Capital Market Outlook

April 1st, 2014

Country                         Outlook (March 31st 2014)
Asset Class

  • USA
  • Equities – Low single digit annual gains, constrained by reduction of fiscal and monetary stimulus and high valuations.
  • Govt Bonds – Mild fall in bond prices increasingly compensated with yield.


  • UK
  • Equities – Not quite as good as the USA.
  • Govt Bonds – With higher inflation and government budget imbalance than US continued poor performance.
  • Currency – Stable on decreasing inflation expectations.


  • Eurozone
  • Equities – Short term out-performance from depressed levels will give way to long term structural issues.
  • Govt Bonds - Fiscal discipline, supporting monetary policy and lack of inflation maintain Italian and German preference.
  • Currency - Improving growth prospects and subdued inflation prospects maintains over-valuation.


  • Japan
  • Equities – Stagflation fears.
  • Govt Bonds – Declared inflation target scares marginal government bond traders.
  • Currency – Loose money, low growth and debt downgrades maintain pressure.


  • Rest of the World
  • Equities – Africa, Mid-East and smaller Asian and Latin American countries provide selective best opportunities.
  • Commodities - Perceived US monetary tightening weigh till move into mid cycle.


Uncertainties

  • Chinese military developments.
  • Iran.
  • Regulation of financial institutions and products.
  • Religious extremism.

 

Economic Outlook

April 1st, 2014

Regional Analysis (March 28th 2014)

USA

Janet Yellen, Federal Reserve Chairman, explained that unless inflation were a significant concern the federal
funds rate target will be maintained, which could be six months after the end of the long-term security purchases,
that were again reduced by $10b to $55b per month. The Federal Reserve Board consensus lowered both future
growth and unemployment expectations whilst increasing expectations of the federal funds rate along with a
slight uptick in inflation expectations

Eurozone

Mario Dhragi, ECB president, expects to leave interest rates at present or lower levels for an extended period of
time, with further monetary accommodation if required, and noted how the exchange rate influenced his price
stability objective. The ongoing recovery was also expected to slowly proceed along with domestic demand. Low
fertility rates and high bureaucracy continue to act as a headwind.

Japan

The Bank of Japan is purchasing Government and corporate bonds, exchange traded funds and real estate trusts,
it also increased and extended The Stimulating Bank Lending Facility. Inflation was expected to remain at 1.25%
for some time, not taking into account the direct effect of the consumption tax hike.  Immigration controls need to
be drastically relaxed to aid growth so taxes can reduce Government borrowing.

China

The Peoples Bank of China expects continued momentum of stable and higher-quality economic growth. Whilst
concerns remain about the growing reliance on investment and borrowing , risks in the financial sector and
structural reforms of increased consumer domina
nce.  In a move to market principles the currency was allowed
to fluctuate by 2% against the dollar fix.

UK

The Bank of England comprehends that the UK’s favourable prospects could maintain a gradual appreciation of
Sterling, thereby restraining inflation.
Interest rate increases will be considered when unemployment falls below
7% and inflation is above 2 1/2%
, although there is no immediate prospect of a markedly different monetary
stance.

Economic Outlook

January 13th, 2014

Regional Analysis (December 30th, 2013)

USA

Janet Yellen, incoming Federal Reserve Chairman, fully supports the expected termination of asset purchases by
late 2014. Several members of the FOMC expect unemployment to fall below 6 .5% by the end of 2014, but will
maintain interest rates at near zero whilst inflation remains below 2%. The economy has been expanding at a
moderate pace and is expected to pick up further.

Eurozone

The ECB expect a prolonged period of low inflation allowing them to leave interest rates at present or lower levels
for an extended period of time. It is ready and able to act with forward guidance, any further funding will be targeted
at the economy and not the banking system.
Low fertility rates and high bureaucracy continue to act as a headwind.

Japan

The Bank of Japan sees a continued moderate recovery and inflation rising gradually to the target of 2%, enabled
by purchasing Government and corporate bonds, exchange traded funds and real estate trusts.
Housing investment
and industrial production have increased.
Immigration controls need to be drastically relaxed to aid growth so taxes
can reduce Government borrowing. Publicised structural reform awaits.

China

The Peoples Bank of China saw an improved economy, whist leverage and excess capacity, real estate and local
government obligations remain problematic. They noted that a basis for stable consumer prices has not yet
consolidated. Credit resources are guided towards agriculture, rural areas, farmers and micro and small
enterprises.

UK

The Bank of England saw a burgeoning recovery, counterbalanced by softness in consumer data and appreciating
sterling
. Interest rate increases will be considered when unemployment falls below 7% and inflation is above 2
1/2%.
Inflation in expect to decrease to 2% in the first quarter of 2014.

Captial Market Outlook

January 13th, 2014

Country                         Outlook
Asset Class

  • USA
  • Equities – Mid-single digit annual gains, on growing confidence indicated by reduction of monetary stimulus.
  • Govt Bonds – Continued fall in bond prices balanced by increasing yield.


  • UK
  • Equities – Not quite as good as the USA.
  • Govt Bonds – With higher inflation and government budget imbalance than US continued poor performance.
  • Currency – Falling back on decreasing inflation expectations.


  • Eurozone
  • Equities – Short term out-performance from depressed levels will give way to long term structural issues.
  • Govt Bonds - Fiscal discipline, supporting monetary policy and lack of inflation maintain Italian and German preference.
  • Currency - Poor growth and high unemployment provide ceiling against support from trade balance and risk outlook.


  • Japan
  • Equities – Policy of inflation alone cannot provide long-term support.
  • Govt Bonds – Caught between low interest rates and unreal government borrowing, look to exit.
  • Currency – Loose money and potential debt downgrades maintain pressure.


  • Rest of the World
  • Equities – Africa, Mid-East and smaller Asian and Latin American countries provide selective best opportunities.
  • Commodities - Perceived US monetary tightening weigh till move into mid cycle.


Uncertainties

  • Chinese military developments.
  • Iran.
  • Regulation of financial institutions and products.
  • Religious extremism.

Economic Outlook

September 25th, 2013

Regional Analysis (September 23rd, 2013)

USA

The US Federal Reserve Committee, after lowering growth projections, require more evidence of a sustained
recovery before reducing asset purchases and, confirmed a 6.5% unemployment rate as trigger of higher
short-term interest rates; Janet Yellen remains the front runner as the new Chairperson. Government wrangling over
the new Budget deficit levels further expire the Presidents political capital. Normalisation in long term interest rates
indicate perceived lower deflation risks.

Eurozone

Whilst the ECB see green shoots and recovery at a slow pace, they are particularly attentive and remain ready to
act to provide further liquidity. Low fertility rates and high bureaucracy continue to act as a headwind.

Japan

The Bank of Japan sees a continued moderate recovery and inflation rising gradually to the target of 2%, enabled
by purchasing Government and corporate bonds, exchange traded funds and real estate trusts. Immigration
controls need to be drastically relaxed to aid growth so taxes can reduce Government borrowing. Publicised
structural reform awaits.

China

The Peoples Bank of China further seeks to develop small enterprises, rural areas, consumer financing and
broaden funding for the finance sector. Excessive indebtedness, leverage, excess capacity in manufacturing and
limited natural resources are problematic. Credit restrictions were relaxed.

UK

The Bank of England saw promising data. Interest rate increases will be considered when unemployment falls
below 7% and inflation is above 2 1/2 %. Government policy continues to promote house prices at unrealistic levels
for the majority of citizens and indicates that Labour will win the next election unless unemployment falls sharply.

Capital Market Outlook

September 25th, 2013

Country                         Outlook
Asset Class

  • USA
  • Equities – Mid-single digit annual gains, on growing confidence but slowing fiscal and monetary stimulus.
  • Govt Bonds – 10 year yields trading between 2 1/2 and 3% in the near term on low inflation prospects.


  • UK
  • Equities – Not quite as good as the USA.
  • Govt Bonds – Inflation concerns and Government overspend maintain a yield floor.
  • Currency – Trading in a tight range against the US dollar.


  • Eurozone
  • Equities – Short term out-performance from depressed levels will give way to long term structural issues.
  • Govt Bonds - Sound fiscal discipline, supporting monetary policy and lack of inflation maintain preferred status.
  • Currency - Poor growth and high unemployment provide ceiling against support from trade balance and risk outlook.


  • Japan
  • Equities – Policy of inflation alone cannot provide long-term support.
  • Govt Bonds – Caught between low interest rates and unreal government borrowing.
  • Currency – Loose money and potential debt downgrades maintain pressure.


  • Rest of the World
  • Equities – Africa, Mid-East and smaller Asian and Latin American countries provide selective best opportunities.
  • Commodities - Perceived US monetary tightening weigh.


Uncertainties

  • Chinese military developments.
  • Iran.
  • Regulation of financial institutions and products.
  • Religious extremism.

Capital Market Outlook

June 25th, 2013

Country Outlook
Asset Class

  • USA
  • Equities – Annual single digit gain, restricted by: move towards fiscal balance and, anticipation of tightening in
    monetary stance.
  • Govt Bonds – A return to market dominated prices from reduced Fed’s purchases is moderated by suppressed inflation
    until anticipation of Fed‘s anticipated funds rate increases in 2015.


  • UK
  • Equities – A new credible central banker’s monetary and regulatory discipline and anemic economic growth bode
    ill.
  • Govt Bonds – Following US Treasury’s lead.
  • Currency – Slow growth and belated austerity maintain pressure.


  • Eurozone
  • Equities – Long deserved Cyprus bank rescue model concerns investors in troubled areas.
  • Govt Bonds - Continued recession and ECB assistance with low interest rates and credit lines give continued support
    for all nations.
  • Currency - Poor growth and continued low interest rates continue to weigh.


  • Japan
  • Equities – Manufactured currency depreciation now provides fuel.
  • Govt Bonds – Low inflation and interest rates maintain support.
  • Currency – Commitment to an inflationary target with low interest rates allows overvalued currency to depreciate.


  • Rest of the World
  • Equities – After strong recovery since 2008 look to take money off the table.
  • Commodities - US monetary tightening and China slowing weigh.


Uncertainties

  • Russian political interference in its return to free market.
  • Chinese growing military capabilities.
  • Iran.
  • Necessary EU & US regulation of modern financial institutions and products.
  • Mid-East political developments.

Economic Update

June 25th, 2013

USA

In the last Federal Reserve Chairmans Statement a distinction was made between expected asset purchases
moderating in 2013 before stopping in 2014 and increasing the federal funds interest rate in 2015. Automatic
Government budget cuts have been delayed till September 30th in the hope of an agreed resolution. Both these
measures are expected to slow the growth of the economy especially as lending criteria remains strict. However a
normalisation of long term interest rates help to promote confidence.

Eurozone

Governments with unreasonable market borrowing rates can have unlimited refinancing from the ECB as long as
agreed austerity measures are in place. Decreasing fertility requires increased productivity or immigration for
economic growth. The majority of the polarized electorate now appreciate Government spending will only increase
taxes for the diminished next generation. Whilst EU regulation constrains the free market, high unemployment and
inflation concerns remain.

Japan

An ageing population spend their savings and a small bubble of workers at their most productive assist economic
growth. The LDP’s return to power provides a mandate for the Bank of Japan to increase it’s inflation goal to 2%
and weaken the currency. Immigration controls need to be drastically relaxed to promote an improvement in the
long term economic growth rate. Unnecessary Government spending and borrowing are now reaching punishable
levels. Publicised structural reform awaits.

China

A large proportion of the working population will move into retirement, due to the one child policy. Chinese growth is
therefore expected to slow and could even decline over the next decade and a half. Even so China’s developing
consumer sector benefits from jobs in global manufacturing, attracted by cheap labour costs and traditional work
ethic. The Government sees extended lending for large companies, wealth management and speculative
investments and seeks to redirect this to small and medium sized enterprises, which is proving difficult.

UK

The Conservative/Liberal coalition commitment to maintaining Government borrowing at sustainable levels has
waned. Mark Carney is expected to restore the credibility of the Bank of England with monetary and regulatory
discipline. Government policy continues to promote house prices at unrealistic levels for the majority of citizens and

indicates that Labour will win the next election.

     

    Financial Consumer Rights

    May 29th, 2013