IN THIS ISSUE 1 Highlights 2 Short-term Investment Outlook 4 Macro Assessment 6 Equity Mark ets 9 Fixed Income 11 Other Investments 12 Currency 13 Sukuk Highlights During January, renewed investor risk-appetite saw equities perorm strongly overall, although degrees operormance varied among regions. In developed markets, the eurozone was the standout perormer as news-ow over sovereign debt concerns was appeased by successul debt auctions in Italy, Portugal and Spain. Eurozone investor sentiment was urther aided by pledges oassistance rom the European Central Bank, Japan and China. Looking ahead however, sovereignty debt concerns will remain until governments reach a clear and permanent solution. On the macroeconomic ront, the US benefted rom rising investor confdence as consumer spending, manuacturing fgures and existing home sales soared, supporting positive economic growth. Overall, the health othe US economy appears to have improved rom previous subdued levels and investor expectations have risen as a result. Within developed countries, however, high unemployment levels persist amid weak labour markets. In emerging markets, economic data remains strong and governments continue to tighten monetary policy. In China or instance, the economy grew aster-than- expected in the ourth quarter, with gross domestic product up 9.8% rom the year-earlier, and up 10.3% or all o2010. Meanwhile, consumer ination hit 4.6% year-on-year in December. Consequently, the People’s Bank oChina ordered lenders to increase their reserve requirement in an attempt to dry up liquidity to get ination under control. Alongside China, central banks in Brazil and India ollowed suit. January Market Recap During January, global equity markets, as measured by the MSCI World index, rose by 2.2% as the global economic recovery gained momentum and sovereign debt concerns in the eurozone were appeased by successul debt auctions in peripheral countries. In contrast to preceding months, global equity returns were particularly robust within developed markets, which outpaced their emerging market counterparts. Over the month, emerging markets suered a correction as the MSCI Emerging Markets index ell by 2.1% engul ed by ination concerns and possible interest hikes. Similar to developed markets, the variation in returns rom individual countries in emerging markets was signifcant. Russian stocks were an exception as they bucked the trend by rising during January. Elsewhere among the BRIC countries, Chinese Brazilian and Indian equities posted hety losses, with the latter alling by over 10%. In Egypt, stocks spiralled downwards amid the growing political unrest though this had limited impact on the wider emerging market index. While growth within emerging countries remains robust, the rate ogrowth is decelerating. Rising ination and the possibility ourther interest hikes remain at the crux othe nervousness among emerging markets. February 201 1 Global Investment Perspective Outlook & Strategy While the global economic recovery is making progress, conditions remain challenging and growth uncertainties persist. Thereore, our central scenario remains unchanged. Overall, we anticipate positive, albeit moderate, sub-trend economic growth in developed economies in 2011. Furthermore, we also expect ongoing strength in emerging economies. Our main concern here is the prospect ourther monetary tightening, which would impact global growth prospects, given that emerging economies have been an important engine behind the global economic recovery to date. In the developed world, the key risks on the economic horizon remain fscal tightening and weak consumption. The prospects or labour markets and consumption remain unclear , despite some signs ostabilisation. Unemployment rates are stil l elevated and consumers are s till endeavouring to unwind debt positions, particularly in the US and the UK. At an asset class level, we started a modest overweight position in both developed and emerging market equities relative to cash and government bonds. The market remains ushed with liquidity, given not only capital injections by central banks but the high levels ocash on corporate balance sheets. This is positive or equities as it gives companies the exibility to invest, expand and drive earnings growth, or raise dividend payment to increase shareholder returns. Equities are supported by the positive collective backdrop oimproving economic data particularly in the US, reasonable earnings growth orecasts or 2011 and undemanding stock valuations, not least relative to cash and government debt. At the sector level, while valuations remain attractive or healthcare and telecommunications stocks on an absolute basis, the valuation gap relative to other sectors is less compelling. Thereore, we no longer have a relative preerence or these two sectors. Within the context odeveloped market equities, we maintain a preerence or Japanese equities where we maintain a tactical short-term overweight position as valuations and equity undamentals remain sound. Presently, this scenario remains unchanged irrespective othe recent credit rating downgrade oJapanese sovereign debt by Standard & Poor’s. Within the emerging mar kets, we continue to avour Russia on the basis oattractive stock valuations on both a relative and absolute basis, and signs oimproving economic conditions. In fxed income, with ination under control in the developed world with the exception othe UK, we believe central banks are likely to keep interest rates low, which is broadly supportive ofxed income markets. Within the fxed income universe, our preerence continues to ocus on developed market corporate bonds, particularly high yield which we believe oer value on a total-return basis.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
8/7/2019 GIP FEB2011
http://slidepdf.com/reader/full/gip-feb2011 1/14
IN THIS ISSUE
1 Highlights
2 Short-term Investment
Outlook
4 Macro Assessment
6 Equity Markets
9 Fixed Income
11 Other Investments
12 Currency
13 Sukuk
HighlightsDuring January, renewed investor risk-appetite sawequities perorm strongly overall, although degreeso perormance varied among regions. In developedmarkets, the eurozone was the standout perormeras news-ow over sovereign debt concerns wasappeased by successul debt auctions in Italy, Portugaland Spain. Eurozone investor sentiment was urtheraided by pledges o assistance rom the EuropeanCentral Bank, Japan and China. Looking aheadhowever, sovereignty debt concerns will remain untilgovernments reach a clear and permanent solution.
On the macroeconomic ront, the US benefted romrising investor confdence as consumer spending,manuacturing fgures and existing home salessoared, supporting positive economic growth. Overall,
the health o the US economy appears to haveimproved rom previous subdued levels and investorexpectations have risen as a result. Within developedcountries, however, high unemployment levels persistamid weak labour markets.
In emerging markets, economic data remains strongand governments continue to tighten monetary policy.In China or instance, the economy grew aster-than-expected in the ourth quarter, with gross domesticproduct up 9.8% rom the year-earlier, and up 10.3%or all o 2010. Meanwhile, consumer ination hit4.6% year-on-year in December. Consequently, thePeople’s Bank o China ordered lenders to increasetheir reserve requirement in an attempt to dry up
liquidity to get ination under control. Alongside China,central banks in Brazil and India ollowed suit.
January Market RecapDuring January, global equity markets, as measuredby the MSCI World index, rose by 2.2% as the globaleconomic recovery gained momentum and sovereigndebt concerns in the eurozone were appeased bysuccessul debt auctions in peripheral countries.
In contrast to preceding months, global equityreturns were particularly robust within developedmarkets, which outpaced their emerging marketcounterparts. Over the month, emerging marketssuered a correction as the MSCI Emerging Marketsindex ell by 2.1% enguled by ination concerns andpossible interest hikes. Similar to developed markets,
the variation in returns rom individual countries inemerging markets was signifcant. Russian stockswere an exception as they bucked the trend by risingduring January. Elsewhere among the BRIC countries,Chinese Brazilian and Indian equities posted hetylosses, with the latter alling by over 10%. In Egypt,stocks spiralled downwards amid the growing politicalunrest though this had limited impact on the wideremerging market index.
While growth within emerging countries remainsrobust, the rate o growth is decelerating. Risingination and the possibility o urther interest hikesremain at the crux o the nervousness amongemerging markets.
February 2011
Global Investment Perspective
Outlook & StrategyWhile the global economic recovery is making progress, conditions remain challenging and growthuncertainties persist. Thereore, our central scenario remains unchanged. Overall, we anticipate positive,albeit moderate, sub-trend economic growth in developed economies in 2011. Furthermore, we alsoexpect ongoing strength in emerging economies. Our main concern here is the prospect o urthermonetary tightening, which would impact global growth prospects, given that emerging economieshave been an important engine behind the global economic recovery to date.
In the developed world, the key risks on the economic horizon remain fscal tightening and weakconsumption. The prospects or labour markets and consumption remain unclear, despite some signs ostabilisation. Unemployment rates are stil l elevated and consumers are still endeavouring to unwind debtpositions, particularly in the US and the UK.
At an asset class level, we started a modest overweight position in both developed and emerging marketequities relative to cash and government bonds. The market remains ushed with liquidity, given not onlycapital injections by central banks but the high levels o cash on corporate balance sheets. This is positiveor equities as it gives companies the exibility to invest, expand and drive earnings growth, or raisedividend payment to increase shareholder returns. Equities are supported by the positive collectivebackdrop o improving economic data particularly in the US, reasonable earnings growth orecasts or2011 and undemanding stock valuations, not least relative to cash and government debt.
At the sector level, while valuations remain attractive or healthcare and telecommunications stocks on anabsolute basis, the valuation gap relative to other sectors is less compelling. Thereore, we no longer havea relative preerence or these two sectors.
Within the context o developed market equities, we maintain a preerence or Japanese equities wherewe maintain a tactical short-term overweight position as valuations and equity undamentals remain sound.Presently, this scenario remains unchanged irrespective o the recent credit rating downgrade o Japanesesovereign debt by Standard & Poor’s. Within the emerging markets, we continue to avour Russia onthe basis o attractive stock valuations on both a relative and absolute basis, and signs o improvingeconomic conditions.
In fxed income, with ination under control in the developed world with the exception o the UK,we believe central banks are likely to keep interest rates low, which is broadly supportive o fxed incomemarkets. Within the fxed income universe, our preerence continues to ocus on developed marketcorporate bonds, particularly high yield which we believe oer value on a total-return basis.
8/7/2019 GIP FEB2011
http://slidepdf.com/reader/full/gip-feb2011 2/14
2
ASSET CLASS CURRENTVIEW REASONING
EQUITY
Global Developed
Market EquityNeutral
• Equity valuations relative to cash and especially government debt remain
attractive, plus liquidity remains supportive. There continue to be risks to the
economic recovery, but our core scenario is or positive, but sub-trend growth.
US Equity Neutral• Whilst unemployment remains elevated at 9.6%, Fed policy has remained
accommodative and recent economic news-ow has been encouraging.
Europe Equity
(including the UK)Neutral
• Economic conditions remain mixed. UK growth has slowed, austerity
measures are in the process o being rolled out in parts o Europe and the
economic health o peripheral eurozone countries remains uncertain. That said,
interest rates and ination remain generally low (the UK being an outlier), the
Bank o England has agged the possibility o a urther round o quantitative
easing, and recent corporate earnings news in Europe has been encouraging.
Japan Equity Positive
• We have a tactical, short-term preerence or Japanese equities as they lagged
other developed equity markets or much o 2010 and, having recently started
to outperorm, are likely to have positive price momentum. There are also early
signs that ows are becoming more supportive. Japanese stock valuations
look attractive relative to history both in absolute terms and relative to other
developed markets.
Asia ex-Japan
EquityNeutral
• From a macroeconomic perspective, the outlook remains generally positive
with strength in both the manuacturing and consumer sectors. However,
rom a valuation perspective, market prices have largely reected the positive
news-ow.
Hong Kong and
China Equity
Neutral
(3-6 months)
Positive
(6-12 months)
• We turned rom positive to neutral on a 3-6 months view. Though stocks
are not at expensive levels, we are increasingly concerned about monetary
tightening measures to curb ination.
Global Emerging
MarketsNeutral
• Emerging countries are likely to continue to lead the recovery due to robust
domestic consumption and strong intra-regional trade. That said, like developed
markets, emerging market equities are exposed to volatility stemming rom
the question marks around the sustainability o the global economic recovery.
Latin America
EquityNeutral
• The economic perormance o Latin American countries remains strong and
earnings growth estimates or 2011 look reasonable. Having said that, the
good news seems to be well reected in market prices and relative valuation
measures show no strong signals. We, thereore, retain our neutral stance.
Middle East Equity Neutral
• Economic data rom the region has been highly encouraging and 2010-2011
orecasts are positive. In addition, valuations remain reasonable. Key risks include a
slowdown in global demand or oil and the potential deterioration o budget defcits
among some o the countries in the region.
Eastern Europe
EquityNeutral
• Manuacturing data has varied within the dierent countries. Weak labour
markets, high levels o government debt and ongoing concerns about eurozone
debts are weighing on the outlook or the broader region. However, at a
country level, we avour Russian equities. Valuations or Russian equities are
attractive in both absolute and relative terms.
FIXED INCOME
US Government
BondsNegative
• Excess capacity in developed markets and the renewed commitment o key
central banks to remain accommodative are generally supportive or low yields.
However, despite the recent rise in yields, the market is still oering little value
relative to history and, downside risks remain. Within fxed income, we preer to
own corporate debt, where we see greater total return opportunities.
EURO Government
BondsNegative
• We have a negative stance on eurozone government bonds relative to cash. This
is due to uncertainties regarding the economic health o eurozone peripheral
countries. In addition, valuations o these bonds do not look particularly attractive;
they oer very limited protection against negative surprises.
Short-term InvestmentOutlook (6-12 months)
8/7/2019 GIP FEB2011
http://slidepdf.com/reader/full/gip-feb2011 3/14
3
Summary
Overall, we have implemented a moderate overweight position in global equities relative to both government bonds and
cash. Within equities, we have closed out our preerence or healthcare, telecommunications and consumer staples stocks as
the valuation gap relative to other sectors has converged making these sectors less attractive on a relative basis. Within the
context o developed markets equity, we remain positive on Japan on a short-term perspective partly due to attractive stock
valuations and positive price momentum and ows. Within emerging markets equity, our avoured market is still Russia.
In fxed income, we have a negative view on government bonds relative to cash, although less so than last month. However,we have a positive stance on corporate debt – both investment grade and high yield. Positives or corporate bonds include
attractive valuations and avourable issuer undamentals. Our central economic scenario is or slow but positive growth in the
major developed markets, a backdrop which is typically positive or credit markets.
With regard to the our major developed market currencies, it is likely that heightened volatility will continue. Valuation
measures are not currently providing strong signals and we thereore, have a neutral stance on currency positions.
FIXED INCOME
Asian GovernmentBonds
Neutral • With the recent rise in US treasury yields and tight spreads in AsiaGovernment USD bonds, we maintain our neutral recommendation.
Investment Grade
CorporatePositive
• Strong corporate earnings results, the view that major central banks will keep
interest rates low and strong demand or yield have boosted investment grade
corporate bonds. With momentum likely to remain positive, we continue to be
positive on the asset class.
High Yield Bonds Positive
• High yield bonds continue to look attractive on a total return basis. We have
retained our positive view on the asset class given better-than-expected
corporate results, declining deault rates and growing expectations that interest
rates could remain anchored at their current low levels due to growing global
economic growth uncertainties.
Sovereign US
dollar denominated
Emerging Markets
Debt
Negative
• Sovereign US dollar-denominated emerging market debt continues to look less
attractive on valuation grounds than developed market corporate debt, and high
yield in particular.
Global Developed
Ination-linked
Bonds
Negative• The sell-o in nominal bonds makes the global ination-linked bond market
more expensive and the nominals less expensive.
OTHER
INVESTMENTS
Oil
Between
the rangeo US$70 to
US$90 per
barrel
• We expect the oil price to uctuate in the US$70-US$90 range, as improved
demand is balanced out by a orecast rise in OPEC production. Fluctuation in
risk-appetite is likely to contribute to oil price volatility.
Gold
Neutral
Betweenthe range o
US$1,250 to
US$1,400 per
troy ounce
• We are neutral on gold now as opposed to having been somewhat negative
in previous months. Moves by the US Federal Reserve to add urther liquidityto markets, combined with ongoing macroeconomic uncertainty, remain
supportive actors or this precious metal. Against this backdrop, we expect
gold will trade in a between a range o US$1,250 to US$1,400 per troy ounce
in the near-term.
Commercial
Real Estate
(unlisted markets)
Neutral
• High unemployment, alling occupancy rates and declining rental values
in the US and Europe warrant a cautious/ negative outlook or these two
markets in general. Our short-term outlook or the UK has deteriorated, with
weaker rental and capital growth projections, although we are not expecting
a signifcant price correction as yields remain above our view o long run air
value. The outlook or Asia Pacifc is improving, although there is wide regional
divergence.
CURRENCYEUR, GBP, JPY
and USDNeutral
• Valuation indicators are not sending any clear signals at present. We see both
event-driven and sentiment-driven risks contributing to ongoing volatility. We thus
continue to have a neutral view on currency exposures.
Short-term Investment
Outlook (6-12 months)
8/7/2019 GIP FEB2011
http://slidepdf.com/reader/full/gip-feb2011 4/14
4
US
The economic recovery made good progress in the US, despite