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MARKET INSIGHT REPORT
Asia 7 - Europe 0
By John R. Taylor, Jr.
Chief Investment Officer
_____________________________________________________________________________
Clearly, that is not a football score, as not one Asian team got through the first round in
Brazil this year (the 16 were 8 from the New World, 6 from Europe and 2 from Africa),
but 7-0 is a score, a much more important one, our tally of high growth economies in the
two continents today. Europes leading candidates, the UK (possibly improving on its
historical form) and Germany (on the way down) do not compare well with even the
weakest of our seven Asian countries. This difference is incredibly important in the three
to thirty year timeframe, an investment horizon for almost everyone. Any projections out
to 2040 show the European contribution to global GDP dropping to less than 50% of its
current global position and the largest gainers are all in Asia. Why invest in the
laggards? All other things equal money should begin pouring out of Europe. All other
things are important, but they also seem stacked against Europe. We have applied some
judgment here, as we considered future projections as well as past performance to make
our choices, and we ignored countries that didn't fit the criteria, like Australia and New
Zealand, which are near Asia but not in it, Israel and Turkey which are Asian but in the
European orbit, and administrative areas like Macau and Hong Kong. Our choices for
the seven cut out some worthies, but each one chosen ranks above every European
counterpart: China, India, Indonesia, Korea, Malaysia, the Philippines, and Singapore.
The projection of higher growth is backed with many coincident variables, which add up
to an ironclad case for Euro-malaise and Asian domination. Four of the Asian countries
are bigger than any in Europe although their per capita GDPs are less than the more
mature European states. Their domestic markets are bigger than European ones, even
with the Eurozone, as it is far from seamless ask any drug company which has to write
drug inserts in over 30 languages for thirty different government regulatory reviews, if it
wants to sell throughout the EU (as a result, few drugs are available in every EU
country). By some measures the Asians are richer. There are more billionaires per
million inhabitants. Each country has a higher Gini Index, which means there are more
very and relatively rich within the country, and less homogenization caused by union
power or government repression through redistribution. Except for China, the Asian
government sectors are smaller. Even the large Chinese public sector is a very different
animal than those of the big European countries. China combines public ownership with
a very high Gini, so its social structure is skewed unlike that of France, Germany, or Italy,
where public ownership is associated with a flat wealth profile and a low Gini reading.
Another component associated with growth where Asia scores well concerns
mathematical competence, access to advanced education, and climbing productivity. At
its core, growth comes down to working-age population growth and productivity. Asia is
in the sweet spot and Europe is past it. What does this mean to currency and other
investment managers? It has meant less than it should in the past as markets in Asia
were smaller, more restrictive for foreign investors, more managed/less free, and less
imbued with the rule-of-law spirit. But things are changing and one could argue that
much of the narrowing differential in safety, liquidity and fairness is occurring because
the European markets are deteriorating under the onslaught of global competition and
Europes inward looking protective response. Asia is improving too, but the mercantilist
spirit is still dominant and Asians want to run their markets and economies for their own
billionaires and corporations not outsiders. The road to investment success in Asia isnt a
short or a straight one, but it is there for the patient and the far-sighted among us. Take
capital from Europe and move it to Asia to build your career.

FX CONCEPTS FX CONCEPTS
GLOBAL MACRO RESEARCH GLOBAL MACRO RESEARCH
CURRENCIES INTEREST RATES EQUITIES COMMODITIES
To contact FX CONCEPTS New York: 1 (212) 554-6830; London: +44 20 7213 9600; Singapore: (65) 67352898; research@fx-concepts.com


CURRENCY - Commodity Currencies Long-term View

NZD - The Future Is Bright
By John R. Taylor, Jr.
_____________________________________________________________________________

In our commentary published a
week ago titled Kiwi Is Following
Aussie Lower we seem to have
been too negative on the AUD.
Although the NZD/USD is more
than 100 points lower and
probably headed down for another
week, the future looks brighter
into late August. We had argued
the Australian dollar currently had
a leadership role in the antipodean
currencies, so our conclusion
should now be flipped over. The
recent Aussie strength, plus
Chinese strength, increases the
odds that the NZD would follow it again, this time moving higher. The New Zealand
currency is now testing its lowest levels in more than a month, raising the possibility that
the major peak we were expecting at the end of August will be below the one seen two
weeks ago, but this is not our most likely outcome. The Aussie turned up around the
middle of last week and has already been strengthening for six days, while the Kiwi
remains weak. We believe that once again the Aussie is showing the way and has
resumed its uptrend and is headed higher into the week of August 11 or the following
week before forming a medium-term peak. If Kiwi follows the recent pattern then it
should bottom by the end of next week (It has to because it is currently testing levels
where the red box was placed last week), and rally for a week or so longer than the
Aussie will. This argues the Kiwi should be bought in the .8580 to .8620 box before
it turns up to follow the Aussie higher.

NZD/USD has not bottomed yet, but it is close. The shorter cycles argue it should
decline today and maybe on Friday. The support between .8600 and .8580, the blue
uptrend, should hold and should be a good place to go long if we are right about a
bottom. The start of next week could see some strength, but by the end we could see a
further and maybe deeper low. By the start of the week of August 4, NZD should turn
higher and rally for a minimum of two weeks and as long as four weeks. A close above
the resistance between .8710 and .8730 will confirm the uptrend is again underway. It is
then headed higher and our targets are the week of August 25 and in a price sense we
are still shooting for a new high at .8910 to .8930. The longer-term cycles argue this
peak should be a very major one, followed by a multi-year decline; however, we will not
be sure of that until we see how the decline into mid-October pans out.

Only a close below the.8580 and .8600 support area will signal the Kiwi is headed lower
into the middle of September and fall to the .8200 area before bottoming, but this
negative outlook is much less likely.