Global Investment Outlook: Click to edit Master 05 HNW presentation JK FINAL.pdf · Feb 04 Jul 04 Dec 04 May 05 Oct 05 Mar 06 Aug 06 Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul

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Global Investment Outlook:

Navigating The Sea of Liquidity

Presented by

James Klempster

Momentum Global Investment Management

2 global investment management

Global investment outlook:

Navigating the sea of liquidity

James Klempster MA (Oxon), CFA

June 2013


1. Market update


Equities following an upward trajectory

Source: Bloomberg. May 2013.

40

50

60

70

80

90

100

110

Jan 08 Jun 08 Nov 08 Apr 09 Sep 09 Feb 10 Jul 10 Dec 10 May 11 Oct 11 Mar 12 Aug 12 Jan 13

MSCI Daily TR Net World USD

Perf

orm

ance r

ebased t

o 1

00


0

50

100

150

200

250

Dec 99

May 00

Oct 00

Mar 01

Aug 01

Jan 02

Jun 02

Nov 02

Apr 03

Sep 03

Feb 04

Jul 04

Dec 04

May 05

Oct 05

Mar 06

Aug 06

Jan 07

Jun 07

Nov 07

Apr 08

Sep 08

Feb 09

Jul 09

Dec 09

May 10

Oct 10

Mar 11

Aug 11

Jan 12

Jun 12

Nov 12

Apr 13

MSCI Daily TR Net World USD JPM GBI Global Unhedged in USD

Great rotation?

Source: Bloomberg, May 2013

Perf

orm

ance r

ebased t

o 1

00

Bonds

108.8%

Equity

36.3%


Asset class returns from 31.12.12 to date (LC)

Source: Bloomberg. Returns from 30.12 12 to 27.05.13.

37.1%

12.8%

4.9%3.2%

0.4%0.3%

-1.7%

-4.9%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Japan equity Global developed

marketequities

High yield Loans Investment grade

fixed income

Cash Global emerging

marketsequities

Global Government

bonds


10 year government bond yields since 2008


0

1

2

3

4

5

6

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

Yie

lds

US Generic 10 Year Govt Yield UK Generic 10 Year Govt Yield Germany Generic 10 Year Govt Yield


Returns from 31/12/12 to 27/05/13

US UK Europe ex UK Japan

Pacific ex

Japan

Emerging

Markets

Developed

World Index

Energy 12.5% 7.3% 1.7% 9.0% 0.1% -9.2% 9.2%

Materials 7.6% -12.4% 3.1% 28.7% -16.4% -17.8% -1.4%

Industrials 15.2% 21.2% 7.9% 28.4% -0.4% -3.1% 15.4%

Consumer Discretionary 19.2% 17.2% 10.3% 46.2% 5.6% -1.1% 21.2%

Financials 19.4% 14.0% 8.9% 34.5% 5.8% 1.8% 15.9%

IT 8.6% 26.9% 9.6% 27.4% 6.0% 3.3% 10.3%

Telecoms 11.8% 26.9% 2.1% 48.2% 9.1% -3.5% 15.1%

Health Care 23.0% 24.8% 19.4% 32.1% -0.5% 4.9% 22.9%

Consumer Staples 19.0% 16.4% 13.1% 39.4% 2.5% 3.2% 18.1%

Utilities 10.9% 17.8% 0.9% 41.3% 5.9% -0.6% 11.0%

Country / Region (Local) 16.6% 14.7% 13.1% 36.3% 8.7% 0.7% 16.2%

Country / Region (USD Terms) 16.6% 6.5% 10.2% 16.6% 3.2% -1.5% -100.0%

Outperformed MSCI World by more than 1 standard deviation

Outperformed MSCI World

Underperformed MSCI World

Underperformed MSCI World by more than 1 standard deviation

Map of the markets 31.12.11 to 27.05.13



2. Market outlook


Today

Image source: http://hdwpapers.com/sea_sail_old_ships_boats_vehicles_maste_boat_ship_desktop_wallpaper-wallpapers.html


Today

Image source: http://hdwpapers.com/sea_sail_old_ships_boats_vehicles_maste_boat_ship_desktop_wallpaper-wallpapers.html

Concerted central bank efforts

Huge monetary stimulus

Good valuation

A return of confidence


Tomorrow?

Image source: http://artnc.org/sites/default/files/Backhuysen,%20Ships%20in%20a%20Stormy%20Sea%20off%20a%20Coast,%2098_13%20(HB).jpg


Tomorrow?

Image source: http://artnc.org/sites/default/files/Backhuysen,%20Ships%20in%20a%20Stormy%20Sea%20off%20a%20Coast,%2098_13%20(HB).jpg

Unwind of QE

The market has come a long way

Massive fiscal imbalances remain

But...

Valuations reasonable

The corporate sector is in excellent shape

Many investors stuck in cash


Today: monetary policy key to markets (for now)

Fundamentals

Image source: Prevent-It.ca / Viessmann European Research Centre


Recent monetary policy

Dec 2011

ECB cuts rates 0.25% ECB LTRO 1

Feb 2012

ECB LTRO 2 BoJ extends APP & sets inflation taget of 1%

BoE extends APP

Apr 2012

BoJ extends APP

Jun 2012

Fed extends Operation Twist

Jul 2012

ECB cuts rates by 0.25% Draghi “we will do whatever it takes”

BoE extends APP

Sep 2012

ECB OMT BoJ extends APP Fed QE3, links policy directly to employment and extends time frame to mid 2015

Oct 2012 BoJ extends APP

Dec 2012

Fed QE4, open ended bond purchase programme

BoJ extends APP

Jan 2013

BoJ increases inflation target to 2%, introduces open-ended APP


The three amigos

2012

“...premature

tightening of

monetary policy...

would carry a

substantial risk of

slowing or ending the

recovery ...” May 2013

http://www.time.com/time/specials/packages/article/0,28804,2128881_2128882_2129200,00.htm

l

http://commons.wikimedia.org/wiki/File:Ben_Bernanke_official_portrait.jpg

http://www.globalpost.com/photo/5769417/162626581

“Within our mandate,

the ECB is ready to do

whatever it takes to

preserve the

euro...and believe me,

it will be enough.” July 2012

"The previous

approach...wasn't

enough ...this time,

we took all

necessary steps...” April 2013

//upload.wikimedia.org/wikipedia/commons/3/3f/Ben_Bernanke_official_portrait.jpg


Policy risk - monetary

2012

2012 2013 • Continued

exceptionally loose

monetary policy

• Beware of

unintended

consequences

• Central banks

extend monetary

easing

• Combat

deleveraging, avert

deflation and tail

risks

2014 • Continued

exceptionally loose

monetary policy

• Potential start of

unwind?


The world pre QE...

0

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6

0

200

400

600

800

1000

1200

1400

1600

1800

Jan 03 Oct 03 Jul 04 Apr 05 Jan 06 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12

S&P 500 (LHS) US 10 year yield (RHS)

Index



...what QE looks like

0

1

2

3

4

5

6

0

200

400

600

800

1000

1200

1400

1600

1800

Jan 03 Oct 03 Jul 04 Apr 05 Jan 06 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12

S&P 500 (LHS) US 10 year yield (RHS)

Index

Yie

ld



Growth

2012

2012

• Slow down

• Europe recession

• Hard landing fear

• US sluggish

2014

• Global growth

should be

reasonable but not

exceptional

• Policy choices will

be key

• Could we be

surprised by Europe

or Japan?

2013 • Growth still sub-trend

but has bottomed

• Recovery as

year progresses

• GEM and China

continue to grow

well


Developed markets today:

http://affordablehousinginstitute.org/blogs/us/2008/01/why-its-called-a-bullet-loan-part-1-the-bullet.html

http://m.rgbimg.com/cache1sUCwq/users/s/so/somadjinn/600/nElfknU.jpg


Welcome to the three speed world

http://images46.fotki.com/v10/photos/1/110342/2932325/B6A4ClusterGaugeSpeedoMarkskmh-vi.jpg

Europe US Developing world


US consumer gradually becoming more confident


0

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40

60

80

100

120

140

160

Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13

Ind

ex le

vel

US Consumer Confidence


Not shared by Eurozone counterparts

-40

-35

-30

-25

-20

-15

-10

-5

0

0

10

20

30

40

50

60

70

80

90

Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12

University of Michigan Survey of Consumer Confidence Sentiment (LHS) European Commission Consumer Confidence Indicator Eurozone (RHS)

US consumer

European consumer

Level

Level


US housing market an important base to sentiment


0

500

1000

1500

2000

2500

3000

Jan 59 Jan 62 Jan 65 Jan 68 Jan 71 Jan 74 Jan 77 Jan 80 Jan 83 Jan 86 Jan 89 Jan 92 Jan 95 Jan 98 Jan 01 Jan 04 Jan 07 Jan 10 Jan 13

Vo

lum

e (th

ous

ands)

US New Privately Owned Housing Starts


US employment situation improving...


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12

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Jan 80 Jan 83 Jan 86 Jan 89 Jan 92 Jan 95 Jan 98 Jan 01 Jan 04 Jan 07 Jan 10 Jan 13

%

Num

ber o

f cla

ims (th

ousand

s)

US Initial Jobless Claims SA US Unemployment Rate (%)


...not the case in Europe


0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013

Un

em

plo

yment r

ate

(%

)

Spain Portugal Italy Ireland Greece Germany France


Competitiveness in euro area


Unit labour costs rebased to 100

80

90

100

110

120

130

140

150

160

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Dec 04

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Ind

ex le

vel r

ebased to

100

Unit labour costs in the total economy

Spain

Italy

Greece

France

Ireland

Germany


80

90

100

110

120

130

140

150

Dec 94

Aug 95

Apr 96

Dec 96

Aug 97

Apr 98

Dec 98

Aug 99

Apr 00

Dec 00

Aug 01

Apr 02

Dec 02

Aug 03

Apr 04

Dec 04

Aug 05

Apr 06

Dec 06

Aug 07

Apr 08

Dec 08

Aug 09

Apr 10

Dec 10

Aug 11

Apr 12

Dec 12

Ind

ustr

ial P

roduct

ion (re

base

d to

100 J

an

uary

1995)

US Germany Italy

Eurozone – at risk of being left behind



Strong valuation support for equities

Source: Bloomberg, Values from 22/02/2013. May 2013

*2013 estimates

Price/Earnings* Dividend yield*10-year Government

bond yields

United States 13.0 2.3% 1.7%

Eurozone 10.3 4.5% 1.2%

United Kingdom 11.0 4.1% 1.7%

Japan 14.0 2.0% 0.6%

MSCI World 12.7 2.9% -

MSCI Emerging Markets 9.6 3.6% -


US Treasury yields unattractive


0

2

4

6

8

10

12

14

16

Jan 82

Jan 83

Jan 84

Jan 85

Jan 86

Jan 87

Jan 88

Jan 89

Jan 90

Jan 91

Jan 92

Jan 93

Jan 94

Jan 95

Jan 96

Jan 97

Jan 98

Jan 99

Jan 00

Jan 01

Jan 02

Jan 03

Jan 04

Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Yie

lds

US Generic 10 Year Govt Yield


Government bonds: equity risk?

90

95

100

105

110

115

120

125

May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13

JGB 2 03/20/52 Last Price

-15.8%


Price


Investment conclusions

• Gradual shift away from safe haven assets

• Subdued growth – but set to pick up in H2 2013

• Expect H2 2013 to be „choppier‟ than H1

• Expect GEM valuation to move closer to developed markets

• Interest rates to remain low throughout 2013

• Policy and political risks remain high

- short term outcomes unpredictable

- expect unintended consequences

- beware of complacency

• Uncertainty and fear create valuation opportunity


Subdued growth modest return expectations

Continued deleveraging financial strength is critical

Tail risks reducing equities to outperform bonds

Income generation important

- safe dividend equities

- corporate bonds

Implications for portfolio construction

Focus on:

Diversification by asset class and within asset classes

Quality equities

Inflation not today‟s problem – but might be the end game

Exploit tactical opportunities


3. The global opportunity set


A world of opportunity!

Source: Intebrand Top 100 Global Brands, December 2012. Third party trademark, copyright and other intellectual property rights are and remain the property of their respective owners.


A world of opportunity!

Source: Factset, May 2013

• There are 2449 stocks in the MSCI AC World index

• Total market cap = USD 29,349,330,208,664

• Despite being the largest country in the MSCI GEM index...

...china is just over 2% of the global stock market

China20.4%

South Korea16.4%

Brazil12.4%

Taiwan11.4%

South Africa7.1%

India6.8%

Russia5.7%

Mexico5.9%

Others14.0%

United States47.0%

Japan8.1%

United Kingdom8.0%

Canada3.8%

France3.5%

Australia3.4%

Switzerland3.4%

Germany3.2%

China2.2%

Others17.4%


Shanghai composite has underperformed global equity

50

60

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90

100

110

120

130

140

150

Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13

Perf

orm

an

ce rebased to

100

Shanghai Composite MSCI World


Shanghai

-29%

MSCI

+28%


CNY strong year to date

-18 -16 -14 -12 -10 -8 -6 -4 -2 0 2

Japanese Yen

South African Rand

British Pound

Australian Dollar

Swiss Franc

South Korean Won

Norwegian Krone

Canadian Dollar

Singapore Dollar

Taiwanese Dollar

Swedish Krona

Euro

Danish Krone

New Zealand Dollar

Brazilian Real

United States Dollar

Mexican Peso

Currency returns vs. CNY (%)



CNY recent performance and analyst forecasts

5.9

6.0

6.1

6.2

6.3

6.4

6.5

Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13

CNY spot Forecast Median Forecast High Forecast Low


CN

Y U

SD

Spot


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Documents

Global Investment Outlook: Click to edit Master 05 HNW presentation JK FINAL.pdf · Feb 04 Jul 04 Dec 04 May 05 Oct 05 Mar 06 Aug 06 Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul