Transcript Presentation title

HNW breakfast
James Klempster, CFA
May 2012
1
global investment management
1. Market update
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global investment management
Asset class returns 2011 – local currency terms
10%
8.5%
8.2%
7.2%
5.0%
5%
0%
-5%
-5.5%
-6.9%
-10%
-12.7%
-15%
Gold
Source: Bloomberg, May 2012
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Investment
grade
fixed income
Global
Government
bonds
High yield
Global
developed
market
equities
Commodities
Global
emerging
market
equities
global investment management
Global equities back to 2008 levels
110
100
Performance rebased to100
90
80
70
60
50
40
30
Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar
07 08 08 08 08 08 08 09 09 09 09 09 09 10 10 10 10 10 10 11 11 11 11 11 11 12 12
MSCI Daily TR Net World USD
MSCI Daily TR Net Emerging Markets USD
Source: Bloomberg, May 2012
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global investment management
Asset class returns YTD 2012 – local currency terms
Total return by asset class (Year to 27th April 2012)
12%
10%
9.8%
9.4%
8%
7.4%
6.3%
6%
4.4%
4%
3.4%
2%
0.4%
0.2%
0%
Global
developed
market
equities
Global
emerging
markets
equities
Convertibles
High yield
Loans
Global
Investment
Government
grade
bonds
fixed income
Cash
Source: Bloomberg, May 2012
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global investment management
Sector returns since 19 December 2011
25%
21.2%
20.1%
20%
17.2%
15%
14.0%
13.7%
9.8%
10%
9.6%
8.1%
6.8%
5%
2.7%
2.0%
0%
Consumer
Discretionary
IT
Financials
MSCI World
Industrials
Materials
Health Care
Consumer
Staples
Energy
Utilities
Telecoms
Source: Bloomberg, May 2012
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global investment management
US 10 year yields versus equities
10.0
3400
9.0
3300
8.0
3200
7.0
Yield (%)
6.0
3000
5.0
2900
Index level
3100
4.0
2800
3.0
2700
2.0
2600
1.0
0.0
Oct 11
Nov 11
Dec 11
Jan 12
US 10 year government yield
Feb 12
Mar 12
Apr 12
2500
May 12
MSCI World USD
Source: Bloomberg, May 2012
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global investment management
10 year Treasury yields at 50 year lows
US 10 year Treasury yields since 1962
18%
16%
14%
12%
Yield
10%
8%
6%
2%
4%
2%
0%
May May May May May May May May May May May May May May May May May May May May May May May May May May
62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Source: Bloomberg, May 2012
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global investment management
US data now broadly in line with consensus
Citigroup Economic Surprise Index (US)
100
Positive surprises
50
Z-score
0
-50
-100
Negative surprises
-150
Jun 08
Oct 08
Feb 09
Jun 09
Oct 09
Feb 10
Jun 10
Oct 10
Feb 11
Jun 11
Oct 11
Feb 12
Jun 12
Source: Bloomberg, May 2012
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global investment management
GDP’s early glimmer of hope
Consensus US GDP growth (2012)
3.5
3.3
Forecast GDP Change YoY %
3.1
2.9
2.7
2.5
2.3
2.1
1.9
?
1.7
1.5
Nov 09
Feb 10
May 10
Aug 10
Nov 10
Feb 11
May 11
Aug 11
Nov 11
Feb 12
May 12
US GDP Economic Forecast
Source: Bloomberg, May 2012
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global investment management
But US expected to embark on a strong dose of austerity
next year…
Austerity plans (change in primary deficit)
3.5
3
% GDP
2.5
2
1.5
1
0.5
0
Greece
US
Portugal
Japan
2011-2012
UK
Italy
France
Spain
Germany
2012-2013
Source: IMF May 2012
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global investment management
Expectations for Europe may have bottomed
Consensus EU GDP growth (2012)
2.0
Forecast GDP Change YoY %
1.5
1.0
0.5
0.0
Jan 10
Apr 10
Jul 10
Oct 10
Jan 11
Apr 11
Jul 11
Oct 11
Jan 12
Apr 12
-0.5
-1.0
Source: Bloomberg, May 2012
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global investment management
Systematic risk has re-emerged
German versus Italian bond yields
9.0
8.0
UPDATE
7.0
Yield %
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Dec 96 Dec 97 Dec 98 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
German 10 year
Italian 10 year
Source: Bloomberg, May 2012
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global investment management
Loss of competitiveness in the periphery
140
Index level rebased to 100
130
120
110
100
90
80
Dec 99
Jun 01
Spain
Dec 02
Italy
Jun 04
Greece
Dec 05
Portugal
Jun 07
Dec 08
France
Jun 10
Ireland
Dec 11
Jun 13
Germany
Source: Bloomberg, May 2012
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global investment management
Divergent trends in unemployment
25
20
(%)
15
10
5
0
2007
2008
Spain
2009
Portugal
Italy
2010
Ireland
Greece
2011
Germany
2012
France
Source: Bloomberg, May 2012
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global investment management
Mario Draghi
“We see no stigma attached to
the use of central banking credit
provisions; our facilities are
there to be used”
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global investment management
EU base rate
5.0
4.5
4.0
3.5
Yield (%)
3.0
Mario Draghi’s
term starts as
President of
the ECB
2.5
2.0
1.5
1.0
0.5
0.0
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
ECB Main Refinancing Rate
Source: Bloomberg, May 2012
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global investment management
Ease of doing business...
Easiest
Hardest
US
UK
Ireland
Canada
Germany
Japan
France
Portugal
Spain
Italy
China
Greece
Russia
Brazil
India
Source: 2011 World Bank data, May 2012
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global investment management
Time to start a business in days....
140
120
100
Days
80
60
40
20
0
Brazil
Italy
China
Russian
Federation
India
Spain
Japan
Germany
Ireland
United
Greece
Kingdom
France
United
States
Canada Portugal
Source: 2011 World Bank data ,May 2012
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global investment management
Total tax rate (% of commercial profits)...
80
70
60
%
50
40
30
20
10
0
Italy
Brazil
France
China
India
Japan
Russian Germany
Federation
United
States
Greece
Portugal
Spain
United Canada
Kingdom
Ireland
Source: 2011 World Bank data, May 2012
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global investment management
Ease of doing business...
60000
Canada
US
y = -298.53x + 47845
R² = 0.741
50000
Japan
GDP per capita (US $)
Ireland
France
Germany
40000
Italy
UK
Spain
30000
Greece
Portugal
20000
Russia
Brazil
10000
China
India
0
0
20
40
60
80
Ease of doing business , rank
100
120
140
Source: 2011 World Bank data, IMF May 2012
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global investment management
Chinese inflation
10
8
Yield (%)
6
4
2
0
-2
-4
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
China CPI YoY
Source: Bloomberg, May 2012
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global investment management
This core resilience may explain why inflation hasn’t
fallen as sharply as expected
Chinese CPI and world food price (CNY)
50%
10%
40%
8%
30%
6%
YoY change
20%
10%
4%
0%
2%
-10%
-20%
0%
-30%
-2%
-40%
-50%
1994
1996
1998
2000
2002
2004
World Food Price (CNY)
2006
2008
2010
2012
-4%
2014
CPI
Source: Bloomberg, May 2012
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global investment management
Monetary policy
25.00
Interest rate (%)
20.00
15.00
10.00
5.00
0.00
Oct 07
Apr 08
Oct 08
China 1 Year Best Lending Rate
Apr 09
Oct 09
Brazil Selic Target Rate
Apr 10
Oct 10
Reserve Bank of India REPO Cut
Apr 11
Oct 11
Apr 12
China Required Deposit Reserve
Source: Bloomberg, May 2012
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global investment management
Inexorable rises can fall flat
18.0%
17.0%
16.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Japan share of world GDP in USD
Source: Bloomberg,April2012
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global investment management
Poor correlation between stock markets and GDP
Discrete annual US GDP and S&P returns
US % stock market/ % GDP
30
25
20
Ratio
15
10
5
0
-5
-10
1947
1950
1953
1956
1.00
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Rolling 30 year correlation: US GDP and S&P returns
Correlation
0.75
0.50
0.25
0.00
-0.25
-0.50
-0.75
-1.00
1976 1978 1979 1980 1982 1983 1984 1986 1987 1988 1990 1991 1992 1994 1995 1996 1998 1999 2000 2002 2003 2004 2006 2007 2008 2010 2011
Source: Bloomberg,April2012
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global investment management
Population: sheer weight of numbers is not enough
% World population
% World GDP
2.4%
4.5%
11.9%
19.5%
United States
0 Sub-Saharan Africa
January 2012
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global investment management
Interdependent
Million $
US Consumer Spending vs. Chinese Exports to the US
30000
12000000
25000
11000000
20000
10000000
15000
9000000
10000
8000000
5000
7000000
0
6000000
Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11
US Consumer Spending
Chinese Exports to the US
January 2012
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global investment management
Interdependent
4000
3000
USD, 000's billions
2000
1000
Chinese Reserves
0
US twin deficit
-1000
-2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
January 2012
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global investment management
Equity market valuations
Historic Price/Earnings
Dividend yield
10-year Government
bond yields
13.3
2.1%
1.9%
9.2
5.3%
1.7%
United Kingdom
10.4
4.1%
2.1%
Germany
10.4
3.9%
1.7%
Switzerland
12.4
3.8%
0.7%
Japan
14.7
2.1%
0.9%
Hong Kong
10.7
3.7%
1.2%
Australia
12.9
4.8%
3.7%
United States
Eurozone
Source: Bloomberg, May 2012
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global investment management
Key themes for 2012
• ‘New normal’ is now the consensus
•
•
•
•
•
•
Global rebalancing set to continue for several years
Subdued GDP growth now widely expected
Eurozone sovereign debt remains a tail risk
Recent data suggests economic thawing in DM
Current deflationary environment will ultimately turn inflationary as
governments resort to the printing presses – but not yet
2012 started strongly, remain positive but do not let expectations
become outlandish
Add to equity on bouts of weakness
•
Diversification and dynamic asset allocation key to performance
•
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global investment management
Questions
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global investment management
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