Friday, 31 May 2013

Companies Focus – Global Autos 11 – “Coupled Ratios” Analysis

The previous review provided a snap-shot of the stock-market performance of the 'Global 11' automotive producers, over the past year, 6 months, 3 months, 1 month and 5 day periods. It also recognised the importance of macro-effect headwinds and tailwinds, and the involvement of trend- traders and 'early-bird' long-termists behind stock vitality (and specifically volatility).

This web-log returns to the now more established company fundamentals perspective of 'Coupled Ratios', the simple but insightful, graphically depicted, four-fold viewpoint of a single company set amongst its sector peers.

To re-iterate, the methodology devised by investment-auto-motives uses complementary statistical measures and balance sheet/cash book figures, to provide a set of four dual-aspect graphs.

Each graph simply conjoins two standardised assessment criteria across both 'x' and 'y' axis, within which an intentionally conservative 'investment window' is shown. Its own frame governed by the standardised metrics pertaining to the lower-risk investment spectrum.

The assessment criteria spans :

1. Market Valuation Ratios

2. Profitability Level Ratios

3. Liquidity Level Ratios

4. Debt Level Ratios

This method, whilst spread-sheet originated, provides a most useful overview when graphically depicted, typically illustrating the respective leaders, middlings and laggards.

The information sourced obviously comes from real-time/near-time data providers and Q1 2013 earnings reports (Q4/FY for Japanese firms).

It must be stated that given the global slowdown in vehicle sales over the last 3-6 months most global VMs (especially those most European exposed) have declined from providing what was previously a normative (very basic) level of financial detail; especially so regards the critical issue of operational cashflows and capital expenditure.

In order to partially overcome this vacuum, assumptions have been made where possible using FY and QoQ 2012 intelligence to provide substitutional / proxy data; so providing loose approximation where seen to be feasible. Where not available or convincing 'carry-over' data from Q4 2012 has been used.

Given the improving domestic market situation for the Detroit 3, the offerings from US firms have in contrast been generally quite detailed to highlight the 'rising tide'. This competitive advantage enhanced by the PR push regards current and new-stream pick-up truck manufacturing capacity, itself a “moat-like” market feature of the Detroit inhabitants.

It should also be stated that whilst Q1 2013 figures are hardly fresh toward the end of May, after April and May company reporting, the notion is that stock-markets have during this period are 'settled' well after any pre-reporting and post-reporting stock surges and decline

1. Market Valuation Ratios -

This measure combines P/E and P/B figures.

Those companies placed within or very near the extremes of the allotted 'investment window' are:

VW edging slightly higher in p/e terms but static on p/b (at 3.74, 0.95 respective 'co-ordinates'), Hyundai Motor (at 1.19, 0.21) marginally increasing both values, and Peugeot SA seeing marked positive movement. PSA's improvement seemingly stemming from early-phase investors expecting a mid-term turnaround, whereas VW and Hyundai are fundamentals driven.

Previously on the borders of this investment window sat Renault and Daimler, however even with 'over-cast' Q1 corporate presentations, the recent spell of market appetite for cyclical stocks (rading away from over-priced defensives) has propelled Renault's p/e level and for Daimler both p/e and p/b measures. Renault (at 9.06, 0.66) and Daimler (at 9.7, 1.3)

Floating beyond the overtly cautious investment window, also at around the x10 p/e level sit BMW (at 9.28, 1.47), Ford (at 10.03, 3.31) and GM (at 11.27, 1.69), each seeing their p/e values raised, less so by impact of the 'cyclicals play', more so from brighter North American vehicle sales expectations.

Even with the early influence of the 'Abenomics Effect' that dramatically boosted the TSE indices, on the NYSE Toyota has infact seen a deflation of its p/e and slight inflation of p/b; this seeming stasis the outcome of recent income and profits having already been 'baked-into' market valuation levels (at 15.61, 1.28). Honda (at 15.22, 1.13) saw its p/e level at p/b levels lowered slightly likewise.

Lastly, the influence of Italy's domestic political circumstances apparently extracted from 'dead-lock' and constantly improving sales picture at Chrysler saw both FIAT's p/e and p/b levels shift considerably (at 29, 1 from 16, 0.6), the overtly ballooned present p/e measure very probably the outcome of Italian, European and Asian institutionals happy to wait for a much improved future Italian, EU and Brazilian vehicle sales environment and so an eventually re-balanced FIAT valuation.

2. Profitability Level Ratios -

The measures herein are Profit Margin % and Return of Equity %.

Well within the 'investment window' sits VW, Hyundai and BMW. VW holds valuation 'co-ordinates' (at 10.74, 27.6), Hyundai (at 9.58, 18.87), BMW (at 6.65, 16.84).

Daimler (at 4.66, 13.57) moves to just the wrong-side of the window parameters as it slipped on both counts.

Also outside but on an improvement heading is Toyota (at 4.36, 9.09), Renault (4.29, 7.07), GM (at 4, 15.2) and Honda (at 3.72, 8.07).

Ford stayed effectively static, seeing slight RoE decline (at 4.27, 34).

FIAT SpA (at 0.28, 11.3) showed a newly profitable status thanks to the booking of Chrysler income.

Peugeot (at -9.04, -45.73) appears static, this presently dour position reflecting a no corporate numerics update since FY2012, and its own recognition of its broad exposure to the still under-performing macro-conditions of Europe.

3. Liquidity Level Ratios -

The measures used are Current Ratio and Operational Cashflow Ratio.

[NB When necessary the 'CFR' is derived from the acknowledged calculation for Operating Cashflow...OCF = EBIT – (CapEx + financial investments costs).

Seen within the investment window are: VW (at 1.07, 8.4), Hyundai (at 1.06, 4.0) and BMW (at 1.08, 2.7). VW saw its current ratio remain static whilst its op c-f grew sizeably, Hyundai saw a slight rising of its current ratio and marked decline in op c-f, whilst BMW remained effectively in-situ, with slight rise of current ratio.

Outside the window, but with noted improvement toward investment heading were Toyota (at 1.07, 1.46) and GM (at 1.29, 1.56).

Of substantial change were Honda (at 1.3, -1.9) and FIAT (at 1.46, -1). Both were previously within the window, but now far removed as a result of poor op c-f positions, though static on current ratio standing. FIAT's cash-flow situation much aggrevated by a combination of lacklustre global income (exempting Chrysler) combined with ongoing CapEx demands. Whilst Honda's op c-f position (here shown in US$), dramatically down from previous calculated assumptions, is due to the massive devaluation of the Yen and ongoing CapEx requirements inside Japan to help boost the domestic economy.

Likewise Daimler (at 1.16, -0.86) previously outside the window, remained even more so, seeing its op c-f deteriorate as a result of declined income across nearly all its divisions.

Without detailed nor reasonably modelled op c-f figures as guidance, Peugeot (at 1.04, ???) sees its current ratio static and is assumed to have improved its c-f given primary fixed costs reforms in labour rates and critically important UK and EU sales of the new 208 car.

4. Debt Level Ratios -

The measures herein are Liquidity and Debt levels. To aid immediate assessment, the graph is segmented into five distinct areas, pertaining to liquidity to debt ratios of at or under 1:1, 1:2, 1:3, 1:4 encompassing the 'investment window' and an area beyond.

Within the window, GM slips effectively into the 1:2 realm (at $27.9bn, $52.3bn), Peugeot (at 17.5, 32.55) climbs to sit on the lower cusp of 1:2, FIAT remains in the 1:2 arena (at E11, E29.28), Hyundai (at E13.65, E31.63) remains in-situ the 1:3 sector, Renault (at 11.35, 33.02) stays just inside the 1:3 cusp.

Just within the 1:4 investment parameters are :VW (at E22.5, E99.62), Ford (at E24.18, E107.6), Honda (at $15.33, $62.19) and Renault (at E11.35, E33.02) stays effectively static

Daimler (at E17.7, E78.74) sits just outside this cusp, whilst Toyota (at $30.73, $179.57) is past the 1:5 realm, and BMW (at 11.3, 70.44) is beyond 1:6 territory.

Results -

Valuation Ratios :

VW, Hyundai and Peugeot

Profitability Ratios :

VW, Hyundai and BMW,
(though GM, Daimler, Renault and Honda tentatively approach)

Liquidity Ratios :

VW, Hyundai, BMW
(though GM and Toyota tentatively approach)

Debt Ratios:

FIAT, GM, Peugeot, Hyundai.

Ranked Orders -

The following shows the obvious ranked order of 'investment window' appearances.

Four Windows: Hyundai * (see Post Script)
Three Windows: VW
Two Windows: BMW, Peugeot
One Window: GM, FIAT

Conclusion -

Look closely at the positional dynamics of the Automotive Global 11 and between FY2012 and Q1 2013, and the general picture appears far more muted than in previous incarnations of 'Coupled Ratios' analysis.

This reflects the emergence of (for now at least) a relatively calm macro environment free of man-made financial implosions and high-impact natural disasters.

Thus whilst in certain instances on specific measures there has been sharp movement of specific player's positions – so perhaps sharply affecting their individual multi-aspect standings - the general graphically depicted appearance of investor mood, suggests a period of greater stability.

Something very much required at the beginning of the new western economic transformation period.

Post Script -

Whilst investment-auto-motives seeks to provide s clear a picture as possible regards the 'botttom-up' micro-level picture of companies' fundamentals, as ever the importance of 'top-down' macro-level issues has potential major influence.

This obviously seen by the after-shock effects of the 2008 financial crisis, the European sovereign debt crisis, the medium-term 'real-economy' effect of (necessary) austerity and reform policies, and the more recent slow-down in the big EM countries.

This massive economic disruption played to the advantage of the few automakers that could leverage a global manufacturing and sales foot-print whilst offering value-priced vehicles and enjoying the periodically 'lost competition' of floundering old-guard producers.

However, as the western world slowly returns to a more normalised 'new-norm', those firms that were between 2008 to date very well placed to generate success will find similar future success hard fought to be maintained, thus raising the spectre of previous winners lobbying home governments for greater FX 'flexibility' (depreciation) through new rounds of QE. All to match the deflationary competitive advantage already seen to work in America and now Japan.

Friday, 17 May 2013

Companies Focus – Global Autos 11 – Beyond the European ‘Market Correction'.

During the undertaking of the previous “Coupled Ratios” of the eleven global auto companies (dated 20th March 2013), there was general sentiment that ever-rising markets required a 'breather'. A period of positive profit-taking and re-appraisal, via which investors would reconsider macro and micro conditions. This the investment community's behavioural norm which (it is believed) avoids the bursting of any bubble-effect and so even greater fear-driven losses.

Contrarian Stance... -

With an eye on the long-term, and recognising this early phase of the 'European Transition' period, in a semi-contrarian manner which sought to assist real-world economic dynamics – namely concrete and not paper-based investment sentiment - investment-auto-motives sought that the investment community over-come the usual temptation for near-term profit-taking. Instead provide for the creation of a new substantial 'market floor' which would in turn quicker aid the still fragile 'Main Street' economy.

Given the record difference in the size of the inverse relationship between central bank base interest rates and unemployment rates – a prime historic indicator of the beginning of an eventual long-term bull market – the notion of a much needed market correction was questionable.

...The Pavlovian Reaction -

However, press-driven mini-bubble concern and accordant market reaction saw European markets take that 'breather'.

Its positive upside has been a fresh bout of 'bargain buying', with from a 'technicals trending' basis, some equities at multi-year lows. Furthermore, the strength of recent rally highlights that many still see various equities – cyclically orientated especially – as under-valued given expected future earnings, even if their present valuations seem 'middling' given s still very much constrained B2C and B2B real-world economy devoid of much public sector (government) and private sector (household) consumption.

Hence the markets 'correction' and rebound:

Between 14th March and 18th April, the FTSE 100 rebounded to above former high of 6,529 to 6,243, thereafter rallying to presently about 6,673. Over that same period the CAC 40 moved from 3,871 to 3,599, then rising to now at about 3,977. The DAX 30 saw 8,058 go to 7,459, then climb to a present approximate 8,353. The AEX moved from 356 to 340 in a similar timeframe. The IBEX 35 went from 8,658 to 7,787, re-rising to about 8,571. The FTSE MIB in Milan saw its previous high at the end of January, at 17,892, dropping to 15,154 by early April, now at about 17,410.

In contrast to Europe and its sovereign, inter-banking and fiscal woes, the American S&P 500 shifted less so, between 11th April and 18th April shifting from 1,593 to 1,541, pulling hard thereafter to about 1,650. (Its earlier 'correction' came earlier in Oct-Nov 2012). Whilst the previous stable traction of the NASDAQ was momentarily de-railed by the collapse of Apple Inc's shares, before re-setting its previous trending course recently.

However, what is evident from European and American dynamics is that investment appetite is still very much the case; seemingly from both re-charmed domestic investors, and those in EM nations seeking to re-allocate liquidity The primary difference being that:

1. S.Europe being more politically and economically fragile appears to be more speculatively driven, hence its proclivity toward sharp yet range-bound lows and highs (buys and sells)

2. N.Europe appears more schizophrenic, the main markets driven by a mix of fundamentals and the 'drip-drip' of good and bad economic news stories, the good over-powering the bad given the pro-investment mood, whilst the smaller SME related bourses appear 'range-bound' with step increases.

3. USA has gained from greater overall PESTEL constancy, even through 'fiscal cliffs' and 'sequestrations', so a greater market confidence and rising stability; though may expect another small '6-month market' correction soon.

As for the 'big picture' perspective, as mentioned before, the idea of a bonds to equities 'great rotation' has under-pinned the stock markets may be a partial anathema, simply the case that the great mass of additional liquidity injected via QE has both increased bond market volumes and so depressed yields (seen in today's chasing of record 'junk-bond' sales), with a portion of that new liquidity being directed into equities and a natural shift from very low-paying bonds (some pushed negative because of active monetary policy to buoy equities) into the stock market.

This then gives a very basic summary of present western market conditions, and whilst interesting market movements are occurring elsewhere across the world in the BRIC economies (as they seek to re-strengthen a loss of growth momentum), investment-auto-motives' immediate focus for the present is upon the large automotive corporates.

The Global Autos 11 -

Whilst the next web-log will provide an updated “Coupled Ratios” analysis review, looking at each companies fundamentals, this commentary seeks to observe the opposite side of the coin.

Namely, a basic market related perspective of time-line gains (and some losses) over the last year.

The Year to Date -

The last twelve months is viewed as critical by investment-auto-motives, given the loss of EU vehicle-buying corporate and consumer confidence in H2 2012. Previous rebound traction had been seen but the Greek and Italian economic jitters undermined the continent's buying. This then unfortunately mimicked contraction in China, S.Korea and Japan, which themselves had partially relied upon either governmental or manufacturer incentives. Furthermore Brazil has seen gradually vehicle sales and India a relatively sharp decline, the former a macro outcome, the latter the combination of inflation concerns and fuel duty policies.

Only N.America has maintained a stable upward trajectory, moving from approximately 12.5m units per annum in the sales trough to about 16m today, this strong rebound induced by the effect of credit starvation with manufacturer cost-base restructuring, followed by massive QE liquidity, and the ability of domestic manufacturers to both gain from US patriotism and the previous FX advantage against Japanese, European and S.Korean 'imports' (though often assembled within the US). That quick 'out of the blocs' start provided the Detroit 'Big 3' with early and strong in-market gains, the expansion of the market itself now allowing the non-domestic VMs to enjoy their much needed sales share.

Hence unsurprisingly those with greatest exposure to Europe (such as Peugeout SA) suffered the greatest (yet also arguably offered very short and good long-term investor potential). Whilst those with a far greater worldwide coverage (such as VW, Hyundai) and so far less diminished profitability, effectively remained the investor darlings. Yet local issues had large affect, the European market correction seeing VW's share price dragged far lower than fundamentals would suggest.

Hyundai Motor was forced to cope with the domestic uncertainty of a militarily aggressive N.Korea (which periiodically heavily depressed its share price), whilst Japanese producers faced retracted demand from anti-Japanese consumers given the territorial dispute. And now premium makers such as BMW, Daimler and VW(Audi) face a theoretical slowed rate of growth given the impact of the China's new leadership stance, frowning upon overt ostentation.

The German Brand Exception -

However, as per 'the Germans', investment-auto-motives suspects that the PRC leadership will not classify German-badged premium cars as targeted luxury goods, given their relative visual conservatism (versus stable-mates such as Bugatti, Lamborghini, Bentley and Rolls-Royce [and Italian Ferrari, Maserati]). Nor indeed will the German marques be acquanted with imported high fashion personal apparel goods ranging from Prada to Gucci to Cartier to Rolex. The important difference is the the German marques are assembled inside China, which in turn strengthens the local supply-chain and therefor regional econimies, aswell as aiding the domestic sector's own technology cross-fertilisation and adoption. Thus VW-Audi, BMW and Daimler remain special cases largely beyond the consequences of a renewed Sino-conservatism. Furthermore, any such loss of Chinese high-end luxury and supercar demand will be off-set by the resurgent US economy, itself keen to champion conspicuous consumption to buoy aspiration and confidence.

Japanese Self-Help -

There appears to have been much speculation that the liquidity fruits of 'Abenomics' will be largely directed at foreign bond and stock markets, offering better yields that domestic Japan.

No doubt Japan's government via its prime financial institutions will direct a portion of funds externally given the need to finance indebted public spending, the expanded Yen's money-base creating a method of 'carry-trade'.

However, it seems also likely to be the case that a sizeable portion of the 'freed funds' be deployed domestically, as has obviously been seen before but at smaller levels. The difference today being the American domestic precedent, and the lesson that a large QE injection of funds into re-structured industry has a rising tide effect.

The homeland Fukushima experience, creating a less expensive patriotic labour supply, together with re-organisation of its Asian-based supply-chain (after the Thai floods) has meant that Japan has decreased its overall costs, added capacity, and able to retain a greater proportion of the 'value-added', and so profit margin, in the country. This then sets the scene for a resurgent Japan, able to re-expand its foreign sales with renewed pricing power capabilities in a lowering Yen environment, able to provide its own citizens with much desired employment stability and so domestic spending confidence, and the best of Japan's industry still in or near its competitive prime, seeing a two-fold income effect from overseas and domestic revenues streams.

So, a long-lasting policy of an ever weakened Yen would see the value of increasing foreign purchases gain an FX boost upon funding repatriation; but of more importance is domestic policy and the new BoJ funds progressively fed into the TSE, bond markets and directly into domestic corporations.In order to provide sheer balance sheet muscle for what have been heavily depleted Japanese firms. Moreover, the question is what else has Japan technologically conjured-up in its corporate research departments, ready for global deployment?

[NB This, investment-auto-motives believes, is why the activist Hedge Fund manager Michael Loeb is seeking greater say at Sony, along with divestment potential, which Sony is wise to resist].

Regional SnapShot -

So presently we see a re-energised America, a still struggling Europe, the BRICs experiencing 'policy re-orientation' with slowed growth (most easily effected in China), Japan well re-strengthened, and S.Korea incrementally losing its comparative productivity strength.

The Auto Producers -

With regards to the automotive players, and their respective stock performance over the last year - vs fundamentals view of “Coupled Ratios” - the following table provides a simple summary of how the stock price of each manufacturer has performed over the long, mid and short-term stages of the last year.

Common Stock Performance -
Over Previous Periods
as of 15.05.2013:

(view accompanying graphic)

1 year:
Renault = 78%
Toyota = 58.56%
FIAT SpA = 47.42
GM = 47.3%
Ford = 40.6%
Honda = 23.78%
VW = 23.15%
Daimler = 21.2%
Hyundai = 20%
BMW = 10.79%
PSA = -24.2%

6 months:
Renault = 66.6%
Toyota = 54.7%
FIAT SpA = 47.25%
PSA = 41.3%
Ford = 35%
GM = 32.1%
Honda = 31.67%
Daimler = 29%
Hyundai = 20%
BMW = 17.1%
VW = 8.3%

3 months:
Toyota = 21%
Hyundai = 19.4%
Renault = 16.4%
GM = 13.65%
FIAT SpA = 13.5%
Ford = 9.6%
Honda = 8.36%
Daimler = 4.58%
BMW = 2.32%
PSA = -1.77%
VW = -8.6%

1 month:
FIAT SpA = 23%
Renault = 18.16%
Daimler = 16.6%
PSA = 13.6%
Toyota = 11.8%
Hyundai = 11.5%
VW = 10.5%
BMW = 10.34%
Ford = 10.2%
GM = 9.1%
Honda = 4.6%

5 days:
FIAT SpA = 11.6%
Renault = 11%
PSA = 10.3%
Daimler = 6.6%
Toyota = 5.8%
VW = 2.35%
BMW = 1.3%
Honda = 1.1%
Hyundai = 1%
Ford = 1%
GM = 0.3%

Observations -

Renault (ie Renault-Nissan) has out-performed its counterparts by a wide margin, much of that gain over the last 6 months, as either a sector leader or within the top-3 at each measured interval. This from mix of Nissan's exposure to the USA and Renault's successful labour negotiations; but much hoisted by broad speculation regards France's and the EU's general economic rebound, from mired lows. As to whether Renault's stock can weather France's present social unease with the lacklustre traction of Hollande's presidency (though itself an unrealistic expectation) remains to be seen.

Likewise Toyota has seen an impressive pull, this perhaps more convincing given its autonomy over its industrial structure, massive influence regards BoJ currency policy and its large presence in up-turn USA.

It held its strong position for 9 months of the 12 months seen, only recently slipping down the leader-board.

FIAT SpA (ie FIAT-Chrysler) has seen a strong rebound from its lows, a mix of expectation and sales delivery from Chrysler in the N.America, and of course basement-bargain picking at price lows; suffering in high exposure Europe and S.America. Thus seeing 3rd, 3rd, 5th, 1st and 1st positions. Hence its speculative strength held for the first half of the period, then fell, before returning in recent weeks. That recent gain, like many Italian equities, based upon new (though returned) domestic political leadership.

GM has seen initially 'middling' and latterly 'low' performances, this predicated on the tail-end of a QE push, thereafter partial loss of N.American market-share as the Japanese return, international bias to lower margin small and medium vehicle sales and a still struggling GME division in Europe.

Ford has experienced similar overall conditions, 'middling to low' though positively enjoying continual success in China with its Fiesta small car (vs GM and Japanese).

Honda, unlike its Japanese peer, has seen middling to low performance across the last 12 months, seemingly more affected by the China's 'consumer embargo' on Japanese vehicles, and with a slightly higher price position to Toyota in the US yet to enjoy a full boost in sales (itself looking to more expensive offerings in x-overs and sub-compact cars.

VW, though perhaps the industry titan, has suffered throughout the year in comparison, with low-middling and lowest price performance. Yet this is not surprising since it has seen its stock-price rise over the preceding 3 years with only large upward 'humps' upon the stable rising trend. Hence the recent European contraction offered a rewarding moment for accrued profit-taking, hastened by corporate remarks that the market “over-expected” from VW in 2013. This possibly a ploy to 're-set' the inflated stock-price and so provide a welcome entry point for 'bond to equities rotating' large institutionals.

Daimler's performance could be described as 3 periods of 'low-middling' recently followed by 'high-middling' over the last month. But it appears to be climbing the performance chart with a steep angle climb, presumably based upon the earnings potential of Trucks and Cars in the US, (the latter expanded by compact CLA) with a cadence-like follow-on latterly in N.Europe, thereafter the BRIC nations.

Hyundai has been generally low-middling, altered by a 2nd position three months ago. Seemingly forever on the lowest of price-earnings measures (because of its XETRA ADR status) and therefore a constant statistical favourite) its loss of 20% or so on the KOSPI over the last 9 months has seemingly engendered continuation of its 'peaky' range-bound, gradual rise trend on XETRA. Hyundai grew its domestic market-share through the recent N.Korean induced economic worries, has mass popularity in China and an ever growing acceptance in N.America (even through the mpg scandal) and in Europe, all thanks its much improved vehicle range and brand persona.

Overview -
The last 12 months have been largely a long-awaited stock-price (and so corporate) positive re-valuation. Much of that seen over the last 6 months which ironically has also seen depleted broad economic confidence in many global regions. However, it seems that having seen the previous American market 'breather' and the recent European 'correction' different investor types are confident in accruing both short-term (buy on the dip, sell on the high) and long-term positions.

Like many cyclical sectors, performance was and still is obviously heavily related to macro-economics and the issue of policy deployment within both indigenous and foreign markets.

Presently though it appears that America has and continues to be perhaps the prime income region for all global manufacturers.

With liquidity and credit 'trickle-down' seeping into corporates, large businesses and the more credit-worthy consumers first; with their own vehicle fleet renewals and premium car rewards for Presidents, V-P's and senior management. Thus supporting premium car demand.

Thereafter as employment improves yet further, employee earnings income will better sustain mid-size, compact and small car sales from all auto-producers, especially so Japanese and S.Koreans.

Critically, it will be the rate of new construction projects, primarily infrastructure and domestic housing, as opposed to office and retail space, that will underpin the high margin commercial vehicle pick-up truck and van sales: giving the Detroit players a home sales and income advantage.

Yet these VMs must best manage all global regions: maximising exposure to up-beat regional markets and shrinking fixed and variable costs in down-beat geographies. So managing European fragility and the BRIC contraction is perhaps key to defining modern world-class performers; not simply 'rising-tide' winners.
The task, as ever, for auto-sector investors is to stock-pick when timely and prudent, balancing the mood of the market, inter-regional sales dynamics and corporate prospects and fundamentals...a focus on the latter to follow with a “Coupled Ratios” review.

Monday, 6 May 2013

Micro Level Trends – European Economic Transition (Part 3) – Corporates as Pathway Creators for the Global Public Good.

Parts 1 and 2 of this three-part weblog set forth the idea that Europe may seek to rebuild its economic strength by undertaking a dual-aspect regional agenda. Setting forth a template which attempts to circumnavigate the expectant hyper-competitiveness of mid-value mass-manufacture between the USA and the BRIC nations.

European “Core Path...-

The primary aspect of Europe's much needed revitalisation of course relies upon necessary progression of its global competitive advantages - across the sciences, R&D, and high-value manufacturing and services. So as to continually create 'mid and far horizon' technologies and activities for both its own good, and that of EM powerhouse interests; thereby drafting 'tomorrow's world'.

...Plus “Peripheral Path”

However, investment-auto-motives also believes that this continental norm should be conjoined by a new focus on those nations that sit beyond the BRICs and CIVETS. So embracing those demographically, culturally and politically positive prospects amongst the plethora of remaining but yet far from fully matured 'bottom-tier' countries.

[NB see accompanying diagram]

The EU and a true “3-Speed” World -

Whilst it is ridiculous to think of core and periphery Europe as two distinctly separate regions, whilst there are still undoubted cultural differences between north and south, the fact is that since the early phase of the industrial age nations have been technically and economically intertwined: the auto-industry and the Euro prime examples.

Yet today, the consequences of the financial crash and the sovereign debt crisis have undoubtedly had a geo-economic effect, and has re-cast the previous status quo. This new era has obviously created critical questions regards policies for European growth. Some periphery nation governments appear to believe, or at least infer, that Germany wishes to create a teutonic supra-state using the EU mantle; the negative reaction to the austerity drive sought for German biased EU financing. In turn, the Germans seek a stable, value-adding Europe within the global context, within which the teutonic model, unlike many others, clearly shines.

The required solution to this challenge will inevitably require in its basic form a SWOT analysis of Europe 'as is' and 'as was', so as to appreciate how what is presently a 2-speed Europe can properly integrate beyond the (IMF's) 3-speed world. (US, prime EMs and EU) [yet recognising the trueism of a 4-Speed world which includes the worst performing 'bottom-tier' EM countries].

It has been ascertained that the US and BRICs will vie (and collaborate) over the massive global middle-ground in manufacturing, whilst obviously the former will seek to retain leadership in defence, the internet, bio-sciences, intelligent transport and 'earth sciences'.

Europe must therefore recognise where it can function as single entity with the remit of purveying the 'global public good', doing so en-mass and via its individual member states, acting individually or as similarly placed sub-groups.

To this end investment-auto-motives proposes that a policy format be examined, with specific focus on periphery countries, by which “member states be steered toward global gates”. That is to say that the strengths/competences of such countries, both today and specifically from their own historic pasts, be re-recognised and utilised.

Yesteryear's Progress...-

It is suggested by investment--auto-motives that the Post WW2 reconstruction era serve as an impetus for periphery countries' own modern-day reconstruction efforts, with past and new learning/solutions being exported to those high-potential 'bottom-tier' emerging countries. In effect a re-deployment of the European industrial lead gained over the last 70 years of so, perhaps the best of which was seen in the 'reconstructional spirit' during the late 1940s, 1950s and early 1960s.

Yet also recognising that aspects of that knowledge lead have indeed been diluted as the larger EM nations went through their own development process, the results of which empowered them to assist the bottom-tier nations, whether neighbours or far overseas.

Both the post WW2 period and the 1960s/70s saw an 'export or die' fervour, Britain's directed to the Commonwealth and newly entered European Common Market (as a new member), with Germany directed to the USA, general Latin America and Africa, and Italy focused upon Brazil. This was primarily regards the technology transfer of capital goods and consumer goods, those efforts partially replaced today by a new set of EM exporting and substantial FDI nations. Hence, the uni-directional export model has been replicated by those arguably better placed geo-politically (if not technically) and so must be evolved.

...With Entrepreneurial Twist -

This means creation of an alternative model that is equally hinged around the abilities, achievements and potential of those countries' human capital.

Since, as stated the capital markets of many (though not all) 'frontier countries have seen large inflows of western cash, with local investment managers presumably seeking to stream-line corporate operations and boost earnings; the time may be appropriate to consider a specific focus upon local entrepreneurs.

The sons and daughters of the local political, financial and corporate elite often pre-figure as local entrepreneur given their wealth and connections, power typically residing in the hands of specific families generation after generation which protect their interests.

Typically, such poor but ambitious people are usually observed by the local elite. First cajoled into false friendships, then operationally undermined (sabotage), then stated that the only access financing, market share and protection from 'accidents' only if “on side”. Truly socially repugnant, and damaging to the broader economy. After all, their purses may be far smaller, but their business acumen often far more pronounced.

[Of course a similar, often more psychologically biased, process is experienced in so called developed nations; outwardly decent people wholly disingenuous in their actions].

All of this has a broader the strangulation effect, unless cultural and regulatory reforms can be made.   
So in this instance, whilst the influence of the local elite is undeniable, it too should be convinced that the overall economy gains from the inclusion and support of small time 'ghetto entrepreneurs'. People though with few personal “gonnegtions” (to quote a character from The Great Gatsby), have built their business from scratch, through “blood,sweat and toil” (to quote Churchill).

A Closer Look at the 'Frontier Fringe' -

Once again the FT recently laid out a useful overview of how liquidity has been fed into many of the so called “frontier economy” nations by so-called sophisticated investors looking for improved yields in a generally low yield world. This small but increasingly influential investor base – typically a representing the accumulated small portions of larger funds - seeking strong value amid a low-growth West and recognising the affect of slowed BRIC economies on portfolio returns.

Thus it appears that record sums have been directed at the lower-risk end of 'exotic' targets; most typically the fixed-income instruments of government bonds given relative safety.

Equities likewise have seen massive popularity in certain countries, with the Philippines and Thailand bourses out-performing the broad MSCI index by significant levels, high p/e values driven by western liquidity seeking better returns.

Of real note has been the marked reduction in government borrowing rates seen by various 'frontier countries'. Many having shrugged-off past PESTEL malaise, then seen in high government borrowing costs, and today the most appealing not too far behind some of Europe's periphery nations. Seemingly the result from a combined effect of improved fundamentals (often assisted by the decade-long 'China-effect), a high supply of investor liquidity, and worsened ROI conditions across major countries.

[NB Whilst general macro trends tend to be on a regional basis, thus encompassing a similar array of close proximity countries, each and every country is obviously a specific case given specific local conditions].

However, if it is ascertained that truly new and sustainable foundations have been established in specific 'frontier' government debt markets, viewed via stable economic indicators, themselves typically derived from strong-hold domestic industries (ie agriculture, mining, processing, tourism and consumer staples), then (even at this low point of the global commodities cycle) it would appear that an economic framework has indeed been created to support a virtuous circle of growth.

Such growth providing the fertile conditions for small-scale business people – the 'ghetto entrepreneurs' - within what should be an emergent and burgeoning private enterprise realm.

Whilst over the past 5 years the western world has been focused upon the repair of its complex, inter-connected financial system and the reduction of over-leveraged public and private sectors, with efforts to create new economic fundamentals, a very different story of apparent commercial strength has emerged across (Sub-Saharan) Africa, the CIS, Asia and Central and Latin America.

Small, but densely populated Rwanda was recently used in an FT presentation to exemplify such an “African Tiger Economy”. Twenty years on from civil war, the last decade has seen an average growth rate of an impressive 9% per annum, on-par or out-pacing many of the far more renowned EM countries. For the reasons previously mentioned (apparent national stability, a trounced west and sea of liquidity seeking a home) Rwanda recently received order offerings of $3bn for its ten year bond, with a coupon of 6.875%; this not so far from Portugal's 5.7% coupon.

[NB However, investment-auto-motives is concerned that the massive $3bn subscription level (half the national GDP) may have the hallmarks of a bond-bubble].

Any similar story for 'frontier economies' means that investors must be convinced of their respective economic growth stories, which not only theorises a balance of public sector vs FDI vs private sector spending; but sees it in practical action.

The historical and trending stability, or not, of the local stock-market, and its innate rebound effect, should provide a typical guide to overall economic strength, yet it must be recognised that 'immature', sector weighted, bourses typical experience higher volumes of speculative trades which drive such markets]

The China Effect -

Nonetheless, with this proviso established, it was undeniably the arrival of China's 'quid pro quo' trade agreements with small EM states – itself often based upon an “commodities for infrastructure” exchange – by which the necessary physical foundations for improving many local economies were established. By way of much improved and new ports, roads, railways, telecoms, warehousing, trucking etc. This FDI accompanied by the usual offerings of official state aid, soft loans etc.

The exact quantity of Chinese trade and assistance to African nations appears questionable. One recent source states that $75bn was provided for formal projects over 2000 to 2011, yet unofficial projects amassed to $260bn over the period. Another academic source states that this is wholly inaccurate; exact figures rarely examined deeply given the time and effort required for true field research, especially when media deadlines loom.

Nevertheless, whatever the exacting reality, such Government-Sino project employment has put money in the pockets of locals, those new incomes creating an expanded arena of general local commerce, ranging from clothes to bars, from supermarkets to cars (themselves often 'grey imported' Japanese, European and American models).

It is also noted that a sense of free-market competition was also introduced whereby a small but significant ex-pat Chinese population sought to become local economic actors with interests ranging from chicken-rearing with market-stall sales to the sale of Chinese made goods, from toys to generators.

Western Catch-Up -

Obviously whilst the relations between such EM countries and China have been at times fractious given balance-of-power issues, the plethora of international couplings created by Sino-EM projects and resulting economic integration has presumably been concerning to a shrunken, and only recently regained, West.

With this recognised, and with an inferred expectation that Europe seeks not to be over-shadowed by the US, it should be necessarily keen to re-integrate with smaller nations.

This is perhaps why, in the footsteps of great Swedish statisticians, the free to browse 'fact-site' has been created, by the engaging yet modest Hans Rosling. Himself seeking to promote the applied statistics behind the theorum of a 're-balancing world' – where the East regains equality with (and possibly surpassing) the West (after a thousand year hiatus).

[NB He points out that some of those underling countries have better population health statistics than the West, such places seeing a balance of dietary intake versus calorie burning, this presumably predicated on greater physical exertion. Exactly whether such countries are able to avoid the over-weight and obesity as incomes rise to provide ever more physical convenience remains to be seen].

Led by the UK, cash strapped western nations are now seeking to reduce and remove increasing foreign aid monies. As regards South Africa (and no doubt with others) it is perhaps rightly argued that any country with proven wealth creation capabilities ought to take on greater responsibility for its own low and non income earners. This approach subtly yet publicly stated by Japan recently as it seeks more constructive relationships, with Africa especially, akin to that which has benefited China.

The timing of the triad countries seeking a 'better deal' appears strategic given the economic slowdown in China and the expected consequential effects upon the strength of Sino-African relations.

Re-Discovering and Exporting the Re-Construction Spirit -

Today 'austerity' has become the byword across Europe from Ireland to Greece, at a level perhaps not experienced since the privations of WW2 and its aftermath. It was then essentially a re-developing continent with a re-construction agenda, arguably stymied by the restrictions of the gold standard to pump-prime national economies. Though with more flexible monetary levers today, governments must still carefully balance cost-base relative to liquidity, critically creating a sound economic platform by which the two may generate true investor appeal.

However, as mentioned in previous posts, investment-auto-motives believes that Europe can re-learn the lessons of old, and in the 21st century re-apply them not simply within the region but across those places in the rest of the world that sit below the BRICs and various CIVETS.

Germany of course was forced to quickly re-invent itself, banned from military engineering the efforts of the day were directed toward affordable products; names like Messerschmitt and Heinkel adorning the micro-cars of the time which, like Italy's Vespa scooter and sibling Ape 3-wheeler, sought to provide mass mobility and revitalise a depleted economy.

In 1948 Britain's Rover Car Company provided the original Land Rover (today Defender), itself derived from the rugged simplicity of war-time Willys and Ford Jeeps, but with even greater utility applications for agriculture and construction projects worldwide. France was able to initiate mass production of the Deux Chevaux, a true 'town and country' car. Slightly later specialist manufacturers such as Austria's Steyr Daimler Puch were able to create for their own needs, thus the small multi-purpose 4x4 Haflinger emerged primarily for steep gradient agricultural and forest work.

Whilst these names have been enshrined in automotive history, similar efforts were apparent elsewhere across Europe, all assisting in regional, national and the European growth story. Yet of intrinsic interest was the manner in which the small and new enterprises of a far more financially starved Southern Europe was able to flourish through practicality and determination; best seen in the synergies of agricultural fields and local light industry.

Practical Low Cost Innovation -
1. Re-Deploying the Proven Past

Italy's BCS Agricultural Equipment (now BCS-Ferrari) [no relation to FIAT] is a good example of the pragmatic and evolutionary ingenuity those serving the farming folk.

The firm was founded by Luigi Castoldi to offer basic but robust small holder/small farm equipment. Thereafter, as is typical, success saw the firm's size grew and as it acquired other Southern European companies its products became more generically task dedicated. But perhaps its creative and socially relevant pinnacle came with the creation of its modular powered axle.

Similar one-person operator products had long been in existence since the turn of the 20th century, with answers to specific rotovating,cultivating and mowing needs. Yet BCS sought to amalgamate functionality by expanding the range of tasks its powered-axle could undertake, via the attachment of various ancillary items. In its basic form, operated by a walking person via handlebars in rutted ground, or by the attachment of a trailing seat for better comfort upon flat ground.

But at a time when even old small trucks and cars were either unavailable or too expensive (given rarity) and newly created vehicles very expensive, the beauty was that the drive axle could be attached to the rear a BCS 'truck bed' (or indeed a home-made platform) and driven from the front of the vehicle; its small size able to traverse hill paths and country lanes. In its vehicular entirety it was/is known as the Carolina and is a much admired and loved item to this day.

That basic two wheeled piece of machinery (akin to a traditional small tractor's rear axle, without 3-point hitch) has been mimicked by others in EM countries ever since, today many regional manufacturers offering similar items, with the exception that usually the power unit is placed at the front to ease direct steering and linked either directly or via an articulated swivel joint to the trailing platform; some even offering a coupled 4WD system.

Prior to WW2 agricultural equipment development had been slow, commerce more interested in mergers and acquisitions to obtain market share, and only truly boosted by Britain's Harry Ferguson inventing the 3-point hitch applied to the 'A' and TE20 models, itself a postwar phenomenon.

In effect, the BCS Carolina provided the kind of productivity advantage for Southern European small-holders, as the TE20 did for worldwide large farms.

Whilst we are many decades on from that time, and indeed agriculture in many larger EM countries is already on a massive scale demanding big machinery, there are still very many agricultural small-holder based societies that would benefit from affordable (cash or micro-credit procured) adaptable equipment.

So herein is a yesteryear solution that still has relevance and great appeal, either to full-time, market-garden growers, and perhaps especially so to those whose family members are themselves village to city and return migrant workers.

A proven solution awaiting contemporary re-applications

Practical Low Cost Innovation -
2. Evolving the Pragmatic Present

An ability to adapt and innovate has always been a matter of fact in low income 'bottom tier' societies. Everything has a value, whether it be functional or monetarily; the most prized being both. Unsurprisingly, the prevailing attitude is that “needs must”, “make do and mend”, “recycle” and obtaining “maximum value for minimum cost'.

Beyond the immediacy of food, shelter, clothing and cultural artifacts, the transportation of people and goods takes priority.

Vehicles of all types have, since the earliest horse-drawn times, conveyed a sense of personal pride to the owner. The more rarefied or socially meaningful the vehicle the more self-worth is attached. It comes as no surprise that their exclusivity in lower-tier nations means that invariably the vehicles themselves become 'canvases' upon which the owner/driver paints and decorates (usually) his personal interests and signifiers.

Given the primary roles of trucks and buses in transporting goods and peoples within emerging countries, the innate social cache and monetary value of vehicles, ever since the arrival of those first vehicles from the West, customisation has been endemic; especially so for the culturally superstitious.

Privately run 'independent' trucks and buses have for decades been adorned with good luck charms and socially relevant pictorials. Of the former, in near-eastern places the age-old 'evil eye' to ward off bad luck, and in middle and far-eastern climbs the original swastika (suastika) to enhance well-being, itself adopted from temples and homes.

The desire to customise – at whatever available level - has long traditions, and spans the world:

- Long distance hauliers of Pakistan, Afghanistan and N.India with 'Jingle Trucks'
- 'Dressed' Tractors hauling fruit and vegetables to market.
- Music blaring 'graffiti-art' public service Matuta mini-buses in Kenya
- Town and Rural hop-on/hop-off Jeepneys of the Philippines
- 1950s American cars as 'personal taxis' in Cuba
- Unregulated car-based taxi-cabs throughout many EM cities.
- Many regulated taxi-cabs across the EM world with not so subtle personalisation
- 3-wheeler Rickshaws and 'Tuk-Tuks' that buzz with loads and people
- Motorcycles with side-cars that perform the same role.
- Scooters pulling mini-trailers
- Bicycle rickshaws

[NB investment-auto-motives says “viva la difference” given the vehicle's contribution to local cultural iconography and the general street-scape. Why be '1st world' clinical with the homogeneous 'yellow-cab look' when the vehicles transmit so much local flavour. To all authorities that seek to regulate: enforce safety standards and good driver discipline, but retain the personality.

Remember, the desire for regulated yet idiosyncratic public and private hire transport also seen in the London Black Cab, London Routemaster Bus, previously the New York Cab, Brazil's 'missing seat' VW Beetle Taxis and Cuba's Havanna 'CoCo' shell shaped trike tourist taxi].

Thus we see that the pride of ownership and cultural norms invariably lead to personal customisation, the formula of which is generally a permutation of influences: interests, social reflections, belief systems, proverbs, heroic figures and aspirations.

Of course as people's incomes rise they seek to improve their lives with newer products and vehicles, and in Central America this has come to pass with the Colombian 'Yipao' (Jeepao) [Willys Jeep], which has in reality become little more than a heritage spectacle for independence day celebrations.

However, the endemic culture is still seen elsewhere.

Whilst municipal authorities seek to improve local transport networks with increasingly modern and contemporary looking officially liveried vehicles, and there is often mixed local opinion, such efforts are typical resisted by not only those with business interests, but many of the local folk who foresee inflationary pricing resulting from lost inter-competition.

For the present then the likes of the Kenyan 'Matuta' Mini-Bus, Haitian 'Tap Tap' Bus, Columbian 'Chiva' Bus and 'Chicken Bus' in Guatamala/Nicaragua/Honduras ply their trades.

Whilst of course the owners of the Indo-Asian 'Jingle Truck', though recognising the slow but increasing appearance of larger modern single identity fleets, also for the most part have the road to themselves. In stark contrast to Japan's money lavished and exuberantly decorated 'Dekotora Trucks', similar statements of owner independence, the Jingle Truck is the necessary product of practical, low cost decoration, adaption and innovation; applied to overall appearance, the challenges of what should be routine maintenance and repair, and the need to maximise the utility of the vehicle.

But perhaps the most singularly renowned and expressive vehicle that evolves the pragmatic present, and has shown the 'reconstructive spirit' of a country is the legendary Jeepney of The Philippines.

The story of the Jeepney's emergence and its success obviously begins with its roots in WW2 American surplus military equipment left on the Islands. During a period when motorized transport was precious, small-time entrepreneurs recognised the Jeep's innate value. Once acquired those early operators initially lengthening the rear overhang of a Jeep to accept more cargo and passengers.

It soon became obvious that improved economies of scale would be captured by lengthening the Jeep's wheelbase to double or more its passenger capacity; with the addition of roof-racks allowing for passenger goods storage above, instead of occupying the cabin space, and even external bars onto which external passengers could cling.

The genre evolved thanks to various entrepreneurs, most visible being Leonardo Salvador Sarao Senior, who on small borrowed funds founded Sarao Motors, a vertically integrated firm which effectively set the engineering and bodystyle standard, so becoming 'Mr Jeepney'.

To quote Wikipedia.....“He revolutionized a burgeoning industry and changed the life of generations of Filipinos...he was awarded The Outstanding Filipino Award in 1997 for Entrepreneurship Though he only attained low-level of education because of poverty he was able to make the company grow into a multimillion peso conglomerate”.

The vehicle type itself has periodically yet continually evolved, today there being various classes of Jeepney, from the truly original pure 'classic' from original Willys Jeep parts, to the 2nd generation type that uses reconditioned components, to a third generation which are not Jeep derived at all, instead a modified LCV truck chassis with standard or adapted wheelbase and Jeepney-like bodywork that allows for even greater passenger numbers.

Whilst original Jeepney manufacturer saw increasing competition, it was the 3rd generation type that evolved the business model, able to create a more expensive yet better income-earning vehicle.

So the Jeepney industry story is one of genetic evolution as overtaken firms went into liquidation resulting from both previous economic cycles and newer “son of Jeepney” products. This evolution continues across the Philippino archipelao as newer vehicles are either imported from elsewhere and simply decorated as Jeepneys or indeed new-era Jeepneys are created from the major adaption of other vehicle types ((pick-ups and vans) or created from the drawing board using proprietary vehicle frames and OEM components (engine, drivetrain, electrical, ancilleries), which themselves are aesthtically ever more remote from the Jeepney face.

Thus the effect of the Jeepney phenomina has been to not only create the original industrial sector thanks to Sarao and others, but in doing so creating a pilar of the Philippino economy that both lubricated the economy through the transportation of people and their goods, but also created a myriad of suppliers to service this 'auto-economy', that economy itself grown ever large by the introduction of new entrepreneurs and participants adding ever more technically and utility improved vehicles.

The lesson here is that a country that for so long was seen to be an economic backwater by the advanced nations, did indeed create for itself by utilising those resources immediately at hand, the surplus Jeeps, the pragmatic vision of hands-on entrepreneurs and the cultural importance of a poor but industrious and enthusiastic people.

Today the Jeepney industry is horizontally diverse and vertically deep, encompassing body-side painters, sheet-metal workers, materials suppliers, body-building technicians (in steel, aluminium and plastics), general mechanics for engines, drivetrain and chassis, component suppliers, vehicle importers, and ever more diverse transportational services, from the standard bus to tourist trails to celebrationary party buses.

As with any low-income nation the Philippines seeks economic and social advancement, which invariably includes greater official control of transportation modes and so increasing altenatives to the Jeepney, including standard busies, taxis and new tram projects.

But whilst seen to be in decline, the vehicle has been re-invented and for over 50 years the visionary and tenacious Jeepney manufacturers, despite facing competitve, technical and political hurdles, have been an integral contributor to the Philippino economy.

Conclusion -

This three-pat weblog has sought to highlight how Europe's own economic transition, itself reliant upon major structural reforms throughout the periphery nations, thereby increasing their global competitiveness, should also be a transformation that looks beyond its own backyard.

A philosophical shift that partly re-invents its regional self.

So a need to maintaining its established and leading stance in 'future-forward' activities, spanning much from nuclear fusion research to expanded human rights regulation; yet also able to recapture the best of its historical past, in doing so simultaneously able to assist the requirements of today's 'bottom tier' nations.

In effect re-creating the most advantageous aspects of the historical European rise through the world; in philosophical terms fusing the broad ideological aspirations of Jean-Jacques Rousseau, Immanuel Kant and Rabindranath Tagore, whilst also recognising their 'real-world' limitations.

The hypothesis of Europe following 'Core Path' and 'Periphery Path' routes, which marries the modern and historical capabilities of member states to different portions of a globally inetgrated European Agenda, is an overt simplification. It does not seek to untangle the complicated web of industrial, academic, social and political activity that has formed over the last 60 years; and does not seek to create a divided 'high-value' vs 'low-value' Europe - which seems an unintended but possible outcome of today's economic ruptures.

Instead, to simply portray a picture by which Europe – via its PLC, AG, SA, SpA and now SE companies – is able to recharge its economic self and plug into the presently small but quickly growing relative wealth trickle of 'frontier countries'.

As European corporates sit on large cash-piles and can access to record low borrowing rates, simultaneously viewng a more muted inward-facing China and an invariably globally re-expanding US, today appears the time to where possible merge the interests of olde worlde Europe and the entrepreneurial potential of today's underling countries.

As the small but indicative stock-markets of such places as the ASEAN 'Hi-Five' continue to simmer and eventually bubble-over, tomorrow's new era value-creation will be borne from those 'ghetto entrepreneurs' who can read the future.

Post Script -

A decade ago, having previously authored the book 'Investment Biker', the renowned Jim Rogers apparently spent 3 years upon the 'road less travelled', driving across the world in a radically converted Mercedes SLK upon a G-Wagon chassis towing a small trailer (along with support truck) so as to taste emerging nations first hand. (5-star hotels no doubt abound during the trek).

Today, Europe's corporate leaders need not call upon Daimler's Dr Zetsche for a similar contraption, nor are in a position to take 3 years out. But should swap either their expensive seat at DAVOS or their pricey vacation VIP beach chair – perhaps both – for the over-crowded seats of a rickety multi-coloured old vehicle, somewhere along the 'peripheral path'.