Session by Adrian Blundell-Wignall, Acting Director, Special Advisor to the Secretary-General for Financial Markets, OECD Directorate for Financial and Enterprise Affairs The OECD’s research on Finance and Inclusive Growth has shown that over the past fifty years, credit by banks and other intermediaries to households and businesses has grown three times as fast as economic activity. While greater levels of stock market financing can boost growth, at today’s level of financial development further expansion of bank credit to the private sector is shown to not only slow growth in most OECD countries but also contribute to inequality as better-off households tend to benefit more from financial leverage. Therefore, policy makers should i.a. implement measures to reduce explicit and implicit subsidies to too-big-to-fail financial institutions and reduce the tax bias against equity. To make the financial sector more inclusive and work for people, we must also ensure that companies invest in the real economy. Data analysis of 11 000 of the world’s largest companies has shown that there is a misallocation of capital that needs to be improved in order to foster productivity growth and long-term value creation that can allow for inclusive growth. Promoting competition can support such efforts and also limit unproductive concentration of profits and wealth. New analysis also shows a fragmentation of productivity that needs to be addressed, with a majority of companies sitting in a ‘trough’ of low productivity levels and moderate growth from which it is hard to exit. The current low-interest, low-growth environment makes it also more difficult for pension funds and life insurers to keep their financial promises of providing adequate retirements incomes. These institutional investors are thus driven to pursue higher-risk investment strategies that could ultimately undermine their solvency. This potentially jeopardises the secure retirement especially of the poorest of our citizens.

1. FINANCE & INCLUSIVE GROWTH
MEETING OF THE OECD GLOBAL PARLIAMENTARY NETWORK
FRIDAY 5 FEBRUARY 2016
Adrian Blundell-Wignall
Special Advisor on Financial Markets to the OECD
Secretary General, & Director Financial & Enterprise Affairs
Directorate.

2. Investment trends: Capex of non-financials
firms in selected advanced economies
2
0
500
1,000
1,500
2,000
2,500
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
US$, bn Utilities Telecom. Services
Information Technology Healthcare
Consumer Staples Consumer Discretionary
Industrials Materials
Energy

3. Investment trends: Capex of non-financials
firms in BRIICS
3
-30
-20
-10
0
10
20
30
40
50
60 %YoY
CHINA
Energy Materials Industrials Utilities
-60
-40
-20
0
20
40
60
80
100
120 %YoY
BRAZIL
-40
-20
0
20
40
60
80
100
120
140
160
180 %YoY
INDIA
-60
-40
-20
0
20
40
60
80
100
120
140 %YoY
INDONESIA
-60
-40
-20
0
20
40
60
80
100
120
140
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
%YoY
RUSSIA
-30
-20
-10
0
10
20
30
40
50
60
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
%YoY
SOUTH AFRICA

4. Investment trends: Capex of non-financials
firms in advanced economies versus EMEs
4
-40
-30
-20
-10
0
10
20
30
40
50
%YoY ADVANCED ECONOMIES
Energy Materials Industrials
Consumer Discretionary Consumer Staples Healthcare
Information Technology Telecom. Services Utilities
-30
-20
-10
0
10
20
30
40
50
60
70
80
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
%YoY
EMEs

5. Trends in prices of selected commodities
5
0
0.2
0.4
0.6
0.8
1
1.2
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
INDEX
Iron Ore Copper Aluminium
Gold Oil Sugar
2012=100

6. 6
Long-run commodity, oil prices & US Dollar
0
20
40
60
80
100
120
140
160
180
200
Jan-70
Mar-72
May-74
Jul-76
Sep-78
Nov-80
Jan-83
Mar-85
May-87
Jul-89
Sep-91
Nov-93
Jan-96
Mar-98
May-00
Jul-02
Sep-04
Nov-06
Jan-09
Mar-11
May-13
Jul-15
Index 2010=100 $ Real TWI
Non-Rural Comm Real
Brent Real

7. 7
All in different places to respond
Brazil, Indonesia, South Africa
Exch. C/A deficit, recession, outflows, inflation
Rate External Balance Fiscal deficit/past growth drivers Internal Balance
External shocks: commodities/China/$US
Energy/Materials invest. falling
Under investment infrastructure/services
Severe depreciation
Reserves: stable/moderate falls
Raising interest rates
Russia India
C/A surplus, recession, outflows C/A deficit post crisis, inflation
Large fiscal deficit Fiscal drivers-infrastructure
External shocks:commodities/China/$US Private invest. weak most sectors
Energy/Materials invest. falling Rapid money growth
Currency crisis/depreciation Targeted moderate depreciation
Reserves falling/stabilising Increasing forex reserves
Raising interest rates China Consumer weakening
Super-cycle ending Stable interest rates
C/A surplus, Outflows
High saving/ investment/SOE role
Falling Co. investment/all sectors
Rapid money growth
Large interventions stock exchange
Targeted moderate depreciation
Imposing capital outflow controls
INVESTMENT/AGGREGATE DEMAND

8. 8
Total return indexes on various asset classes
0
50
100
150
200
250
300
350
400
450 Jan-00
Aug-00
Mar-01
Oct-01
May-02
Dec-02
Jul-03
Feb-04
Sep-04
Apr-05
Nov-05
Jun-06
Jan-07
Aug-07
Mar-08
Oct-08
May-09
Dec-09
Jul-10
Feb-11
Sep-11
Apr-12
Nov-12
Jun-13
Jan-14
Aug-14
Mar-15
Oct-15
Index
(100 = Jan-2000)
US Tsy Tot Ret 10y GBI $ Tot Ret EMEs
MSCI World Tot Ret S&P 500 Tot Ret
HFRI Weighted Index Tot Ret US Private Equity
US Real Estate Shanghai Equity Composite Index

9. Chinese stocks listed in Shanghai & Hong
Kong
9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Price Ratio
(Shanghai / Hong
Kong)
Quartile 25 Median
Quartile 75

10. 10
Onshore vs offshore RMB spread
-0.15
-0.10
-0.05
0.00
0.05
0.10
5.7
5.8
5.9
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
12-31-2010
02-24-2011
04-20-2011
06-14-2011
08-08-2011
09-30-2011
11-24-2011
01-18-2012
03-13-2012
05-07-2012
06-29-2012
08-23-2012
10-17-2012
12-11-2012
02-04-2013
03-29-2013
05-23-2013
07-17-2013
09-10-2013
11-04-2013
02-28-2014
04-24-2014
06-18-2014
08-12-2014
10-06-2014
11-28-2014
01-22-2015
03-18-2015
05-12-2015
07-06-2015
08-28-2015
10-22-2015
12-16-2015
CNY spreadCNY Spread (RHS)
Offshore Deliverable CNY
China Renminbi Spot

11. 11
Hong Kong RMB overnight interbank
0
10
20
30
40
50
60
70
80
12-12-2014
01-01-2015
01-01-2015
02-09-2015
02-02-2015
03-09-2015
03-03-2015
04-02-2015
04-04-2015
05-04-2015
05-05-2015
05-05-2015
06-11-2015
06-06-2015
07-08-2015
07-07-2015
08-03-2015
08-08-2015
08-08-2015
09-10-2015
09-09-2015
10-08-2015
10-10-2015
11-04-2015
11-11-2015
11-11-2015
12-11-2015
12-12-2015
01-08-2016
% TMA ON CNH Hong Kong InterBank Offered Rate (CNH Hibor) Fixing

12. Exchange rates: BRICS vs TIGERS
12
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
INDEX
Yuan
Rupiah
Rand
Sing $
Won
Taiwan $
Rouble
Rupee
0.5
0.6
0.7
0.8
0.9
1.0
1.1
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
INDEX Jan
2012=1
SG$/yen
yuan/yen
$/yen
won/yen
TW $/yen
Rup/yen

13. 13
Effective exchange rates: China, Japan,
Europe
70
80
90
100
110
120
130
140
12-31-2010
02-23-2011
04-18-2011
06-09-2011
08-02-2011
09-23-2011
11-16-2011
01-09-2012
03-01-2012
04-24-2012
06-15-2012
08-08-2012
10-01-2012
11-22-2012
01-15-2013
03-08-2013
05-01-2013
06-24-2013
08-15-2013
10-08-2013
11-29-2013
01-22-2014
03-17-2014
05-08-2014
07-01-2014
08-22-2014
10-15-2014
12-08-2014
01-29-2015
03-24-2015
05-15-2015
07-08-2015
08-31-2015
10-22-2015
12-15-2015
Index
(100 = Jan-2011)
Barclays Nominal Barclays Capital Effective Exchange Rate for the JPY
Barclays Nominal Barclays Capital Effective Exchange Rate for the EUR
Barclays Nominal Barclays Capital Effective Exchange Rate for the CNY

14. 14
Company long-term debt issues
0
500
1,000
1,500
2,000
2,500
$US, bn
Advanced Economies
Pre-crisis Debt
Post-crisis Debt
0
500
1,000
1,500
2,000
2,500
$US, bn Emerging Economies
Pre-crisis Debt
Post Crisis Debt

15. 15
Futures in crude being used to hedge
untradeable HY energy debt
0
20
40
60
80
100
120
140
0
50
100
150
200
250
300
350
01-13-2014
02-10-2014
03-10-2014
04-04-2014
05-02-2014
05-30-2014
06-26-2014
07-24-2014
08-20-2014
09-17-2014
10-14-2014
11-10-2014
12-08-2014
01-06-2015
02-03-2015
03-03-2015
03-30-2015
04-27-2015
05-22-2015
06-19-2015
07-17-2015
08-13-2015
09-10-2015
10-07-2015
11-03-2015
12-01-2015
12-29-2015
Index
(100=Jan-2014)
Index
(100=Jan-2014)
USD HY Energy OAS
Crude Oil Price (RHS)

16. 16
World equity market capitalisation versus
world GDP
30
40
50
60
70
80
90
100
110
120
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
% Share of WORLD market cap. in World nominal GDP (%)

17. 17
Productivity levels & growth rates: Averages
combining the decile rankings by sector
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
D1 D2 D3 D4 D5 D6 D7 D8 D9 D10
USD bln /1000
employees
Decile number
ADV Pre-crisis ADV Post-crisis
EMEs Pre-crisis EMEs Post-crisis
-30
-20
-10
0
10
20
30
D1 D2 D3 D4 D5 D6 D7 D8 D9 D10
Compound %
Decile number
ADV Pre-crisis ADV Post-crisis
EMEs Pre-crisis EMEs Post-crisis