 17

Apr 18

Jul 18
Aug 18
Sep 18
Oct 18
Feb 17
Mar 17

May 17

Nov 17
Dec 17

Feb 18
Mar 18

May 18

Nov 18

Feb 19
Mar 19
Jan 17

Jun 17

Jan 18

Jun 18

Jan 19

Source: Bloomberg, RealClearPolitics Poll Average

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

Figure 14
Korea total export growth and exports of semiconductors

70 (%YoY, 3mma) Total export growth

60
Exports of semiconductor
50
40
30
20
10
0
-10
-20
Sep 11

Sep 12

Sep 13

Sep 14

Sep 15

Sep 16

Sep 17

Sep 18
May 11

May 12

May 13

May 14

May 15

May 16

May 17

May 18
Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Jan 17

Jan 18

Jan 19
Note: Data up to February 2019. Source: CLSA, CEIC Data

Returning to South Korea, the latest Korean export data shows a further deceleration. Exports
declined by 11.1% YoY in February following a 5.9% YoY decline in January, while exports of
semiconductors fell by 24.8% YoY (see Figure 14). It is worth noting, as pointed out by CLSA’s head
of Korean research Paul Choi this week (see CLSA research Korea strategy – No deal is better than a
bad deal, 4 March 2019), that the DRAM price and DRAM stocks have been going in opposite
directions since the start of this year, at least until the recent correction in Hynix (see Figure 15).
Samsung Electronics and SK Hynix are still up 15% and 13% respectively year-to-date, after
declining by 6% and 12% from their recent highs reached in mid-February.

Figure 15
SK Hynix share price and DRAM price

100,000 (won) (US$) 10.0

SK Hynix share price DRAM price (RHS)
95,000 9.5
90,000 9.0
85,000 8.5
80,000 8.0
75,000 7.5
70,000 7.0
65,000 6.5
60,000 6.0
55,000 5.5
50,000 5.0
Aug 18

Sep 18
Apr 18

May 18

Jul 18

Oct 18

Nov 18

Dec 18
Jan 18

Feb 18

Mar 18

Jun 18

Jan 19

Feb 19

Mar 19

Source: Bloomberg, CLSA

The other point is that there was a further sharp fall in the income of lower-income households in
Korea in the latest quarterly data and, therefore, a further deterioration in income inequality. The
income of bottom-quintile households plunged by 17.7% YoY in 4Q18, following a 7.5% YoY decline
in the first three quarters of 2018. By contrast, the income of the top-quintile households rose by
10.4% YoY in 4Q18 (see Figure 16).

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

Figure 16
Korea average household income growth for top and bottom quintile households

15 (%YoY) Top quintile Bottom quintile

10

-5

-10

-15

-20
Sep 04

Sep 05

Sep 06

Sep 07

Sep 08

Sep 09

Sep 10

Sep 11

Sep 12

Sep 13

Sep 14

Sep 15

Sep 16

Sep 17

Sep 18
Mar 04

Mar 05

Mar 06

Mar 07

Mar 08

Mar 09

Mar 10

Mar 11

Mar 12

Mar 13

Mar 14

Mar 15

Mar 16

Mar 17

Mar 18
Source: KOSIS

This is another reminder that the left-wing policies of the Minjoo Government are having the precise
opposite effect of what was intended. This is a further reason why President Moon Jae-in is
desperate for progress from the talks between Washington and Pyongyang. Meanwhile for those
dismissive of Trump’s efforts as regards North Korea, it remains the case that he has made
considerably more progress on this issue than any of his predecessors. But the key point remains
whether Kim Jong-un is now willing to allow an investment cycle in the North Korean economy.
GREED & fear still believes that he is.

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

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Companies mentioned
Samsung Electronics (005930 KS - ₩44,450 - BUY)
SK Hynix (000660 KS - ₩68,100 - BUY)

The above shows our fundamental ratings on these stocks.

Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report
accurately reflect my/our own personal views about the securities and/or the issuers and that no
part of my/our compensation was, is, or will be directly or indirectly related to the specific
recommendation or views contained in this research report.

Important disclosures
Recommendation history of SK Hynix Inc 000660 KS
Sanjeev Rana BUY O-PF
Other analysts U-PF SELL
Stock price (₩)

120,000 No coverage N-R

100,000

80,000

60,000

40,000

May 16 Sep 16 Jan 17 May 17 Sep 17 Jan 18 May 18 Sep 18 Jan 19

Date Rec Target Date Rec Target

12 Feb 2019 BUY 90,000.00 26 Oct 2017 U-PF 86,500.00
24 Jan 2019 BUY 85,000.00 17 Oct 2017 U-PF 92,000.00
14 Dec 2018 BUY 80,000.00 25 Jul 2017 BUY 92,000.00
26 Oct 2018 BUY 85,000.00 23 Jun 2017 BUY 87,000.00
16 Jul 2018 BUY 115,000.00 26 Jan 2017 BUY 73,000.00
24 Apr 2018 BUY 100,000.00 01 Dec 2016 BUY 59,000.00
18 Apr 2018 O-PF 98,000.00 04 Oct 2016 BUY 55,000.00
14 Mar 2018 U-PF 90,000.00 27 Jul 2016 BUY 44,000.00
26 Jan 2018 U-PF 80,000.00
Source: CLSA

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Christopher Wood christopher.wood@clsa.com +852 2600 8516

Recommendation history of Samsung Electronics Co Ltd 005930 KS

Sanjeev Rana BUY O-PF
Other analysts U-PF SELL
Stock price (₩)

70,000 No coverage N-R

60,000

50,000

40,000

30,000

May 16 Sep 16 Jan 17 May 17 Sep 17 Jan 18 May 18 Sep 18 Jan 19

Date Rec Target Date Rec Target

31 Jan 2019 BUY 55,000.00 28 Apr 2017 BUY 58,000.00*
14 Dec 2018 BUY 51,000.00 07 Apr 2017 BUY 54,000.00*
31 Oct 2018 BUY 55,000.00 13 Mar 2017 BUY 50,000.00*
06 Jul 2018 BUY 60,000.00 06 Jan 2017 BUY 48,000.00*
26 Apr 2018 BUY 68,000.00* 22 Dec 2016 BUY 45,000.00*
08 Apr 2018 BUY 60,000.00* 07 Oct 2016 BUY 41,000.00*
01 Feb 2018 O-PF 56,000.00* 29 Jul 2016 BUY 38,000.00*
19 Sep 2017 BUY 66,000.00* 22 Jun 2016 BUY 37,000.00*
04 Jul 2017 BUY 60,000.00*
Source: CLSA; * Adjusted for corporate action

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Christopher Wood christopher.wood@clsa.com
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