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Climate change Tristan Hanson Investment Outlook June 2009.

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Presentation on theme: "Climate change Tristan Hanson Investment Outlook June 2009."— Presentation transcript:

1 Climate change Tristan Hanson Investment Outlook June 2009

2 Investment Briefing June 2009  Uncertainty is unavoidable  “Safe haven” assets offer low or negative prospective real returns  Risk-assets are offering high compensation for risk by historical standards  Important distinction between types of risk: liquidity; volatility; fundamental  Global policy stimulus efforts are unprecedented: $2.5trn fiscal boost  Close to the end-game in the banking crisis? Decent odds “news” perceived as less bad over 2009 and risk-assets rally Strategy Conclusions (Feb 2009)

3 Investment Briefing June 2009 Rollercoaster ride for equities since last briefing Ashburton Replica Sterling Asset Management Fund JP Morgan Global GBI MSCI World GBP 02-Feb Feb Mar-0916-Mar-0930-Mar Apr-0927-Apr May-0925-May-09

4 Investment Briefing June 2009  Equities – further upside potential  Government bonds (US/Europe) - oversold and no longer overvalued  Sterling preferred currency major Macro views  Global economy poised for recovery  Long-term structural growth concerns remain  Inflation fears overdone Key points

5 Investment Briefing June 2009 The glass is still half empty Source: BCA Research

6 Investment Briefing June 2009 The glass is still half empty Source: Bloomberg AAI Investor Survey: % Bulls, 13 week average PESSIMISM EUPHORIA 20% 30% 40% 50% 60% 70% 80% Jun-90Jun-93 Jun-96 Jun-99Jun-02 Jun-05Jun-08

7 Investment Briefing June 2009 The glass is still half empty Source: Ned Davis Research, Bloomberg US Money Market Funds / stock market capitalisation 0% 5% 10% 15% 20% 25% 30% 35% 40%

8 Investment Briefing June 2009 Pessimism reflected in depressed valuations Source: Ashburton, S&P US: cyclically-adjusted PE ratio Mar-50Mar-55Mar-60Mar-65 Mar-70Mar-75Mar-80Mar-85Mar-90Mar-95Mar-00 Mar-05

9 Investment Briefing June 2009 S&P 500 PE ratio using 12 month forward EPS Source: Factset US PE ratio (12mf EPS) Jun-89Jun-91Jun-93 Jun-95Jun-97Jun-99Jun-01Jun-03Jun-05 Jun-07

10 Investment Briefing June 2009 Consensus expectation is a weak recovery Source: Macroeconomic Advisers (MA forecast) Strength of recovery versus severity of preceding recession Negative growth in recession (relative to versus trend) Sharper recovery Deeper recession

11 Investment Briefing June 2009 Earnings expectations are very depressed Source: Nomura, IBES Net Earnings Revisions %, (Up -Down) / Total, 3MMA World Earnings Revisions Balance

12 Investment Briefing June 2009 Asian outperformance expected to continue Source: Bloomberg Asia ex-Japan relative to MSCI World Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08Dec-08 Mar-09

13 Investment Briefing June 2009 Government bonds: oversold US 10yr Treasury Yield - 8 week change Jan-90Jan-92Jan-94 Jan-96 Jan-98Jan-00Jan-02Jan-04 Jan-06 Jan-08

14 Investment Briefing June 2009 US government bonds: no longer so overvalued US 10yr yield & 10yr average Fed Funds rate May-92May-96May-00May-04May-08 % 10yr Treasury yield Fed Funds rate (10yr average)

15 Investment Briefing June 2009 Yield curves are extremely steep US yield curve: 10yr-2yr Jan-86Jan-89Jan-92 Jan-95Jan-98Jan-01Jan-04 Jan-07 %

16 Investment Briefing June 2009 German 30yr bunds attractive given macro risks Value opportunity: yields are higher than during a global boom Jan-03Jan-04 Jan-05Jan-06Jan-07 Jan-08Jan-09 %

17 Investment Briefing June 2009 Fear #1: increased government issuance  Like all forecasts, predictions of government finances are subject to bias Effect on Government Bond Prices Growth EffectFiscal EffectNet Effect Growth stronger than forecast -ve+ve?? Growth weaker than forecast +ve-ve??

18 Investment Briefing June 2009 Fear #2: “printing money” & inflation  Central banks are filling the hole left by the private sector First post-WW2 contraction in household borrowing! Mar-80Mar-85 Mar-90Mar-95Mar-00 Mar-05 US Household Borrowing ($bn annualised quarterly rate)

19 Investment Briefing June 2009 Fear #2: “printing money” & inflation  Central banks are filling the hole left by the private sector Source: Bloomberg US: net change in consumer credit ($bn, 3m avg) Dec-88Dec-93Dec-98Dec-03Dec-08 US$ bn

20 Investment Briefing June 2009 Fear #2: “printing money” & inflation  Central banks are filling the hole left by the private sector 8.5% 0% 20% 40% 60% 80% 100% 120% May-06Nov-06 May-07Nov-07May-08 Nov-08 US M2 (% YoY) US Monetary Base (% YoY)

21 Investment Briefing June 2009 Sterling – positive trend Source: BIS CHEAP EXPENSIVE GBP: real effective exchange rate (100 = 2005) Jan-64Jan-69Jan-74 Jan-79Jan-84Jan-89Jan-94 Jan-99Jan-04 Jan-09

22 Investment Briefing June 2009 US$ - prone to swings in sentiment, but downward trend Source: Bloomberg US$ vs US equities Jan-08 S&P 500 Index US$ Index US equities US$ index

23 Investment Briefing June 2009 Taiwan dollar: long-term valuation case + catalyst Source: Bloomberg Asian FX performance vs US$ (100=Sep 1994) Sep-94Sep-99Sep-04 Sep 1994=100 Asian Basket TWD

24 Investment Briefing June 2009 Taiwan dollar: long-term valuation case + catalyst Source: Bloomberg Taiwan: current account -2, ,000 4,000 6,000 8,000 10,000 12,000 14,000 Mar-94Mar-99Mar-04Mar-09 TW$ m Taiwan: foreign exchange reserves Mar-94Mar-99Mar-04Mar-09 US$ bn

25 Investment Briefing June 2009 Ashburton Investment Strategy

26 Investment Briefing June 2009 Investment Strategy Replica Asset Management Asset Allocation Bonds 54% Govt/Govt Guaranteed24% Supranational13% Inflation-linked bonds13% Corporate4% Equities 39% US13% Pan Europe11% Asia15% Cash/Tbills7% 100% Source: Ashburton - as at 4 June 2009

27 Investment Briefing June 2009 Investment Strategy Replica Asset Management – currency overlay Currency Weightings (%) £€$ GBP8955 EUR-75- USD-482 JPY--- AUD-3- NOK35- TWD555 Other Asia338 Source: Ashburton

28 Investment Briefing June 2009 Two ways to beat the market*: (1)Predict the “news” better  Short-term forecasting is pointless  Focus on understanding medium-term structural trends (2) Predict the reaction to “news” better  Sentiment, positioning, consensus views  Valuations  Technical analysis/trend analysis What is important is not the “news”, but how the “news” differs from what was expected  Diversification: reduce risk but also augment returns *adapted from Woody Brock’s work ( Investment Process

29 DISCLAIMER Ashburton (Jersey) Limited is referred to in this context as ‘Ashburton’. This document does not constitute an offer or solicitation to any person in any jurisdiction in which Ashburton is not authorised or permitted to communicate with potential investors, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this document, and should be satisfied in doing so that there is no breach of local legislation or regulation. The information is intended solely for use by Ashburton clients or prospective clients, and should not be reproduced or distributed except via original recipients acting as professional intermediaries. This document is not for distribution in the United States. Prospective investors should inform themselves and if need be take appropriate advice regarding applicable legal, taxation and exchange control regulations in countries of their citizenship, residence or domicile which may be relevant to the acquisition, holding, transfer, redemption or disposal of any investments herein solicited. Any opinions expressed herein are those at the date this material is issued. Data, models and other statistics are sourced from our own records, unless otherwise stated. Ashburton believes that the information contained is from reliable sources, but we do not guarantee the relevance, accuracy or completeness thereof. We caution that the value of investments and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested. Past performance is not generally indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Ashburton (Jersey) Limited (Company Registration No ) is a member of the FirstRand Group, is regulated by the Jersey Financial Services Commission and has its registered office at 17 Hilary Street, St Helier, Jersey JE4 8SJ. Ashburton (Jersey) Limited is registered as a Foreign Investment Services Provider in South Africa in accordance with Section 8 of the Financial Advisory & Intermediary Services Act 2002.

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