Peak Profit Margins? a Global Perspective

Peak Profit Margins? A Global Perspective

MARCH 27, 2019

GREG JENSEN ATUL NARAYAN DANIEL CROWLEY SAM GREEN

© 2019 Bridgewater Associates, LP n Peak Profit Margins? A US Perspective, we discussed the secular rise in US profit margins and our view that many of the forces that have driven those Imargin increases should not be extrapolated forward. Without that consistent expansion of margins, US equities would be 40% lower than they are today. Margins have been rising for 25 years, and when we look at market pricing, it appears to us that the market is extrapolating further margin gains.

The long-term valuation of US equities hinges heavily on bargaining power, increased globalization, lower anti- what happens to margins going forward: if margin gains trust enforcement, technology allowing for greater scale can be extrapolated, then valuations look reasonable; if and lower marginal costs, and lower corporate taxes, margins stagnate, then valuations are a bit expensive but interest rates, and tariffs. These factors have produced not terrible; if margins revert toward historical averages, the most pro-corporate environment in history globally, then US equities are highly overvalued. In today’s with the US benefiting the most. China has been the research paper, we will share some perspectives on the major exception, as it was on the other side of the global margin picture in global equities and some thoughts outsourcing wave and saw its profit margins erode as on the clues offered by the differences across equity its labor got bid up in the competition to serve Western markets. While this picture is one of many influences demand. These differences, which we analyze below, we consider when forming our tactical views, it is of help provide some clues on how much each driver has paramount importance for strategic investors relying on affected global margins. longer-term equity returns. Before we get to analyzing each, the following panel When we expand the margin analysis globally, we see of charts shows how every factor moved in the same that many of the forces that supported US profit margins direction, in favor of corporates globally. This global over the past two decades have similarly buoyed profit picture is similar to the US picture, but there are margins across most other developed economies. important differences across countries, which we will Corporations around the world simultaneously show below. benefited from the broad-based decline in labor’s

World Real Productivity-Adjusted Wages (Indexed to 2000) Developed World Average Union Participation Rate 10% 32%

30% 5% 28% 0% 26%

-5% 24%

22% -10% 20% -15% 18%

-20% 16% 95 00 05 10 15 20 70 80 90 00 10 20

40% 60 40 20% No 20 data 0% 0 70 80 90 00 10 20 USA EUR JPN

Developed World Average Statutory Corporate Tax Rate Developed World Eective Corporate Interest Rate 22% 16%

21% 14%

20% 12%

19% 10%

18% 8%

17% 6%

16% 4%

15% 2%

14% 0% 90 00 10 20 80 90 00 10 20

These phenomena compounded on each other as globalization weakened labor’s position, corporates gained political power, and policies reinforced the shift. Rising profit margins have accounted for about half of developed world equity returns over the last 20 years.

Contribution to Developed World Equity Returns (1995-Today, Ann) 9%

8% Margin expansion drove a substantial portion of returns. 7% Globalization, shifts in labor policy, rising corporate concentration in a winner-takes-all environment, 6% etc. have led to lower labor share of revenue. 5%

1% Falling Labor Costs Margin Expansion Earnings Growth Total Return

US Non-Fin Net Proﬁt Margin (Post-Tax) US Equities 9% Price Index Assuming Flat Secular Margins 8% 3,000 7% US equity prices would be about 40% lower if not for 2,500 6% secular margin expansion 5% 2,000

4% 1,500 3% 1,000 2% 500 1%

0% 0 70 80 90 00 10 20 90 95 00 05 10 15 20

Decline in Organized Labor Has Reduced the Bargaining Power of Labor across the Developed World

The biggest force behind the global profit margin expansion has been the decline in the labor share of output. A key factor that has contributed to this reduction in labor’s bargaining power versus capital is the decline of organized labor and unions. This phenomenon has occurred over decades for an array of reasons that are intertwined with the other forces acting on margins—like access to pools of cheaper foreign labor and advancing automation technology.

USA Union Members (% Labor Force) Developed World Avg Union Participation Rate 30% 32% Nixon institutes Ford deregulates trucking price controls 30% Carter deregulates airlines 25% 28%

26% 20%

China joins WTO 24%

15% Foreign automakers open 22% plants in non-unionized South 20% NAFTA 10% 18%

5% 16% 60 70 80 90 00 10 20 60 70 80 90 00 10 20

© 2019 Bridgewater Associates, LP 3 As you can see below, the change in union participation rates has been broad-based and has extended to most European countries and Japan, which have historically had stronger labor protections relative to the United States.

Union Participation Rates 1980 2015

50%

40%

30%

20%

10%

0% GBR ITA DEU JPN USA FRA KOR ESP

While this phenomenon has been broad-based, it has happened to varying degrees in different countries. Corporations located in countries with more flexible labor markets have been able to squeeze more benefits from labor. The chart below compares our aggregate measure of labor flexibility—based on our secular productivity study, available at economicprinciples.org—to changes in margins, highlighting this pattern.

Countries with More Flexible Labor Markets Have Seen Larger Gains Chg in Margin Labor Flexibility (Z-Score) 3 4.5%

3.5% 2 2.5%

1 1.5%

0.5% 0 -0.5%

-1 -1.5% ESP DEU JPN USA

© 2019 Bridgewater Associates, LP 4 This dynamic has been a key driver of profit margins around the world. Real wages have lagged productivity gains in the major developed world economies since the 1990s, allowing corporations to grab an increasingly larger share of the overall output. A big force driving this phenomenon was the massive pool of cheap labor coming online in China, which depressed labor wages across the developed world (we discuss this in detail in the next section). In this process, wages in China were bid up from low levels, leading to the structural decline in profit margins for Chinese companies.

USA EBITDA Margin EUR EBITDA Margin USA Productivity vs. Real Wages EUR Productivity vs. Real Wages 16% 110% 20% 109%

14% 100% 18% 101% 12% 90% 16%

93% 10% 80% 14%

12% 85% 8% 70% 60 70 80 90 00 10 20 30 60 70 80 90 00 10 20 30

JPN EBITDA Margin CHN EBITDA Margin JPN Productivity vs. Real Wages CHN Productivity vs. Real Wages 14% 250%

110% 12% 20% 210%

10% 170% 90% 16%

8% 130%

70% 12% 6% 90%

4% 50% 8% 50% 60 70 80 90 00 10 20 30 60 70 80 90 00 10 20 30

The pace of globalization accelerated after 1990 as technology helped the world become more integrated, allowing pools of capital and labor to come together efficiently. As borders became more porous, corporations increasingly shifted their operations abroad (often building at lower cost), outsourced a range of activities, and tapped into new, faster-growing foreign markets. This directly reduced the labor costs for producing goods and exerted a downward pressure on wages in the developed world. As shown below, this accelerated after 2001, when China joined the WTO, and this trend has already started to flatten out in recent years.

World Nominal Exports (%GDP) World Cross-Border Capital Stock (%GDP) 35% 140%

120% 30% 100%

25% 80%

20% 60%

40% 15% 20%

10% 0% 60 70 80 90 00 10 20 60 70 80 90 00 10 20

As stated, a big part of this globalization wave was driven by developed world corporations tapping (directly and indirectly) into the cheap labor pool in China, allowing them to significantly reduce their net production costs. Lower value-add employment and links in the supply chain (especially in manufacturing) migrated to China out of the developed world. While some of this was passed on to consumers through lower prices for goods, a big portion was retained by these companies in the form of higher profit margins. The charts below highlight how broad-based across the developed world this labor offshoring phenomenon has been (note the scales of the charts are different).

Manufacturing Employment (Mln Workers) CHN USA CHN EUR CHN GBR 18 24 230 17 230 230 4.0 16 23 210 210 210 15 22 190 14 190 190 3.2 13 170 170 21 170 12 150 11 150 20 150 2.4 00 10 20 00 10 20 00 10 20

© 2019 Bridgewater Associates, LP 6 Access to foreign markets has allowed companies across the developed world to both tap into the growing demand in these regions and to reduce costs as a result of cheaper labor and materials. The charts below compare the revenue growth and profit margins of companies that have more sales exposure to foreign markets versus the ones that are more domestically focused. They highlight how companies that have a higher exposure to faster-growing foreign markets have seen a bigger improvement in profit margins.

Operating Margin by Sales Exposure (Foreign vs. Domestically Focused) USA High Foreign Sales EUR High Foreign Sales USA Low Foreign Sales EUR Low Foreign Sales 20% 12%

18% 11% 10% 16% 9% 14% 8% 12% 7% 10% 6% 8% 5%

6% 4%

4% 3% 95 05 15 95 05 15

JPN High Foreign Sales GBR High Foreign Sales JPN Low Foreign Sales GBR Low Foreign Sales 10% 20%

9% 18%

8% 16%

7% 14%

6% 12%

5% 10%

4% 8%

3% 6%

2% 4% 95 05 15 95 05 15

The next set of charts tries to more directly connect the change in margins to the change in the share of input costs that has been outsourced across manufacturing sectors in developed world economies (based on government reporting). Segments like computers, electrical equipment, and machinery, which have seen a larger increase in foreign-made content (e.g., moved abroad more to lower costs), have seen bigger increases in margins than segments like utilities and construction, which are still primarily domestically sourced.

Media IT Manufacturers 12%

10% Computer Change in Margins Services 8% Apparel Utilities IT Components 6%

Aerospace Semiconductors 4% Chemicals Engines and Machinery 2% Household Durables 0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Change in Foreign Content

Japan Germany 8% 12%

6% 8% 4% Change in Margins Change in Margins 4% 2%

0% 0%

-2% -4% -4% -8% -6%

-8% -12% 0% 2% 4% 6% 8% 10% 0% 5% 10% 15% Change in Foreign Content Change in Foreign Content

France Italy 12% 20%

10% 8% Change in Margins Change in Margins

0% 4% -10%

0% -20%

-4% -30% 0% 5% 10% 15% -1% 1% 3% 5% 7% 9% 11% Change in Foreign Content Change in Foreign Content

The charts below show some trends that are indicative pursue a deeper investigation. The share of transactions of a gradual relaxation in policies that target firm flagged in this way fluctuates on a year-over-year basis, concentration and competition and that have effectively but has been lower overall since 1996 than it was in the 15 allowed for the formation of larger, more dominant years prior. Below that, we show a related perspective on firms. The first chart on the right shows the share of anti-trust enforcement in Euroland and Japan. Euroland pre-merger notifications that the FTC and DoJ (the two has shown a general trend downward over the last 20 US merger enforcement agencies) flagged for additional years, and while we wouldn’t over-squint at the trend in information requests, which has signaled an intent to Japan, enforcement has been down to flat there as well.

# of Annual DoJ Investigations by Type DoJ & FTC Second Requests for Info (% Eligible M&A Transactions) Competition Monopoly Mergers 5% 600

4% 500

400 3%

300 2% 200

1% 100

0 0% 70 80 90 00 10 20 1980-1995 1996-2017

EUR: # of Anti-Trust Cases Japan: # of Trade Regulator Press Releases 50 Cartels Unfair Trade Mergers 70

40 60

50 30 40

20 30

20 10 10

0 0 70 80 90 00 10 20 00 05 10 15 20

© 2019 Bridgewater Associates, LP 9 The net of this has been a meaningful increase in corporate concentration in the US and a modest increase in Europe over the past two decades, as larger and more dominant firms have emerged through mergers. Japan has not seen an increase in concentration over this period.

% Change in Concentration 35%

30%

25%

20%

15%

10%

-5%

-10% USA EUR JPN

Results at the sector level are also consistent with this picture. Within the US, rising concentration within a sector has shown a strong positive relationship with expanding margins, suggesting the greater pricing power that comes from having more economies of scale, less head-to-head competition within a market, and overall higher bargaining power against labor.

Change in Concentration vs. Change in Margins USA 8%

InfoTech 7%

6% Change in Margins 5% Cyclical Services (Visa, Mastercard) 4%

Industrials 2% Non-Cyclical Services (Utilities) Autos and 1% HH Durables Non-Cyclical Goods 0% Change in Concentration Index (2000–Today)

Similar to the aggregate results above, outside of the US this relationship is weaker, which is consistent with the smaller increase in concentration in Europe, and the limited increase in Japan.

EUR JPN 7% 10%

6% 8% 5% Change in Margins 6% Change in Margins 4%

The change in concentration 3% 4% has been less apparent Japan has seen as a driver of margins in Europe limited increases 2% in concentration 2% 1% 0% 0%

-1% -2% Change in Concentration Index Change in Concentration Index

© 2019 Bridgewater Associates, LP 10 Scalability and Winner Takes All: Greater Scalability and Winner-Takes-All Dynamics Have Further Supported the Rise of Larger, More Dominant Firms and Margin Resilience

Another major shift over the past few decades that has consumption of these scalable products (e.g., software). helped firms increase and maintain their high profit This has helped these companies build a “moat,” margins is the ability of large firms to scale up their increasing barriers to entry for new entrants. The left- operations without raising costs by as much as smaller hand chart below shows how the share of intangible firms would. That high operating leverage and sheer investments of companies in the developed world has scale have contributed to “winner-takes-all” dynamics risen secularly. The chart on the right breaks down in many sectors. With the changing nature of the the various forms intangible investment can take, from overall economy and demand, the secular shift away software investment to economic competencies (which from tangible investments—like physical equipment include management improvements, organizational and buildings—and toward intangible investments— design, marketing, and the like) to innovation property like intellectual property, including software and (including patents, research and development, etc.). patents, for example—has facilitated the production and

Developed World Tangible and Intangible Investments (%GDP) Intangible Investments by Sector (%GDP) Intangible Tangible Software Innovation Property Economic Competencies 14% 4% 13% 12% 3% 11% 10% 9% 2% 8% 7% 1% 6% 5% 4% 0% 95 98 01 04 07 10 13 16 19 Tech Biotech Retail Financials Resources Utilities & Manuf

© 2019 Bridgewater Associates, LP 11 US Superstar Phenomenon: When we scan around the world, the US stands out as having a disproportionate share of “superstar” companies: large firms with very strong market positions, high margins, and substantial profits. The table below shows a list of the current global “superstars,” highlighting the predominance of US firms, especially tech companies. The Chinese tech giants (Alibaba and Tencent) are also notable for their rapid rise up this list.

Superstar Companies Are Concentrated in the United States Mkt Cap Op Inc Market Company Sector Op Margin P/E (USD, Bln) (USD, Bln) United States Microsoft Tech 872 33% 39 28.1 United States Apple Tech 853 26% 68 15.0 United States Alphabet Tech 831 19% 26 27.7 United States Facebook Tech 491 45% 25 22.9 China Alibaba Tech 468 17% 9 39.5 China Tencent Tech 435 34% 15 33.9 United States Johnson & Johnson Biotech/Pharma 371 25% 20 20.6 United States Proctor & Gamble Biotech/Pharma 250 20% 13 24.5 United States Pfizer Biotech/Pharma 232 26% 14 26.0 South Korea Samsung Tech 231 24% 54 6.8 Switzerland Novartis Biotech/Pharma 230 15% 8 16.7 United States Cisco Tech 230 27% 13 20.6 United States Merck Biotech/Pharma 210 20% 8 18.6 Taiwan Taiwan Semiconductor Semiconductors 199 37% 13 17.5 United States Coca-Cola FoodBevTobacco 197 27% 9 21.9 United States Oracle Tech 189 34% 14 19.1 United States Comcast Telecom 179 20% 19 15.8 United States Disney Media 171 24% 14 16.4 Belgium AB Inbev FoodBevTobacco 164 31% 17 36.2 United States PepsiCo FoodBevTobacco 164 16% 10 21.3 United States McDonald's FoodBevTobacco 139 42% 9 24.5 United States Philip Morris FoodBevTobacco 138 38% 11 17.6 United States Union Pacific Transportation 119 37% 9 21.0 United States Amgen Biotech/Pharma 115 43% 10 14.3 United States Altria FoodBevTobacco 104 46% 9 14.1 Saudi Arabia SABIC Petrochemical 97 21% 10 17.1 United Kingdom British American Tobacco FoodBevTobacco 93 30% 12 11.3 Japan Nippon Telegraph Telecom 83 16% 17 9.6 United States Gilead Sciences Biotech/Pharma 83 37% 8 12.4 Japan NTT Docomo Telecom 75 22% 9 12.8 Brazil Vale Mining 69 31% 11 16.8 Japan KDDI Telecom 58 19% 9 10.4

© 2019 Bridgewater Associates, LP 12 Automation: While at this point it is hard to quantify automation’s impact, it could have a more material impact in the future. There are early signs of companies in a broad range of industries purchasing more industrial robots in recent years, as costs of robots have gone down. A few sectors (autos and electronics) have seen a larger adoption so far.

Industrial Robots by Industry (Thousands) Industrial Robot Cost Decline (Unit Cost USD, K) 2015 2016 2017 $160 140 $140 120 $120 100 $100 80 $80 60 $60 40 $40 20 $20 0 $0 Autos Tech Machines Plastic & Food Other Chemicals 95 00 05 10 15 20 25 Source: International Federation of Robotics Source: ARK Investment Management, LLC

Though only a few sectors have implemented automation on a large scale so far, the table below shows how several sectors have the potential to be meaningfully impacted as costs come down and adoption becomes more widespread. The measures shown below assess how automatable the skills required in different sectors currently are, given the technology available.

Current Technical Feasibility of Automation** by Activity Type and Sector

Automation Managing Applying Stakeholder Unpredictable Data Data Predictable Sector Potential Others Expertise Interactions Physical Work Collection Processing Physical Work Accomodation and 73% 2% 4% 22% 5% 8% 10% 48% food services Manufacturing 60% 5% 13% 8% 8% 22% 11% 33%

Agriculture 60% 3% 5% 7% 51% 11% 9% 13% Transportation and 57% 4% 8% 14% 14% 22% 14% 24% warehousing Retail trade 53% 3% 6% 26% 5% 15% 28% 17%

Mining 51% 7% 11% 8% 24% 21% 12% 17%

Other services 49% 7% 12% 17% 13% 15% 11% 25%

Construction 47% 5% 10% 8% 41% 15% 11% 10%

Utilities 44% 7% 14% 13% 19% 23% 13% 12%

Wholesale trade 44% 5% 12% 24% 11% 17% 19% 12%

Finance and insurance 43% 6% 19% 23% 0% 16% 34% 3% Arts, entertainment, 41% 10% 13% 24% 15% 13% 11% 14% and recreation Real estate 40% 7% 12% 21% 19% 16% 17% 8%

Administrative 39% 6% 13% 14% 23% 21% 13% 10% Health care and 36% 8% 14% 14% 11% 20% 13% 21% social assistance Information 36% 5% 25% 20% 7% 16% 20% 6%

Professionals 35% 7% 27% 16% 2% 19% 23% 5%

Management 35% 10% 25% 16% 3% 17% 24% 5%

Educational services 27% 22% 29% 10% 8% 13% 10% 7% **% of time spent on activities that could be automated by adapting current technology Source: McKinsey & Company

While tax policy in the US has recently attracted a lot of attention, corporate tax policy has generally favored business everywhere over the last few decades. Globally, corporate tax rates are now at all-time lows, with the recent US tax reform just the largest and most recent cut. The chart below on the left shows the evolution of corporate tax rates around the world. Similarly, falling borrowing costs for corporations have also been a support globally.

Developed World Average Statutory Corporate Tax Rate Developed World Eective Corporate Interest Rate 22% 16%

21% 14%

20% 12%

19% 10%

18% 8%

17% 6%

16% 4%

15% 2%

14% 0% 90 00 10 20 80 90 00 10 20

The sustained secular fall in interest rates has been a meaningful support to corporate margins, as companies have been able to fund investment and financial spending through borrowing, while keeping their debt service costs low due to falling rates. These costs would be difficult to cut going forward if sales growth slows, and the secular low level of rates makes another leg down in borrowing costs structurally hard to achieve.

Interest Expense (%Sales) Interest expense has fallen relative USA EUR JPN GBR CAN AUS to sales, supporting 2000 Level 2.5% 2.0% 1.3% 2.3% 2.7% 2.0% margins, as the broad 2018 Level 2.0% 1.4% 0.4% 1.5% 2.9% 1.5% decline in rates has offset the increase in Change (Impact on Margins) -0.5% -0.6% -0.9% -0.7% 0.2% -0.5% corporate debt levels around the world

Looking ahead, some of the forces that have supported margins over the last 20 years are unlikely to provide a continued boost. Incentives for offshore production have been reduced as global labor costs have moved closer to equilibrium, with domestic costs and rising trade conflict increasing the risk from offshoring, while the potential tax rate arbitrage from moving abroad is now much smaller. The chart below on the left shows that the gap in competitiveness has nearly closed, and on the right we show our measure of global trade tensions.

Deloitte Competitiveness Survey Global Tit-for-Tat Gauge China US

US less competitive Close to parity 110%

100%

90%

80%

70% Trade tensions remain elevated, despite ﬁrst 60% steps toward reconciliation recently

50% 2012 2016 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

We have seen popular sentiment begin to sour against the forces that have driven margin expansion, as well as against the companies that have benefited most from them. As we have discussed at length in prior research papers, we are in the midst of a populist backlash against rising inequality and we are increasingly seeing a move toward more protectionism. Recent surveys show increasing animosity toward globalization and the power of companies more broadly, and a bit more welcoming attitudes toward government regulation of firms.

Anti-Globalization Sentiment Gauge

04 06 08 10 12 14 16

© 2019 Bridgewater Associates, LP 15 We have recently seen an increase in the discussion around the world on taxing mega-profitable firms that have benefited from current policy. Below, we list some of the measures around taxing and regulating superstar tech firms being discussed globally. For example, France’s potential “digital services tax” is explicitly designed to close the tax arbitrage (by introducing a sales tax on online revenues from residents). While the current impact of these proposed rules on the overall profitability of these tech giants is relatively small, they are a straw in the wind that the tide might be turning and that the multi-decade boost from favorable taxation policies is unlikely to be repeated.

Recent Actions to Curb Tech Sector Power Tech Companies Date Geography Theme Program Status Affected 2019 FRA Internet Services Taxation Impose a 3% tax on digital revenue. Proposed Designate platforms as "utilities" that must be separated from 2019 USA FANG Platform power Proposed other businesses. 2019 USA FANG Platform power More proactively pursue reversing anticompetitive tech mergers. Proposed Restrict foreign e-commerce platforms from selling their own 2019 IND Amazon, Walmart Market power Implemented private label products. eBay, Amazon, 2018 USA, DEU Taxation Require online platforms to collect local taxes. Implemented AirBnB 2018 EUR, DEU, GBR Internet Services Platform power Require online platforms to take down hate speech. Implemented

2018 EUR Full Tech Sector Platform power Hold platforms liable for copyright violation. Implemented

2018 EUR Full Tech Sector Data privacy Restrict the monetization of user data. Implemented

2018 EUR Google Platform power Impose fine for anticompetitive practices in Android OS. Imposed Blocked merger of chipmakers Qualcomm and NXP due to 2018 CHN Qualcomm Market power Implemented competition fears.

While there is no precision to when and how much each of the factors described above will weigh on profit margins and how much can be offset (for example, by automation picking up), it will be hard for companies around the world to maintain the current level of profitability over the coming decade, let alone increase margins further from here.

© 2019 Bridgewater Associates, LP 16 This research paper is prepared by and is the property of Bridgewater Associates, LP and is circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives or tolerances of any of the recipients. Additionally, Bridgewater’s actual investment positions may, and often will, vary from its conclusions discussed herein based on any number of factors, such as client investment restrictions, portfolio rebalancing and transactions costs, among others. Recipients should consult their own advisors, including tax advisors, before making any investment decision. This report is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned.

Bridgewater research utilizes data and information from public, private and internal sources, including data from actual Bridgewater trades. Sources include, the Australian Bureau of Statistics, Barclays Capital Inc., Bloomberg Finance L.P., CBRE, Inc., CEIC Data Company Ltd., Consensus Economics Inc., Corelogic, Inc., CoStar Realty Information, Inc., CreditSights, Inc., Credit Market Analysis Ltd., Dealogic LLC, DTCC Data Repository (U.S.), LLC, Ecoanalitica, EPFR Global, Eurasia Group Ltd., European Money Markets Institute – EMMI, Factset Research Systems, Inc., The Financial Times Limited, GaveKal Research Ltd., Global Financial Data, Inc., Haver Analytics, Inc., The Investment Funds Institute of Canada, Intercontinental Exchange (ICE), International Energy Agency, Lombard Street Research, Markit Economics Limited, Mergent, Inc., Metals Focus Ltd, Moody’s Analytics, Inc., MSCI, Inc., National Bureau of Economic Research, Organisation for Economic Cooperation and Development, Pensions & Investments Research Center, Renwood Realtytrac, LLC RP Data Ltd, Rystad Energy, Inc., S&P Global Market Intelligence Inc., Sentix Gmbh, Shanghai Wind Information Co., Ltd., Spears & Associates, Inc., State Street Bank and Trust Company, Sun Hung Kai Financial (UK), Thomson Reuters, Tokyo Stock Exchange, United Nations, US Department of Commerce, Wind Information (Shanghai) Co Ltd, Wood Mackenzie Limited, World Bureau of Metal Statistics, and World Economic Forum. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy.

The views expressed herein are solely those of Bridgewater as of the date of this report and are subject to change without notice. Bridgewater may have a significant financial interest in one or more of the positions and/or securities or derivatives discussed. Those responsible for preparing this report receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues.