Presentation on theme: "Investor implications for global deleveraging"— Presentation transcript:
1 Investor implications for global deleveraging Glyn Owen20th September 2012
2 Central government debt burden 1900 to 2011 - advanced and emerging economies %Source: Reinhart (2010), Reinhart and Rogoff (2009 and 2011), sources cited therein and the authors
3 Total debt to GDP for developed economies 1990 - 2012 Source: Deutsche Bank, Haver. September 2012.
4 Debt composition varies widely Source: Bloomberg, September 2012.
5 US fiscal deficit as % of GDP 1791 -2011 Source : Deutsche bank, GFD. September 2012.
6 Budget deficits larger in the US than in peripheral Europe Budget deficit as a % of GDP%Greece, Ireland, Italy, Portugal and Spain: GDP- weighted fiscal balanceUSSource: Deutsche bank. September 2012.
7 Deleveraging: where are we in the cycle? Note: Debt refers to external marketable debt and excludes internal debts, e.g. interbank debtsSource: FRB, Haver Analytics, DB Global Markets Research
8 US real GDP post-war experience: not a normal cycle... Source: Nedgroup Capital. September 2012.
9 The UK recovery is weaker than in the great depression %Source: Deutsche Bank. September 2012.
10 Short term interest rates over past 10 years US, UK, Japan and Europe%Source: MGIM, Bloomberg. September 2012
11 The world is not normal: UK base rate 1694 to today Source: Deutsche Bank, GFD. September 2012.
12 The world is not normal: Swiss government bond yields Source: Bloomberg, MGIM. September 2012.
13 The world is not normal: 10 year government bond yields Source: Bloomberg, MGIM. September 2012.
14 The world is not normal: US 10 year yield since 1790 Source: Deutsche Bank, GFD, Bloomberg Finance LLp. September 2012.
15 Quantitative easing: Bank of England balance sheet as a % of GDP Source: Deutsche bank. September 2012.,
16 Tail risk of extreme events are not insignificant US fiscal cliffChinese ‘recession’Eurozone disintegrationJourney into the unknown – monetary easing
17 Fiscal cliff: will need to be tackled after November US budget deficitsSource: Bloomberg, September 2012
18 US economic momentum is reasonable – but unemployment remains high US labour marketSource: Bloomberg, September 2012
19 US construction: the only way is up? Source: Bloomberg, September 2012
20 China is landing GDP and industrial production Source: Bloomberg, September 2012
21 Major macro indicators continue to disappoint Chinese money supply (% yoy)Chinese PMI: new ordersLevelSource: Bloomberg, September 2012.
22 China’s slowing growth: structural or cyclical? China Real GDP y/y % change%Source: Factset. September 2012.
23 The European crisis is not simply debt 1.0%-8.5%-1.7%-8.0%Current account balance5.2%-0.8%Budget deficit to GDP-1.9%-4.6%-7.4%-7.2%-4.2%-4.5%-2.1%-6.0%-2.2%-2.4%Source: IMF, 2012 estimates.
24 Unit labour costs since the launch of the euro Source: Bloomberg, September 2012
25 Currencies vs. the Deutschemark Source: Bloomberg, September 2012
26 German Labour reform accelerated growth- can Italy? Source: Bloomberg, September 2012
27 The European stress / intervention cycle Don’t underestimate the political will to preserve the EurozoneInflate, stagnate or defaultAusterity / growthEuropean bail out of banksIssue of EurobondsECB – LTRO / OMT / rate cutFiscal union
28 Clear slowdown in global growth Source: JPMorgan, September 2012
29 Equity market valuations *current year estimateSource: Bloomberg, Statistics to 06/09/2012. September 2012
30 MSCI World P/E ratio since 1995 Source: Bloomberg, September 2012
31 Investment conclusion ‘New normal’ is now the consensusDeleveraging and rebalancing set to continue for yearsUS – growth risk in China – structural slowdown underway Europe – stress / intervention cycle to continuePolicy risks are highFurther monetary loosening is certainCrisis presents an extraordinary valuation opportunity
32 Implications for portfolio construction Subdued growth low return expectationsContinued deleveraging and tight credit financial strength is criticalHigh tail risks high volatilityCyclical move down in commodities has further to runDeflation protection in safe haven bondsIncome generating assets importantsafe dividend equitiescorporate bondsemerging market bondsFocus on:Diversification by asset classQuality defensive equitiesInflation not today’s problem – but might be the end gameExploit tactical opportunities
33 Introduction to Harmony portfolios Risk profiled core solutions: Balanced and GrowthMulti-asset, multi-manager, multi-currencyDiversified between local and global investments, asset class, currency, manager and styleDynamic tactical asset allocationAvailable in five currency / regional bases: USD, GBP, EUR, AUD and AsianThe Harmony range uses no derivatives, structured products or CDOsManaged by Momentum Global Investment Management in London
34 Harmony Balanced Fund strategic allocation Source: MGIM, September 2012
35 Harmony Growth Fund strategic allocation Source: MGIM, September 2012
36 Harmony US Dollar Balanced September Past performance is not indicative of future returns. . *30/06/2005 to 30/12/2005
37 Harmony US Dollar Growth September Past performance is not indicative of future returns. . *30/06/2005 to 30/12/2005
38 Harmony performance vs. cash, bonds and equities Source: MGIM, Lipper, September Past performance is not indicative of future returns..