2008 Predictions: How Did We Do?

It’s pretty safe to say that 2008 did not turn out like anyone expected. At the beginning of the year, there were already signs that the United States economy was heading for a recession, but no one expected the total financial and economic meltdown that ultimately occurred. In China, there was a big question mark about what the country would look like after the Olympics, but again, no one expected the near total collapse that we have seen in the fourth quarter.

On New Year’s day, I looked into my own crystal ball for 2008 and made five specific predictions. How did I do? Let’s review what I said.

1. Blue Skies for the Olympics: Understandably, there was a great deal of concern on the part of the Olympic Committee and Chinese government officials over the level of air quality in Beijing during the Games and the effect that it might have on the health and performance of the athletes. In fact, many teams chose to do their pre-Olympic training in clean environment countries like Japan in order to limit their exposure to China’s air.

Despite the concerns, pollution was not nearly as bad as everyone expected. During the roughly two week period of the Games, there were several hazy, high pollution days, but there were also rainy days that had the effect of clearing the air, followed by bright, sunny and clear days. By the time the marathoners took to the streets, the temperature in Beijing had dropped to a comfortable low 80’s.

On this prediction, I give myself at least partial credit.

2. China Bashing by Presidential Hopefuls: Though there was the occasional reference to the valuation of the yuan and keeping jobs in America, there was relatively little criticism of China by the candidates from either party. The devastating earthquakes that China suffered in May perhaps had something to do with it, just like they seemed to deflate the Tibet issue in the run up to the Games. More importantly, the meltdown in the U. S. capital markets sucked the air out of virtually every other issue during the final months of the campaign as Americans looked almost exclusively inward. At a time when the U.S. government will need to make heavy use of the credit markets to fund the bailout and stimulus packages, it was also lost on no one that China is the largest holder of U.S. debt securities.

I was flat out wrong on this one.

3. The Yuan Will Appreciate by 7 to 10 percent Against the Dollar: This is one prediction that I almost nailed. At the beginning of 2008, the dollar to yuan exchange rate was $ 0.137 to 1 yuan. By December 30, the yuan had appreciated 6.6% to the point where 1 yuan bought $0.146. Said another way, the exchange rate went from 7.29 yuan to the dollar at the beginning of the year to 6.84 at the end of 2008.

Since I only missed the low end of my range by less than six percent, I give myself full credit on this one.

4. GDP Will Once Again Grow at a Double Digit Rate: When I made this prediction, it seemed like a gimme. China’s economy grew at 11.9 percent in 2007, and despite the fact that the government was already taking steps to cool the overheating, spending in the runup to the Games almost ensured that the country would register another double digit increase in GDP. That’s not what happened. Growth began slowing from the first of the year, and then dropped precipitously in the third and fourth quarters. Credit Suisse estimates that China’s GDP growth may fall as low as 8.7 percent in 2008.

Missed this one completely.

5. China Will Continue to Make News With its Reserves: Even though China’s foreign currency reserves doubled during the year to over $2 trillion, they did not become nearly the news item that I predicted.

In May, 2007, China bought a 10 percent stake in Blackstone for $3 billion, and in December of the same year, it invested $5 billion for a 9.9 percent stake in Morgan Stanley. Coming on the heels of these two high profile investments, I believed that we would see more of the same in 2008.

However, both investments have been major disappointments for China from a strictly financial point of view. Blackstone’s stock has declined by 80 percent from $31 per share when China invested, to $6.26 currently. Morgan Stanley’s stock was in the 50’s and its market value was over $50 billion when China took its stake. Today, Morgan Stanley’s shares trade at $15 per share and the company’s market capitalization has declined to approximately $15 billion.  The poor performance of the investments in Blackstone and Morgan Stanley, followed by the global financial crisis, have undoubtedly cooled China’s ardor for investing in the global financial services industry—at least at this time.

Unfortunately, I whiffed on this one as well.

If this were baseball, I would be batting .150, not a good average in any league. But, 2009 is another year, and I will go back to the plate in the next article.

No comments yet... Be the first to leave a reply!