Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
investment outlook update September 2013 Advisory and Discretionary monthly newsletter Calm returns to financial markets against the backdrop of improved growth Central bankers restored calm to the financial markets relatively quickly by reassuring investors that the stimulus policy will not be abruptly terminated and that any exit will depend strongly on the actual state of the economy. The economy already started to improve in the second quarter, as evidenced by recent data, including from Europe. Market environment and Special> pages 2 and 4 Equities back in favour, with emphasis on Europe We decided to increase equities to strongly overweight, the same position we held in early June before unrest in the equity markets compelled us to lower the weighting. We also upped Europe to a neutral weighting and reduced emerging markets to neutral. Outlook> page 5 Government bonds remain sharply underweight The main surge in US government bond yields seems to be behind us. Nevertheless, we have maintained the strongly underweight position in government bonds, with a pronounced emphasis on Italy and Spain as these bonds still offer price potential. We are continuing our search for additional return in various types of corporate bonds. Outlook> page 5 market environment Representatives of the world’s leading central banks have managed to restore calm to the financial markets. At the same time, signs that the global economy is on the eve of recovery are growing. This applies both to the United States and Japan, and even to Europe though the recovery there will be slightly later and less robust (for Europe, see the Special on page 4). In many emerging countries, growth is decelerating slightly, but these economies are still powering well ahead of the rest of the world. quarter disappointed the financial markets, it was double the growth in Europe (see Special on page 4) and higher than the US figure for the same quarter. Meanwhile, the economies of many emerging countries are undergoing a slight growth deceleration. This is partly because falling prices are hitting commodity-exporting countries (such as Russia and Brazil). Another cause is the diversion of capital flows from emerging countries to the United States in anticipation of the tapering of its stimulus policy. Moreover, quite a few emerging countries have raised their interest rates to protect their domestic currency. Tapering is in the offing The recent unrest in the financial markets was triggered by comments from US Federal Reserve Chairman Ben Bernanke, who referred to a gradual tapering of the extremely strong stimulus measures. After the US central bankers – as well as their colleagues from other leading central banks – had explained that this would be conditional on an improving economy, calm soon returned. What’s more, tapering (the gradual reduction of the bond-buying programmes) is not the same as the actual tightening of monetary policy (raising interest rates). We do not foresee the latter until 2015. Incidentally, we expect the FOMC to indicate in September (or in December at the latest) when the tapering will start The mood among purchasing managers and at what pace. Now that the markets are prepared for this event, we do not expect the issue to spark any further major price shocks. The central banks in the eurozone and Index: 50 = boom-bust level 65 the United Kingdom have also adjusted their communication 60 strategy by providing guidance on how long and under what conditions their policy will retain its stimulating character. Growth accelerates in the US and Japan; remains high in emerging countries The improvement of the global economy is genuinely starting to take shape, most visibly in the United States where optimism among purchasing managers in both the manufacturing and services sectors suddenly jumped in July. The manufacturing optimism index advanced from 50.9 in June to 55.4 in July, while the services optimism index climbed from 52.2 to 56, well above the boom-bust mark of 50. In addition, the recovery in the labour market appears to be holding firm, thus giving the economy a broader base thanks to the rising 55 50 45 China Eurozone United States 40 35 30 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Datastream The mood among purchasing managers has further improved in the United States and Europe, with the index in Europe rising back above the boom-bust mark of 50. The sentiment in China remains somewhat subdued, though the Chinese economy is still growing at a much faster pace than the economies in the other two regions. number of income earners. The Japanese economy is also forging ahead. Though the growth rate of 0.6% in the second page 2 market developments The financial markets are beginning to position themselves for the inevitable: the tapering of the extremely expansionary central bank policies. This is starting in the United States, but other countries are also feeling the effects. Bond yields are rising around the world. Normally, this could be expected to put some pressure on equity prices, but the positive impulse from the accelerating economic growth and improving profit outlook will comfortably offset this. However, we are seeing a certain rotation towards equities and sectors that are better positioned to benefit from recovering economic growth. US stock markets have advanced by half that percentage, while most European stock exchanges have posted gains of between 8% and 13%. The emerging markets are still about 3% in negative territory. So the conclusion could be that Europe and the emerging markets have recouped some of the losses sustained in the first half of the year. Moreover, the recent market reaction was effectively a rebound from the downward market correction triggered in May and June by discussions about the tapering of the expansionary monetary policy. Since then, the equity markets have once again set their sights on the medium term, partly thanks to the favourable macro-economic developments, which particularly favour businesses and sectors that are set to benefit from Relatively sharp rise in bond yields the recovery of economic growth. The imminent prospect of a reversal of the central banks’ stimulus policies and the expected withdrawal of a dominant buyer from the bond market have already sent bond yields sharply higher. In the United States, but also in Germany, the 10-year government bond yield rose by 0.25% between mid-July and mid-August, bringing the year-to-date increase to a full percentage point in the US and half a percentage point in Germany. In Italy and Spain, interest rates have fallen this year by 0.3% and 0.8%, respectively. This implies a yield compression versus the former safe havens. Given the incre- 10-year government bond yields ase in bond yields in the United States and Germany, the reduction of the US bond buying programme now appears to have been largely factored into the prices. In our opinion, a 8 further yield rise cannot be excluded, but will be limited. The 7 situation in the European periphery markets may be less tran- 6 quil. The imbalances and risks have not entirely disappeared 5 and may, from time to time, spark violent price and interest 4 rate volatility. 3 % Spain Italy Germany United States 2 Equity markets driven by signs of economic recovery The equity markets showed a very diverse picture between mid-July and mid-August. The price increases remained very limited in the United States (0.5% for the S&P-500), but were much stronger in most European equity markets (ranging from 3% in Germany to almost 7% in France). In Japan, the Nikkei actually fell by almost 4% on balance. The emerging markets, by contrast, achieved a moderate increase of 3% on average. However, when looking at the equity price 1 0 2010 Apr Jur Oct 2011 Apr Jul Oct 2012 Apr Jul Oct 2013 Apr Jul Source: Datastream Since July 2012, a strong yield convergence has occurred between the United States and Germany on the one hand, and Italy and Spain on the other. This was initially due to a decline in Italy and Spain, but more recently also to an increase in the two other countries. movements since the start of this year, an entirely different picture emerges. The Japanese Nikkei is 35% higher, the page 3 special Europe out of recession, but major differences remain had its strongest negative effect and will decrease in terms of In the second quarter of this year, the eurozone economy grew both size and impact in the coming years. This development, by 0.3% compared to the first quarter but economic activity too, will support these economies. The return to growth in was still 0.7% lower than in the second quarter of 2012. Germany and France also opens up prospects for the other Nevertheless, a gradual improvement is visible as the compa- eurozone countries as their export opportunities improve. rable figure in the fourth quarter of 2012 and the first quarter The same applies to the Netherlands, which is plagued by of this year was around -1%. The major differences within the structural problems in the form of falling house prices and eurozone remain a source of concern. Germany and France relatively high mortgage debts. These issues have severely are doing relatively well. Meanwhile, Italy, Spain and the dented consumer confidence. Still, thanks to its strong Netherlands are lagging behind, while Portugal is on the mend. position as a supplier of the German automotive and capital The recent developments and outlook are sketched below. goods industries, the Netherlands is even better placed than others to benefit from a resurgent Germany. Consumer growth varies strongly from country to country Relatively strong private consumption growth was an important reason behind the robust performance of Germany and France compared to other major eurozone countries in the second quarter with growth of 0.7% and 0.5%, respectively. In the past three quarters they also clearly outperformed most of the other European countries. Consumption stagnated in Italy, Spain and the Netherlands, whose economies continued to contract in the second quarter. The pace of contraction is slowing, but these economies shrank in the last three quarters as a whole. Portugal was a favourable exception, enjoying growth of no less than 1.1% in the Economic growth over the past three quarters second quarter. However, due to the preceding extremely severe contraction, particularly in the last quarter of 2012, this % versus last quarter country’s economy still shrank in the last three quarters as 1,5 a whole. Greece has not yet presented any Gross Domestic 1,0 Product data, but is presumably also still in recession. Most 0,5 East European countries as well as Finland – which have been omitted from the graph for the sake of clarity – saw growth recover in the first two quarters of this year. All in all, 0,0 -0,5 therefore, striking differences exist within the eurozone, sig- -1,0 nalling that balanced development within the region remains -1,5 a distant prospect. -2,0 Germany and France must take the lead Even so, the outlook for the European economy is starting to brighten. In many South European countries this is reflected in the reduction of the balance-of-payments deficits, thanks not only to lower imports but also to a limited increase in exports. The latter points to a slight improvement in their 2013 II 2013 I 2012 IV Germany France Italy Spain Netherlands Portugal Source: Eurostat Eurozone growth averaged 0.3% in the second quarter, but there were strong differences between the member states. Germany and France were the star performers among the large countries, and Portugal recovered strongly from a deep recession. The contraction slowed further in Italy, Spain and the Netherlands. competitiveness, which is a key condition for kick-starting economic growth. At the same time, fiscal consolidation has page 4 outlook Equities strongly overweight once again government bonds whose prices may rice slightly further. In early June, we decided to lower the strongly overweight In addition, we are maintaining the existing (overweight) position in equities. There were fears of growing price exposure to corporate bonds, including both investment volatility due to uncertainties resulting from the tapering grade companies and high-yield companies (offering higher of the stimulus policy of the US Federal Reserve System returns, but also posing a higher risk) and bonds of emerging (Fed). This unrest did indeed materialise, causing sharp falls countries. in the international equity markets. Reassuring statements from central bankers helped quickly restore calm. This, Hedge funds, commodities and real estate alongside the improving economic outlook, prompted us We remain overweight in hedge funds in the more defensive to raise the equity position again to strongly overweight. profiles, as these offer a good alternative to bonds. In the As the economic outlook is also brightening for Europe, we more offensive profiles we remain underweight in hedge simultaneously switched this region’s underweight position funds in order to benefit from the better outlook for equities. to neutral. This was done at the expense of the overweight In the more neutral profiles, we maintain a neutral stance exposure to emerging countries (now also neutral) where towards hedge funds. We maintain a cautious approach to the growth outlook – though still positive – is deteriorating commodities (neutral weighting), mainly because many com- somewhat. Commodity-exporting countries (such as Russia modities are contending with substantial excess production and Brazil) are facing a decline in revenues due to falling capacity. In addition, a higher dollar (which we expect) and prices. Other countries have raised their interest rates to higher interest rates are disadvantageous to commodities. protect their domestic currency and many of the emer- Real estate is sensitive to expected and actual interest rate ging countries are in a transitional phase towards a more increases, despite the positive effect of a reviving economy consumption-driven economy with slightly lower growth on the fundamentals of property and the cash flows. We figures. therefore maintain our neutral stance. No changes in bond allocation Bond yields have generally increased further since the last investment committee meeting on 17 July. This was partly related to the expectation that the bond-buying programmes of central banks (and particularly the Fed) would soon be reversed. On the other hand, it also stemmed from an improvement in the economic outlook. Though we expect the rise in interest rates to remain limited through year-end, we are maintaining our strongly underweight position in government bonds, with an emphasis on Spanish and Italian page 5 General Disclaimer The information provided in this document has been drafted by Advisory and Portfolio Management the Netherlands of ABN AMRO Bank N.V. and is intended as general information and is not oriented to your personal situation. The information may therefore not expressly be regarded as a recommendation or as a proposal or offer to 1) buy or trade investment products and/or 2) procure investment services nor as investment advice. Decisions made on the basis of the information in this document are your own responsibility and at your own risk. The information on and conditions applicable to investment products offered by ABN AMRO and ABN AMRO investment services can be found in the ABN AMRO Investment Conditions (Voorwaarden Beleggen ABN AMRO), which are available on www.abnamro.nl/beleggen. Although ABN AMRO attempts to provide accurate, complete and up-to-date information, which has been obtained from sources that are considered reliable, ABN AMRO makes no representations or warranties, express or implied, as to whether the information provided is accurate, complete or up-to-date. ABN AMRO assumes no liability for printing and typographical errors. The information included in this document may be amended without prior notice. ABN AMRO is not obliged to update or amend the information included herein. Neither ABN AMRO nor any of its agents or subcontractors shall be liable for any damages (including lost profits) arising in any way from the information provided in this document or for the use thereof. ABN AMRO, or the relevant owner, retains all rights (including copyright, trademarks, patents and any other intellectual property right) in relation to all the information provided in this document (including all texts, graphic material and logos). The information in this document may not be copied or in published, distributed or reproduced in any form without the prior written consent of ABN AMRO or the appropriate consent of the owner. The information in this document may be printed for your personal use. US Securities Law Disclaimer ABN AMRO Bank N.V. (‘ABN AMRO’) is not a registered broker-dealer under the U.S. Securities Exchange Act of 1934, as amended (the ‘1934 Act’) and under applicable state laws in the United States. In addition, ABN AMRO is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the ‘Advisers Act’ and together with the 1934 Act, the ‘Acts’), and under applicable state laws in the United States. Accordingly, absent specific exemption under the Acts, any brokerage and investment advisory services provided by ABN AMRO, including (without limitation) the investment products and investment services described herein are not intended for U.S. persons. Neither this document, nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. Without limiting the generality of the foregoing, the offering, sale and/or distribution of the investment products or investment services described herein is not intended in any jurisdiction to any person to whom it is unlawful to make such an offer, sale and/or distribution. Persons into whose possession this document or any copy thereof may come, must inform themselves about, and observe, any legal restrictions on the distribution of this document and the offering, sale and/or distribution of the investment products and investment services described herein. ABN AMRO can not be held responsible for any damages or losses that occur from transactions and/or investment services in defiance with the restrictions aforementioned. Colophon Author: Ben Steinebach, Chief Investment Officer the Netherlands of ABN AMRO MeesPierson In case you wish further information, please contact your portfolio manager or investment advisor.