MONTHLY VIEWPOINT - ACPI€¦ · Exhibit 7: Change in earnings and valuations since January 2009...

MONTHLY VIEWPOINT

From the Chief Investment Officer Marco E Pabst

17th October 2018

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ACPI Investment Managers Private & Confidential 1

Banksy’ed ___________________________________________________________________________________________

“It’s a correction that I think is caused by the Federal Reserve, I think the Fed is out of control.” Donald Trump

Summary

US bond yields pushing beyond the three percent level triggered a tantrum in equity markets

This is not surprising and, importantly, also serves as a signalling mechanism to central banks

China’s supply-side reforms are bullish for the country but inflationary for the World

As the current correctional pattern unfolds, entry levels into many assets are becoming very attractive again

Market corrections have the unpleasant habit of being unpredictable in terms

of their timing and magnitude. The same applies to recessions but

nevertheless scores of market professionals invest a great deal of effort into

trying to forecast these events. The very fact that timing and magnitude

cannot be forecast makes a correction a correction in the first place as

investors get caught wrong-footed and panic accordingly.

The current market drawdown fits exactly into this category and we have

highlighted over the past months that if there is one catalyst one has to

watch closely it would be rising bond market yields.

The jump of US 10-year yields by almost 12bps to 3.18% on the 3rd October

was the event that eventually validated that catalyst to be forceful enough to

kick-start a broader market correction in the US that subsequently spread

across other markets.

As of the end of last week, not one stock in the S&P500 is at its 52-week

high whilst one third of the names are trading in bear market territory, being

down at least 20% from their 52-week tops.

Exhibit 1: Performance of different asset classes in 2018

Source(s): ACPI, Bloomberg

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MONTHLY VIEWPOINT


17th October 2018

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Last Wednesday’s decline of 3.3% in the S&P500 was the largest fall in eight months for US equities following a surge in 10-

year bond yields to 3.26% the day before. The trigger for the move was the announcement of a very strong US ISM services

number on 3rd October at 61.6 versus a market expectation of 58.1, reaching the highest level since 1997.

Exhibit 2: S&P500 since February 2017


As outlined in the past, the central market risk at this stage is that equities will throw a tantrum as yields continue to push

higher past the 3% mark on the US 10-year bond. This has now happened and the stock market reaction is a powerful

signalling mechanism back to the Fed and other central banks about how potentially fragile markets can turn if rates are

moving beyond a certain comfort level. The point I have been making repeatedly in the past is that rates and yields will

continue move higher until something breaks. Hence, it is the market that will ultimately decide at what policy rate the Fed will

stop tightening or in other words, how much tightening the market will allow the Fed to do.

In this context, the decision to raise interest rates by 25bps at the end of September was widely expected and the Fed’s policy

outlook turned slightly dovish by dropping the description of its policy stance as accommodative. The Fed continues to expect

a total of four rate increases this year, followed by three next year and one in 2020, reaching a median-dot of 3.375% in 2021.

This points to further interest rate normalisation during the course of 2019, assuming no major economic or political accidents

along the way. We would keep in mind that Powell was appointed by Donald Trump who certainly would not like to see the US

economy slowing down because of interest rates being too high. It is interesting to watch the increasing frequency of Trump

comments regarding the Fed’s tighter policy over the last few days. Overall, recent Fed action should not be interpreted too

hawkishly considering that estimates for US Q3 GDP growth are now hovering around 4%, according to the Atlanta Fed

GDPNow forecast. As the quarter is now over, this number represents a relatively solid estimate.

Other macro-economic aggregates out of the US continued to come in fairly strongly. Average hourly wage growth receded

slightly to 2.8% from 2.9% yoy and payroll figures were also strong albeit quite noisy with massive revisions. Therefore, for the

time being, there is nothing that would suggest bond markets will not try to push higher on strong data points towards the

3.5% mark. In my opinion, this is probably nearer the top of the cycle for the 10-year yield.

Why is that? Let us assume that the Fed will indeed be able to push through its tightening agenda to the full extent and that at

this point markets will still assume a slowing economy. This would imply potentially some yield curve inversion for the 2/10-

year part of the curve of, say, 50bps. If we then assume that the curve steepness between the front-end (Fed funds) and the

2-year bond will stay unchanged at circa 70bps, this would imply a target yield for the 10-year of approximately 3.5%.

Obviously, if one assumes that the Fed will not be able to execute at least four more rate hikes, then this target would have to

be lowered accordingly.

MONTHLY VIEWPOINT


17th October 2018

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All of this means that, unless inflation spikes higher due to accelerating wage growth, the worst part of the government bond

market correction in the US might already be behind us. The emphasis here is on government bonds as bond spreads for

corporate credit have not widened substantially yet, something that could happen in the case of an incoming recession.

Exhibit 3: USD credit spreads


Indeed, credit spreads are now the area we would watch very closely as they are not showing signs of substantial stress yet,

something that can change on a dime. It is noteworthy that even during the February correction in equity markets and

throughout the emerging market crisis of the last months, corporate spreads have behaved very uncorrelated and did not

signal liquidity stress or any other dislocation in corporate bond markets. Reassuringly, they traded consistent with strong

fundamental results coming through on a micro level over the last quarters.

Returning to the equity market volatility, this is now the second time this year that stocks are undergoing a correction.

Unsurprisingly, at the epicentre are highly-priced US growth stocks as these names in general are an area that almost always

suffers from rising interest rates. Compared to earlier episodes, the FAANGs this time around did not prove to be resilient.

Stocks with high earnings growth expectations are highly susceptible to changes in the discount rate applied in a discounted

cash flow valuation which explains why many of these stocks were down more than 10%.

Exhibit 4: Investor positioning is crowded in the US in general and technology stocks in particular

Source(s): BofAML

MONTHLY VIEWPOINT


17th October 2018

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Due to rapid earnings growth and strong cash flows but also because of their resilience in the past during periods of high

market volatility, FAANGs and BATs in all their variations were very popular amongst investors. In addition, US equities served

as a safe haven over the past quarters when emerging and European markets had a difficult time. This increases the risk for

them in terms of a sharp sell-off as investors get caught wrong-footed.

Exhibit 5: Breadth of the S&P500 index


From a technical perspective, this correction is still in its early stages. As always on these occasions, one cannot emphasise

enough that market corrections almost always (with the exception of very rare V-shaped moves) play out over time and not

only through price levels. In other words, after such sharp moves we are likely to see strong bounces and subsequent retests

of previous lows with the associated risk that lower lows are being put in place. The overall duration of such correctional

patterns is anywhere between one and several months.

Exhibit 6: Smart money flow index


MONTHLY VIEWPOINT


17th October 2018

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Therefore, I would be very surprised if this move would be over in just a few weeks. That US markets have been treading on

thin ice for some time is best demonstrated by the Smart Money Flow indicator in the chart above. It assumes that the first 30

minutes of trading are dominated by emotional retail investors that trade the news and just follow their instincts. Smart money

investors enter the market action later in the day on better information and stronger conviction and are considered a strong

indicator of market health. Thus, the smart money flow index is calculated ignoring the first 30 minutes of trading (Previous

day’s close – today’s 10am price level + today’s closing price) and measures the cumulative attribution of ‘smart investors’ in

terms of index points (in this case the Dow Jones index). As can be seen in the chart, the index has signalled weak internals

for US markets for some time but also indicates that we are now already fairly progressed in this correction from their point of

view.

Exhibit 7: Change in earnings and valuations since January 2009

Source(s): Goldman Sachs

On a positive note, valuations for large cap tech names in the US and elsewhere are not outrageously expensive as price

appreciation in the sector was consistent with earnings growth. The degree of multiple expansion was, therefore, rather

limited.

Exhibit 8: Value versus growth style factor performance for the Russell 1000 over the past two years


MONTHLY VIEWPOINT


17th October 2018

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It is therefore too early to tell whether the recent rebound of value stocks over growth names was just that - a rebound – or if we are on the cusp of a more sustainable recovery of value stocks in the medium term.

Substantial performance dispersion across various markets continued last month. Most notably, Japan proved to be a major

winner as the Nikkei 225 gained 5.5% on the back of stronger macro-economic figures. Thus, GDP growth came in better than

expected at an annualised 3% and capex as well as machine orders accelerated substantially. This underlines our view that

continued growth in the country will lead to a further decline in unemployment which at 2.3% is at the lowest point since the

early 1990s. Demand for labour is, consequently, leading to a continued rise in the labour participation rate that is now at a

ten-year high at over 61%. The only reason wage inflation is not accelerating is that female labour participation is rising even

faster. Economic growth and inflation picking up from low levels in combination with an equity market that is arguably amongst

the cheapest in the World and a currency that is probably the most undervalued developed market currency could lead to very

attractive return potential for Japan going forward.

Oil prices continued to rise in September, gaining another 5% for a total 28% advance so far in 2018. The recent move was

supported by OPEC’s decision not to increase its output target in the near term. This would, however, still leave the door open

to increase supply once the Iran sanctions start in November. We have been bullish oil since the second half of last year

primarily for structural reasons which are very much in play at this stage. Global oil inventories are now back to their normal

average levels after the excess in stocks built up as a result of the 2015 oil price crash was absorbed. Going forward, Iranian

supply will be heavily curtailed because of the sanctions and Venezuelan production is unlikely to recover. Despite US shale

oil supply surprising on the upside, the supply/demand picture continues to favour higher oil prices for the foreseeable future.

The recent bounce in bond yields did not come totally unexpected and after that move yields are now back to 2011 levels, at

seven-year highs. This raises the spectre of unpredictable dislocations, especially considering the fragile state of many

emerging markets at the moment and the mounting pressure for the ECB to abandon its accommodative policy at a difficult

time in European politics.

Throwing the expectation of rising oil prices into the mix creates a difficult environment for many Asian emerging markets that

are facing the prospect of rising funding costs, a stronger dollar and more expensive oil imports, all leading to higher domestic

inflation. Although not directly exposed to any particularly severe internal crisis, the recent weakness in the Indian rupee

appears to be a good indicator of these stress factors playing out.

Japan, on the other hand, is likely to be one of the major beneficiaries of the reflation and rate normalisation trade as it would

potentially lift its economy out of its low-growth/low-inflation hibernation and, most importantly, would stimulate the banking

sector that has been suffering from very low net interest margins that have pushed Japan’s regional banks to the brink of a

crisis.

Exhibit 9: Performance of equity markets since January 2013, normalised


MONTHLY VIEWPOINT


17th October 2018

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Whilst emerging markets traded broadly sideways in September, this should not yet be interpreted as a change in direction but

rather a bounce from low levels within a downtrend. There is still no progress to be seen in the trade conflict between the US

and China after the US activated its tariffs on USD200bn of Chinese goods. Notably, popular consumer items such as

electronics and phones are not included as Trump does not want to hit the US consumer with higher prices and, thus,

negatively impact his own popularity. He does, however, seem to believe that the correction in Chinese equities is because of

his tough stance towards China. This interpretation might be wrong and could backfire quickly. The Chinese leadership has

been pushing for more independence from the export trade in general and the US in particular. Today, its economy is more

domestic-demand driven than it ever was, and its trade relationships are becoming much more regional focused.

Thus, net exports accounted for only 2% of nominal GDP last year, down from 8.6% in 2007 and actually detracted from GDP

growth in the first half of this year (-70bps) whilst final consumption contributed 5.3 percentage points.

Exhibit 10: China is a consumer story: Solid per-capita real consumption expenditure growth (lhs) and total retail

sales in China and the US (rhs)

Source(s): Peterson Institute, CLSA

China’s impressive evolution can also be seen in the fast convergence in terms of the size of the retail markets in the US and

China. Whilst Chinese retail sales were only 14% of the US figure in 2000, this number jumped to 94% last year and will

overtake the US in the next two to three years.

At the core of the government’s reform programme is a rigorous supply-side reform that has already seen a loss of almost

10m jobs across traditional industries. Leadership has been tough in slashing excess capacities and curtailing the shadow

banking system. In the longer-term this is very positive for the country as it ensures a strong and more stable economy.

Results are already visible in the form of rising returns on equity across China A shares since 2016. The main consequence

for the World is that the deflationary pressure emanating from China as a result of price dumping will dimish visibly in the

future. It follows that, going forward, spare capacity in various sectors might be less than currently assumed which also means

that industrial commodity prices could recover in the medium term.

The Chinese government is currently focussed on containing the reptutional and economic damage from the trade dispute and

is, at the same time, trying to stabilise the economy. Thus, the central bank recently loosened monetary policy as liquidity

conditions domestically appear to have worsened substantially. The reserve requirement ratio cut to 14.5% for the large banks

released more than USD100bn (RMB750bn) of liquidity into the banking system that is now hoped to find its way into the real

economy.

Whilst Donald Trump likes to attribute weakness in the Chinese stock market to his tough stance towards the country, what is

more likely is that negative domestic sentiment is at least equally responsible for the bear market. Supply-side reforms and

deleveraging efforts across the economy led to a substantial decline in growth rates for wealth management and other

shadow-banking products. Additionally, the number of bond defaults in the country is rising and property developers are

slashing prices in second and third-tier cities in order to shift inventory. Whilst headlines are currently painting a rather gloomy

MONTHLY VIEWPOINT


17th October 2018

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picture about the state of the real estate market, it is noteworthy that country-wide inventories are much lower than they used

to be and the time it would take to sell them has halved over the last two to three years.

Exhibit 11: The property market in China is near a cycle low: Change in Chinese property prices by city tier since

2005 (lhs) and number of months to clear property inventory (rhs)

Source(s): Bernstein, CLSA

Overall, the combination of domestic deleveraging, supply-side reform, widespread bankruptcies amongst SME companies,

an income tax reform (benefitting lower paid employees and adding costs for the employer) and the negative trade war

rhetoric have led to a massive underperformance of Chinese equity markets. As a result, China A shares are now in a bear

market being down almost 30% from this year’s top. This segment is heavily tilted towards ‘old economy’ stocks such as

financials, energy and industrials and has also significantly underperformed H shares.

Interestingly, although the selloff was heavy amongst SOE (state-owned enterprises) companies, because of the progress of

supply-side reforms, fundamentals have actually improved. Thus, earnings in Q2 for the SOE sector rose by 19% yoy,

according to Citic, whilst debt levels have decreased.

Exhibit 12: Profit growth (lhs) and debt-to-assets ratio (rhs) of non-financial SOEs

Source(s): CLSA

Stocks in the China A shares index are now trading below 1.7x book value, which is near an all-time low. Looking at past

return patterns, CLSA found that, since 2005, whenever A shares traded below that level, the market generated a positive

return in 100% of cases with an average one-year forward return of 68%.

Although we believe this pattern will not repeat as aggressive stimulus that mainly benefits large incumbent sectors is unlikely

to be deployed this time, we could nevertheless expect a substantial recovery from very oversold levels especially if we

exclude the many value traps in the Chinese market that optically cheapen its valuation to some degree.

MONTHLY VIEWPOINT


17th October 2018

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It appears that equity markets are interpreting the same story in two different ways when we look at the performance of

Chinese companies exposed to the US compared to US companies exposed to China.

Exhibit 13: Performance dispersion of Chinese companies exposed to the US (lhs) versus US companies exposed to

China (rhs)

Source(s): CLSA

Thus, the former have underperformed the latter by more than 30% since March although the actual fundamental impact on

these businesses might not be as large as widely assumed. This is because corporate revenue exposure to international trade

amongst Chinese companies is rather small at less than 10% and only a quarter of US exposure. Although China is still the

largest exporter followed by the US and Germany, its corporate sector is far less exposed to exports than companies in

Europe.

Exhibit 14: Percentage of revenue from international trade

Source(s): Charles Schwab

From a valuation perspective this leaves us with Chinese equity markets trading near the levels reached during the 2015

correction which proved to be a fertile hunting ground for value at the time. Today, we would focus on finding the best

companies in sectors that show resilient growth, benefit from the strength of the domestic consumer, are less dependent on

exports and less exposed to potential government regulation. Consumer discretionary, staples, pharma, educational and

technology names are therefore at the top of our watch list, also because the potential extent of government regulation is

already visible.

On a headline basis, A shares have now de-rated to below 10x forward earnings and are paying dividend yields in excess of

3%. We would assume that over the next twelve months, the RMB has potential to recover from its current levels just below

RMB7. Therefore, on a 12-month horizon, the potential total return from Chinese equities could be well in excess of 10%.

MONTHLY VIEWPOINT


17th October 2018

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Exhibit 15: Valuations of Chinese equity markets since 2014


A potential trigger for a rebound in Chinese stocks but also commodities in general could be a recovery in credit markets in the

country. Thus, the 6-month credit impulse is already beginning to turn up and, historically, this measure has been closely

correlated with equity market performance and commodity price cycles not only in China but elsewhere. This would also be

very consistent with the central bank’s recent easing measures for the financial sector. As a result, we believe that we might

be very close to a bottom (within 10-15%) in Chinese equity markets.

Exhibit 16: 6-month credit impulse in China (lhs) and credit impulse and commodity price inflation (rhs)

Source(s): BCA Research

Outside of China, the picture in emerging markets is improving compared to the last two months: Turkey has finally come

around to releasing pastor Andrew Brunson and it appears likely that they struck a deal with the US behind closed doors that

would alleviate economic pressure on the country, possibly in relation to allegations about financing Iran. In Brazil, the first

round of presidential elections ended with a surprisingly high 46% for Jair Bolsonaro and 29% for Fernando Haddad. It now

appears highly likely that right-wing candidate Bolsonaro will also win the second round on the 28th October as what people

call the ‘least worst candidate’.

MONTHLY VIEWPOINT


17th October 2018

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In Europe, the situation is fairly complex. Brexit is still in limbo and it is hard to form a view on the deal with any degree of

confidence, let alone predict the outcome for currency and stock markets. The political situation in Germany is gradually

converging to what we are seeing in the US, Italy, Eastern Europe and many other countries, i.e. a polarisation on the right

and the left of the political spectrum towards parties with a visible profile. In other words, incumbent centrist parties such as

the Social Democrats or Christian Democrats that are busy fighting internal battles, ignoring the voters’ concerns will be

diminished over time. Whilst the percentage of voters voting broadly for either the left or the right has not changed much, the

composition of the political spectrum on each side has changed substantially. The dramatic decline of the SPD but also the

CSU in the Bavarian elections is a case in point and this trend will continue in the future, likely leading to substantial

consequences in the elections for the European Parliament next year.

One important potential implication of these developments is that, going forward, the German government may be less

stringent in demanding budget discipline and austerity from other EU member states as it does not have an interest in further

provoking tensions across the eurozone and thus pushing voters in the wrong direction. This could have potentially profound

positive consequences for Italy where the consensus view is that the current coalition government is on a collision course with

Europe.

Conventional wisdom has it that global equity markets in general and the US in particular are severely overvalued and in

bubble territory. This mantra has been propagated for many years and bears lost out accordingly on good performance. Last

month, I showed a chart of market multiples based on actual operating earnings of US companies, highlighting that valuations

are not at extreme levels at the moment. Below is a similar chart, looking at cash flows from operations since 1990 for the

S&P500. Following the recent market correction but also because of rising cash flows, valuation multiples have contracted to

currently just under 13x or approximately 10% above the historic average. If earnings growth continues as expected this year

and next, valuations will move bang-in-line with their long-term average values.

It should be noted that many other developed markets and almost all emerging markets are currently trading below these

levels. Therefore, valuations alone do not pose a major threat to global stock markets at the moment.

Exhibit 17: S&P500 price to cash flows from operations


The major ‘upside risk’ especially for emerging markets is that Donald Trump will strike a trade deal with China ahead of the

upcoming congressional elections in the US. Equally, on the downside, it appears likely that the Republicans will lose the

House of Representatives to the Democrats which could cause some volatility in US markets closer to election time in

November. Although a trade deal looks increasingly unlikely to be achieved this year, we doubt that the trade dispute will

linger for a very long time.

Overall, the next few weeks could be more volatile than usual as the current correction unfolds its characteristic patterns.

However, after almost one year of weak markets outside of the US, generally solid fundamental data and a potentially

improving picture across emerging markets, we are getting increasingly prepared to pick up bargains over the next weeks and

months.

MONTHLY VIEWPOINT


17th October 2018

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Global economic monitor


Apr May June July Aug Sept Trend

Citi Economic Surprise US 41.8 11.1 -4.9 -2.2 -17.7 -5.2

Citi Economic Surprise G10 -18.7 -32.3 -25.7 -6.4 -3.3 -7.8

Citi Economic Surprise Europe -77.5 -91.4 -61.0 -25.9 1.4 -31.9

Citi Economic Surprise EM 3.2 -6.1 -11.7 0.0 -6.4 -7.6

Citi Economic Surprise UK -50.5 -51.1 -20.4 7.3 9.9 11.1

ISM manufacturing 57.3 58.7 60.2 58.1 61.3 59.8

ISM new orders 60.6 62.1 63.35 58.6 62.75 61.7

Global manufacturing PMI 53.9 54.0 54.2 53.7 53.4 52.8

China manufacturing PMI 51.4 51.9 51.5 51.2 51.3 50.8

Japan manufacturing PMI 53.8 52.8 53.0 52.3 52.5 52.5

US durable goods orders -1.0 -0.3 0.9 -1.2 4.4

US initial jobless claims 211 223 232 219 205 207

US Industrial production 1.1 -0.8 0.6 0.4 0.4

Euro Industrial production -0.6 1.4 -0.7 -0.7 1.0

Japan Industrial production 0.5 -0.2 -1.8 -0.2 0.7

US retail sales 0.3 1.2 0.2 0.7 0.1

Euro retail sales 0.0 0.3 0.4 -0.6 -0.2

Japan retail sales 1.5 0.6 1.7 1.5 2.7

China retail sales 9.4 8.5 9.0 8.8 9.0

US consumer confidence 125.6 128.8 127.1 127.9 134.7 138.4

Euro consumer confidence 0.3 0.2 -0.6 -0.5 -1.9 -2.9

ifo German business expectations 98.7 98.6 98.6 98.1 101.3 101.0

China export trade 12.0 12.0 10.5 11.4 9.1 14.5

South Korea export trade -1.5 13.5 -0.2 6.2 8.7 -8.2

German export trade 3.0 3.5 5.7 4.6 2.2

China monthly money supply 8.3 8.3 8.0 8.5 8.2

US personal income 0.3 0.4 0.4 0.3 0.3

MONTHLY VIEWPOINT


17th October 2018

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The Global PMI heatmap

Source(s): ACPI, Bloomberg Co

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53.6

53.8

54.0

54.4

54.7

55.1

54.9

55.7

56.3

56.2

55.8

55.2

54.6

54.2

53.9

53.8

54.1

54.1

53.9

54.1

54.1

53.8

52.9

52.6

51.5

De

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53.2

54.1

54.4

55.2

54.9

54.2

53.4

55.3

54.3

54.1

54.4

54.9

54.5

54.7

54.5

54.5

54.2

54.2

54.1

53.7

54.5

53.9

54.0

53.6

51.8

De

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53.3

54.0

54.2

55.0

54.8

54.4

53.6

55.4

54.9

54.8

54.8

55.0

54.6

54.6

54.4

54.5

54.4

54.4

54.3

54.1

54.6

54.1

54.0

53.7

51.9

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51.6

51.8

52.4

52.4

52.2

52.4

52.3

53.3

53.5

53.0

51.9

51.5

51.9

52.1

51.4

51.5

52.2

52.1

52.5

52.1

51.8

52.0

51.6

51.9

51.3

Eme

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50.3

50.8

51.0

51.2

51.1

51.3

51.3

51.9

51.9

52.2

51.6

51.2

51.4

51.7

50.9

50.8

50.6

50.9

51.6

51.3

50.8

51.1

50.8

51.1

50.4

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52.2

51.7

52.8

52.7

52.5

52.7

52.6

53.5

53.7

52.8

51.6

51.5

51.5

51.7

51.1

51.7

52.8

52.2

52.3

52.0

52.1

51.7

51.0

51.2

51.2

Euro

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54.1

54.4

54.1

54.9

54.1

54.8

54.6

56.6

57.7

57.5

57.0

56.0

56.1

55.3

55.3

55.8

56.3

56.7

56.1

55.6

54.6

54.9

54.1

53.6

52.9

Euro

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53.1

54.3

54.9

54.9

55.3

55.9

56.3

58.0

58.9

59.8

59.6

58.0

57.6

57.1

56.3

56.8

56.8

56.7

55.9

55.3

55.2

54.9

53.5

53.4

52.9

Euro

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54.5

54.4

54.1

55.1

53.8

54.3

54.2

55.8

56.8

56.1

55.7

55.1

55.3

54.4

55.0

55.0

55.7

56.3

55.7

55.0

53.9

54.4

54.1

53.3

52.3

Euro

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54.1

54.5

54.3

54.9

54.1

55.1

55.2

57.1

58.8

58.1

57.5

56.0

56.7

55.7

55.7

56.3

56.8

56.8

56.4

56.0

54.4

54.4

53.9

53.3

52.6

Euro

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53.2

54.6

55.1

54.9

55.5

56.2

56.6

58.6

59.6

60.6

60.1

58.5

58.1

57.4

56.6

57.4

57.0

56.7

56.2

55.4

55.2

54.9

53.7

53.5

52.6

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54.7

54.4

54.2

55.2

53.8

54.7

54.9

56.2

58.0

56.6

56.2

55.0

55.8

54.7

55.4

55.4

56.3

56.4

56.0

55.5

53.7

53.7

53.8

52.8

52.2

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54.0

54.9

54.4

55.0

54.2

56.9

56.3

57.3

59.6

59.6

60.3

57.4

57.1

55.2

55.6

56.6

56.9

56.6

56.8

55.9

54.1

53.1

51.4

51.6

52.7

Fran

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52.5

53.5

53.3

52.5

54.4

53.8

53.7

55.9

58.4

58.8

57.7

56.1

56.1

55.8

54.9

54.8

53.8

55.1

53.3

52.2

53.6

53.5

51.7

51.8

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54.8

55.4

54.9

55.9

54.3

57.4

56.9

57.4

59.2

59.1

60.4

57.3

57.0

54.9

56.0

56.9

57.2

56.7

57.5

56.4

54.1

52.9

51.6

51.4

53.3

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55.0

55.6

55.0

54.8

53.4

54.6

55.1

57.6

59.0

58.9

57.3

56.6

57.7

55.8

54.7

56.4

57.4

56.7

57.1

56.1

54.8

55.2

55.0

55.1

52.8

Ge

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53.7

55.9

56.9

55.9

56.9

58.1

58.2

60.6

61.1

63.3

62.5

60.6

60.6

59.3

58.1

59.6

59.5

58.2

58.3

56.8

56.4

55.6

54.3

55.0

54.3

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Ge

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55.9

55.0

54.1

54.5

52.1

53.0

53.9

55.3

57.3

55.8

54.3

54.7

55.6

53.5

53.1

54.0

55.4

55.4

55.6

54.4

53.4

54.3

55.1

54.2

50.9

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Gre

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Ho

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Wh

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47.9

48.5

48.2

47.7

47.8

49.1

50.6

51.7

51.1

51.5

50.7

50.3

51.2

49.7

51.3

51.1

50.5

51.1

49.9

49.6

49.9

50.3

49.5

48.2

49.3

Ind

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51.6

51.9

54.1

53.3

50.4

51.9

50.8

49.7

52.5

53.0

50.3

51.3

51.1

49.0

46.0

52.7

52.5

51.3

52.3

50.7

49.4

47.6

49.1

55.4

52.4

Ind

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52.2

51.7

52.3

53.1

51.2

51.6

51.0

52.1

52.4

54.7

52.6

50.3

51.2

51.2

47.9

50.9

51.6

52.5

52.5

50.7

50.4

49.6

52.3

54.4

52.1

Ind

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50.9

51.5

54.2

52.6

49.6

51.4

50.3

47.8

51.7

50.9

48.5

51.7

50.7

47.5

45.9

53.1

52.2

50.2

51.5

50.3

48.7

46.8

46.7

54.5

52.0

Ind

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50.7

51.9

50.5

50.3

51.7

51.6

50.7

51.4

49.9

49.3

50.4

50.1

50.4

50.7

48.6

49.5

50.6

51.2

50.5

49.3

50.4

49.0

49.7

48.7

50.9

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58.4

58.4

56.8

58.1

57.7

57.6

53.7

56.8

59.0

60.2

57.7

56.0

57.6

58.2

57.0

58.0

58.7

58.7

56.9

57.8

59.3

58.4

55.5

54.0

54.8

Ire

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56.3

57.5

56.3

56.6

55.4

55.3

54.1

56.2

57.6

59.1

58.1

54.4

55.4

56.1

54.6

56.0

55.9

55.0

53.6

53.8

55.5

55.7

53.7

52.1

51.3

Ire

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58.7

58.0

57.4

59.5

59.3

58.4

56.5

57.2

59.8

60.4

56.0

57.5

58.7

58.4

58.3

57.6

59.5

61.1

59.1

60.6

61.0

59.1

56.0

54.6

56.2

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52.4

51.7

53.0

53.9

52.9

52.9

53.5

56.0

59.0

56.5

56.0

53.9

54.3

55.8

56.2

54.5

55.2

56.8

54.2

54.8

52.8

52.9

53.4

51.1

51.1

Ital

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50.0

50.1

51.5

53.3

52.7

53.5

55.1

56.8

59.0

57.4

58.3

57.8

56.3

56.3

55.1

55.2

55.1

56.2

55.7

55.0

53.0

53.2

52.2

50.9

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52.6

54.0

54.3

53.1

52.6

52.6

55.0

57.7

55.4

54.7

52.1

53.2

55.1

56.3

53.6

55.1

56.2

52.9

54.1

52.4

52.3

53.3

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51.8

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53.1

51.3

52.2

52.8

52.2

52.2

53.4

51.7

51.9

51.8

52.9

53.4

52.6

52.9

52.2

52.3

52.8

52.0

51.3

48.9

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52.5

52.5

52.3

53.0

52.8

53.8

53.1

54.1

54.8

54.0

53.6

52.8

52.9

52.2

52.1

52.4

53.1

52.7

52.4

53.3

52.7

52.4

51.3

51.4

50.4

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50.2

51.5

51.3

51.4

51.0

52.5

50.9

51.7

51.9

51.1

51.2

53.4

51.0

51.6

52.0

53.3

53.0

52.2

52.9

51.3

51.9

52.3

51.8

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50.5

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52.9

54.2

53.3

53.9

53.7

53.7

54.6

55.0

54.2

53.4

53.7

52.5

52.3

53.1

52.7

54.1

53.5

54.2

54.8

54.3

51.9

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52.2

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51.3

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48.3

49.8

48.9

48.4

49.1

50.3

50.7

49.9

51.2

50.2

50.6

49.9

49.1

50.1

49.2

49.4

48.4

49.2

49.0

49.4

48.0

48.0

47.6

Spai

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52.5

53.0

52.7

54.8

55.9

55.4

55.8

57.1

56.7

55.4

55.2

55.1

56.4

55.3

56.7

57.7

57.2

57.3

56.8

57.0

54.7

55.5

55.2

54.4

54.1

Spai

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51.4

53.0

52.9

53.4

53.4

54.4

54.8

56.0

55.2

55.8

56.1

55.8

54.3

52.4

54.0

54.7

55.4

54.5

53.9

54.8

55.6

55.3

54.5

53.3

52.3

Spai

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52.5

52.7

52.6

55.4

56.4

55.6

56.2

57.3

56.9

54.6

54.4

54.6

56.7

56.0

57.6

58.3

57.3

57.8

57.4

57.7

54.2

55.0

55.1

54.6

54.7

Taiw

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50.8

53.0

53.1

54.5

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Brazil slowing down

Crisis in Turkey

The table shows monthly PMI statistics across countries and different sectors per country for the past two years. The latest data is next to the country/sector name at the bottom of the page.

Solid growth in the US

EM and EU slowing down

MONTHLY VIEWPOINT


17th October 2018

___________________________________________________________________________________________


The World in Numbers


Date PMI CPI (%) Disc rate % Ind Prodyoy% Exports ($M) Imports ($M) Trade bal ($M) M2 ($bn) M2 mom% Unempl % Date GDP yoy%

31/03/2018 57.4 2.4 1.75 3.63 149,702 209,571 -59,869 13,935 4.1 30/09/2017 2.3

30/04/2018 57.6 2.50 1.75 3.79 138,247 206,830 -68,583 13,958 0.2% 3.9 31/12/2017 2.5

31/05/2018 62.7 2.8 1.75 2.93 145,329 218,329 -73,000 14,028 0.5% 3.8 31/03/2018 2.6

30/06/2018 64.1 2.9 2 3.5 145,794 214,401 -68,607 14,113 0.6% 4.0 30/06/2018 2.9

31/07/2018 65.5 2.9 2 4.02 134,086 218,606 -84,520 14,148 0.2% 3.9

31/08/2018 63.6 2.7 2 4.88 140,163 224,298 -84,135 14,217 0.5% 3.9

30/09/2018 60.4 2.3 2.25 14,254 3.7

Date PMI CPI (%) Disc rate % Ind Prodyoy% Exports ($bn) Imports ($bn) Trade bal ($bn) M2 (RMBbn) M2 mom% Date GDP yoy%

31/03/2018 51.5 2.1 1.50 6.0 173.94 179.63 -5.7 173,986 30/09/2017 6.8

30/04/2018 51.4 1.8 1.50 7.0 199.09 172.13 27.0 173,768 -0.1% 31/12/2017 6.8

31/05/2018 51.9 1.8 1.50 6.8 211.78 188.17 23.6 174,306 0.3% 31/03/2018 6.8

30/06/2018 51.5 1.9 1.50 6.0 215.15 174.79 40.4 177,018 1.6% 30/06/2018 6.7

31/07/2018 51.2 2.1 1.50 6.0 213.96 186.89 27.1 177,620 0.3%

31/08/2018 51.3 2.3 1.50 6.10 216.09 189.44 26.7 178,867 0.7%

30/09/2018 50.8 1.50 226.69 195 31.7

Date PMI CPI (%) Disc rate % Ind Prodyoy% Exports (€bn) Imports (€bn) Trade bal (€bn) M2 EZ (€bn) M2 EZ mom% Unempl % Date GDP yoy%

31/03/2018 58.2 1.6 0.00 3.6 109.5 87.9 21.6 11,283,559 5.3 30/09/2017 2.6

30/04/2018 58.1 1.6 0.00 1.9 109.4 89.8 19.6 11,317,085 0.3% 5.3 31/12/2017 2.8

31/05/2018 56.9 2.2 0.00 3.6 111.2 90.4 20.8 11,420,112 0.9% 5.2 31/03/2018 2.1

30/06/2018 55.9 2.1 0.00 3.3 111.3 92 19.3 11,529,920 1.0% 5.2 30/06/2018 2

31/07/2018 56.9 2 0.00 1.5 110.4 94.5 15.9 11,519,060 -0.1% 5.2

31/08/2018 55.9 2 0.00 -0.1 110.3 92 18.3 11,521,483 0.0% 5.2

30/09/2018 53.7 2.3 0.00 5.1

Date PMI CPI (%) Disc rate % Ind Prodyoy% Exports,GBPM Imports,GBPM Trade bal (GBPM) M2 (GBPM) M2 mom% Unempl % Date GDP yoy%

31/03/2018 54.9 2.5 0.50 2.5 52,190 54,568 -2,378 1,700,956 4.2 30/09/2017 1.8

30/04/2018 53.9 2.4 0.50 1.4 51,389 54,137 -2,748 1,699,919 -0.1% 4.2 31/12/2017 1.4

31/05/2018 54.3 2.4 0.50 0.2 52,461 54,827 -2,366 1,706,897 0.4% 4.2 31/03/2018 1.1

30/06/2018 54.2 2.4 0.50 0.7 53,692 54,684 -992 1,721,820 0.9% 4.0 30/06/2018 1.2

31/07/2018 53.9 2.5 0.50 1.0 54,449 55,021 -572 1,718,674 -0.2% 4.0

31/08/2018 53 2.7 0.75 1.3 55,075 56,349 -1,274 1,723,805 0.3%

30/09/2018 53.8 0.75

Date CPI (%) Disc rate % Ind Prodyoy% Exports,JPYbn Imports,JPYbn Trade bal (JPYbn) M2 (JPY TRN) M2 mom% Unempl % Date GDP yoy%

31/03/2018 1.1 2.4 7,383 6,589 793 989 2.5 30/09/2017 2.0

30/04/2018 0.6 2.6 6,822 6,202 621 1,001 1.2% 2.5 31/12/2017 2.0

31/05/2018 0.7 4.2 6,324 6,907 -583 1,003 0.2% 2.2 31/03/2018 1.0

30/06/2018 0.7 -0.9 7,053 6,335 718 1,007 0.3% 2.4 30/06/2018 1.3

31/07/2018 0.9 2.2 6,748 6,983 -235 1,007 0.0% 2.5

31/08/2018 1.3 0.6 6,692 7,130 -438 1,006 -0.1% 2.4

30/09/2018 1,007 4.5

Date CPI (%) Disc rate % Ind Prodyoy% Exports ($M) Imports ($M) Trade bal ($M) M3 (INR 10M) M2 mom% Date GDP yoy%

30/03/2018 4.3 6.00 5.3 29,109 42,801 -13,692 13,962,590 30/09/2017 6.1

30/04/2018 4.6 6.00 4.5 25,908 39,625 -13,717 14,030,606 0.5% 31/12/2017 6.6

31/05/2018 4.9 6.00 3.8 28,861 43,480 -14,618 14,028,359 0.0% 31/03/2018 7.6

29/06/2018 4.9 6.25 6.9 27,702 44,304 -16,602 14,003,829 -0.2% 30/06/2018 8

31/07/2018 4.2 6.25 6.5 25,773 43,787 -18,014 14,073,851 0.5%

31/08/2018 3.7 6.50 4.3 27,841 45,236 -17,395 14,270,667 1.4%

28/09/2018 3.77 6.50 14,422,342 1.1%

INDIA

US

CHINA

GERMANY

UK

JAPAN

MONTHLY VIEWPOINT


17th October 2018

___________________________________________________________________________________________


Performance of different asset classes


EQUITIES Currency SEPTEMBER 2018 2017 2016 2015 2014 2013 2012 2011

MSCI World USD 2,184.0 0.4% 3.8% 20.1% 5.3% -2.7% 2.9% 24.1% 13.2% -7.6%

MSCI World (EUR hedged) EUR 163.9 0.4% 3.4% 14.6% 5.6% -0.2% 7.4% 25.4% 12.0% -7.8%

MSCI World (GBP hedged) GBP 855.6 0.5% 4.3% 15.5% 6.0% -0.1% 7.9% 26.5% 12.6% -7.9%

MSCI World (USD hedged) USD 581.9 0.6% 5.6% 16.9% 7.2% 0.1% 7.6% 26.1% 13.1% -23.3%

MSCI World local Local 610.5 0.3% 3.8% 17.5% 6.8% -0.7% 7.2% 22.9% 13.2% -8.5%

US (S&P500) USD 2,914.0 0.4% 9.0% 19.4% 9.5% -0.7% 11.4% 29.6% 13.4% 0.0%

Europe (Stoxx 600) EUR 383.2 0.2% -1.5% 7.7% -1.2% 6.8% 4.4% 17.4% 14.4% -11.3%

Eurozone (Euro Stoxx 50) EUR 3,399.2 0.2% -3.0% 6.5% 0.7% 3.8% 1.2% 17.9% 13.8% -17.0%

Germany (DAX30) EUR 12,246.7 -0.9% -5.2% 12.5% 6.9% 9.6% 2.7% 25.5% 29.0% -14.7%

UK (FTSE 100) GBP 7,510.2 1.0% -2.3% 7.6% 14.4% -4.9% -2.7% 14.4% 5.8% -5.5%

France (CAC40) EUR 5,493.5 1.6% 3.4% 9.3% 4.9% 8.5% -0.5% 18.0% 15.2% -16.9%

Greece (ASE) EUR 691.7 -5.2% -13.8% 24.7% 1.9% -23.6% -28.9% 28.0% 33.4% -51.9%

Spain (IBEX) EUR 9,389.2 -0.1% -6.5% 7.4% -2.0% -7.2% 3.7% 21.4% -4.7% -13.1%

Italy (MIB) EUR 20,711.7 2.2% -5.2% 13.6% -10.2% 12.7% 0.2% 16.6% 7.8% -25.2%

Japan (Nikkei 225) JPY 24,120.0 5.5% 6.0% 19.1% 0.4% 9.1% 7.1% 56.7% 22.9% -17.9%

MSCI Emerging Markets USD 1,047.9 -0.8% -9.5% 34.3% 8.6% -17.0% -4.6% -5.0% 15.1% -20.4%

MSCI Emerging Markets local Local 57,943.2 -1.4% -4.8% 27.8% 7.1% -8.0% 2.5% 0.9% 13.9% -14.9%

MSCI Asia ex Japan USD 655.3 -1.6% -8.1% 38.7% 2.9% -11.3% 2.2% 0.7% 19.4% -19.2%

MSCI Eastern Europe USD 164.4 5.8% -0.7% 12.9% 33.0% -8.1% -40.0% -2.9% 13.2% -23.3%

MSCI Latin America USD 2,576.5 4.6% -8.9% 20.8% 27.9% -32.9% -14.8% -15.7% 5.4% -21.9%

Russia (MICEX) RUB 2,475.4 5.5% 17.3% -5.5% 26.8% 26.1% -7.1% 2.0% 5.2% -16.9%

India (Sensex) INR 36,227.1 -6.3% 6.4% 27.9% 1.9% -5.0% 29.9% 9.0% 25.7% -24.6%

Brasil (Bovespa) BRL 79,342.4 3.5% 3.8% 26.9% 38.9% -13.3% -2.9% -15.5% 7.4% -18.1%

Hong Kong (Hang Seng) HKD 27,788.5 -0.4% -7.1% 36.0% 0.4% -7.2% 1.3% 2.9% 22.9% -20.0%

China (Shanghai Comp) CNY 2,821.4 3.5% -14.7% 6.6% -12.3% 9.4% 52.9% -6.8% 3.2% -21.7%

South Korea (Kospi) KRW 2,343.1 0.9% -5.0% 21.8% 3.3% 2.4% -4.8% 0.7% 9.4% -11.0%

Israel (TA 25) ILS 1,642.8 -1.4% 8.8% 2.7% -3.8% 4.4% 10.2% 12.1% 9.2% -18.2%

South Africa (Top 40) ZAR 49,520.7 -5.6% -5.7% 19.7% -4.1% 4.2% 6.0% 19.2% 22.2% -0.6%

FIXED INCOME SEPTEMBER 2018 2017 2016 2015 2014 2013 2012 2011

Citigroup WorldBig USD 218.1 -0.8% -2.4% 7.4% 1.9% -3.2% 0.8% 24.1% 13.2% -7.6%

Citigroup WorldBig local Local 221.3 -0.5% -1.0% 2.1% 3.3% 0.9% 7.9% -0.1% 5.6% 5.7%

Citigroup WorldBig (EUR hedged) EUR 217.4 -0.7% -2.0% 1.0% 2.4% 0.6% 7.8% -0.2% 5.5% 6.2%

Citigroup WorldBig (GBP hedged) GBP 270.5 -0.6% -1.3% 1.9% 3.6% 1.3% 8.2% 0.1% 5.8% 5.9%

Citigroup WorldBig (USD hedged) USD 242.5 -0.4% -0.1% 2.9% 3.9% 0.9% 7.8% -0.1% 5.6% 5.5%

World government bonds (Citi) USD 925.9 -1.0% -2.5% 7.5% 1.6% -3.6% -0.5% -4.0% 1.7% 6.4%

US Treasuries, total return USD 220.6 -1.0% -1.8% 2.5% 1.1% 0.8% 6.1% -3.4% 2.1% 9.9%

US 10-year yield USD 3.06% 0.20 0.66 -0.04 0.17 0.10 -0.86 1.27 -0.12 -1.42

US 10-year bond USD 118.8 -1.3% -4.2% -0.2% -1.3% -0.7% 3.0% -7.3% 1.3% 8.9%

US 5y/5y forward inflation expectation USD 2.22% 0.05 0.23 -0.05 0.24 -0.33 -0.51 -0.32 0.58 -0.39

Eurozone government debt EUR 231.7 -0.1% -0.5% 0.1% 3.3% 1.6% 13.1% 2.2% 11.0% 3.4%

Eurozone corporate bonds EUR 225.0 -0.3% -0.7% 2.4% 4.7% -0.7% 8.2% 2.2% 13.6% 1.7%

EU high yield (BofAML) USD 304.3 0.3% -0.0% 6.7% 9.1% 0.8% -7.4% 15.0% 29.2% -5.6%

Germany 10-year yield EUR 0.47% 0.14 0.04 0.22 -0.42 0.09 -1.39 0.61 -0.51 -1.14

Germany 10-year bond EUR 158.8 -2.7% -1.8% -1.5% 3.9% 1.3% 12.0% -4.4% 4.8% 11.0%

UK 10-year yield GBP 1.57% 0.15 0.38 -0.05 -0.72 0.20 -1.27 1.19 -0.15 -1.42

Japan 10-year yield JPY 0.13% 0.02 0.08 0.00 -0.22 -0.06 -0.41 -0.05 -0.20 -0.14

China 10-year yield CNY 3.63% 0.03 -0.28 0.84 0.20 -0.79 -0.97 1.03 0.15 -0.47

India 10-year yield INR 8.02% 0.07 0.70 0.81 -1.25 -0.10 -0.97 0.78 -0.52 0.65

Russia 10-year yield RUB 8.38% -0.17 0.95 -0.86 -1.10 -4.13 5.98 0.89 -1.65 0.61

Loans, total return (S&P LSTA) USD 2,913.6 0.7% 4.0% 4.1% 10.2% -0.7% 1.6% 5.3% 9.7% 1.5%

US High yield (BofAML) USD 1,294.0 0.6% 2.5% 7.5% 17.5% -4.6% 2.5% 7.4% 15.6% 4.4%

US investment grade (BofAML) USD 2,845.9 -0.3% -2.2% 6.5% 6.0% -0.6% 7.5% -1.5% 10.4% 7.5%

US mortgages (BofAML) USD 2,051.5 -0.6% -1.0% 2.4% 1.7% 1.5% 6.1% -1.4% 2.6% 6.1%

US municipals (BofAML) USD 552.4 -0.6% -0.5% 5.4% 0.4% 3.6% 9.8% -2.9% 7.3% 11.2%

EM hard-currency debt (JPM EMBI+) USD 796.8 2.8% -4.7% 8.3% 9.6% 1.8% 6.2% -8.3% 18.0% 9.2%

EM external government debt (BofAML) USD 1,120.0 1.7% -3.6% 11.5% 7.6% -1.0% 5.2% -3.3% 17.6% 5.8%

EM investment grade (BofAML) USD 368.1 -0.0% -1.5% 7.3% 5.5% -1.0% 3.9% -1.3% 13.2% 5.6%

Emerging market spreads USD 241.9 -26.03 36.30 -81.21 -218.44 81.55 113.54 43.24

US Investment-grade spreads USD 97.4 -5.78 5.91 -32.15 -44.55 49.98 22.95 -31.46

US high-yield spreads USD 328.0 -16.43 -47.13 -54.61 -289.20 187.09 180.41 -74.78

CURRENCIES SEPTEMBER 2018 2017 2016 2015 2014 2013 2012 2011

Dollar index 95.1 -0.0% 3.3% -9.9% 3.6% 9.3% 12.8% 0.3% -0.5% 1.5%

Euro 1.2 0.0% -3.3% 14.1% -3.2% -10.2% -12.0% 4.2% 1.8% -3.2%

Pound Sterling 1.3 0.5% -3.6% 9.5% -16.3% -5.4% -5.9% 1.9% 4.6% -0.4%

Swiss Franc 1.0 -1.3% -0.7% 4.5% -1.6% -0.8% -10.2% 2.5% 2.6% -0.4%

Japanese Yen 113.7 -2.3% -0.9% 3.8% 2.8% -0.5% -12.1% -17.6% -11.3% 5.5%

Renminbi 6.9 -0.5% -5.2% 6.7% -6.6% -4.4% -2.4% 2.9% 1.1% 4.8%

Won 1,109.3 0.5% -3.9% 13.2% -2.6% -7.0% -3.8% 1.0% 9.1% -3.2%

Brasilian Real 4.1 0.1% -18.2% -1.8% 21.7% -33.0% -11.1% -13.2% -9.1% -11.0%

Indian Rupee 72.5 -2.4% -11.9% 6.3% -2.6% -4.5% -2.0% -11.0% -3.1% -15.8%

USD real effective exchange rate (JPM) 113.9 -0.4% 3.2% -6.3% 4.2% 7.9% 7.7% 1.4% -2.7% 1.7%

EUR real effective exchange rate (JPM) 96.5 0.0% 1.7% 5.4% -1.2% -4.9% -3.8% 4.4% -1.9% -1.2%

JPY real effective exchange rate (JPM) 73.5 -2.8% 1.5% -3.1% 3.6% 4.9% -7.1% -17.5% -15.1% 2.5%

COMMODITIES SEPTEMBER 2018 2017 2016 2015 2014 2013 2012 2011

Global commodities, total return (S&P GSCI) USD 2,859.4 3.9% 11.8% 5.8% 11.4% -32.9% -33.1% -1.2% 0.1% -1.2%

Agriculture, spot return USD 277.0 -3.2% -1.8% -3.0% 2.6% -12.1% -8.3% -22.1% 3.9% -14.9%

Energy, total return USD 577.4 5.9% 24.8% 6.4% 18.1% -41.5% -44.1% 5.1% -1.4% 4.9%

Crude oil USD 620.6 5.4% 28.1% 4.1% 8.0% -45.3% -42.6% 6.0% -11.5% -1.3%

Industrial metals, total return USD 1,277.8 1.4% -11.8% 29.1% 17.6% -24.5% -7.4% -12.9% 1.4% -22.3%

Copper USD 3,796.6 4.9% -13.4% 29.4% 17.3% -24.9% -12.7% -7.9% 4.3% -21.5%

Livestock, total return USD 1,912.5 7.8% -1.5% 8.4% -7.3% -18.3% 14.2% -3.6% -4.0% -1.2%

Precious metals USD 1,420.4 -0.5% -9.9% 12.0% 8.4% -11.1% -4.1% -29.8% 6.2% 6.6%

Gold, total return USD 630.2 -0.7% -9.4% 12.8% 7.7% -10.9% -1.7% -28.7% 6.1% 9.6%

REAL ESTATE SEPTEMBER 2018 2017 2016 2015 2014 2013 2012 2011

All Equity REITS total returns (FTSE NAREIT) USD 17,602.9 -2.4% 1.8% 8.7% 8.6% 2.8% 28.0% 2.9% 19.7% 8.3%

FTSE EPRA NAREIT developed markets, total return USD 5,022.6 -2.0% 0.8% 11.4% 5.0% 0.1% 15.9% 4.4% 28.7% -5.8%

FTSE EPRA NAREIT emerging markets USD 2,211.6 -6.0% -12.8% 28.8% 0.2% 2.5% 15.1% -20.0% 36.1% -28.9%

New York home prices USD 198.0 0.0% 1.2% 5.7% 2.8% 3.7% 2.8% 6.2% -0.3% -3.3%

Greater London house price (£) GBP 616,501.0 1.2% 1.1% -1.7% -0.1% 9.9% 11.7% 10.6% 6.8% 6.4%

German house prices EUR 129.3 0.0% 5.4% 5.7% 8.7% 1.7% 6.6% 3.5% 5.0% 8.4%

Moscow prop prices (US$/sqm) USD 2,502.0 -4.1% -11.6% 4.8% 3.6% -32.7% -24.8% -2.6% 6.0% 9.5%

Beijing property prices (RMB/sqm) RMB 41,610.0 0.0% -21.8% 35.4% 32.6% 14.7% -3.2% 30.7% -7.9% 7.9%

HEDGE FUNDS SEPTEMBER 2018 2017 2016 2015 2014 2013 2012 2011

Global hedge funds USD 1,259.9 -0.7% -1.2% 6.0% 2.5% -3.6% -0.6% 6.7% 3.5% -8.9%

Equity hedge funds USD 1,259.3 -1.6% -0.9% 10.0% 0.1% -2.3% 1.4% 11.1% 4.8% -19.1%

Event-driven hedge funds USD 1,573.8 -0.5% -5.5% 6.5% 11.1% -6.9% -4.1% 13.9% 6.0% -4.9%

CTA funds USD 1,150.1 -0.6% -1.2% 2.5% -2.9% -2.0% 5.2% -1.8% -1.0% -4.9%

Credit hedge funds USD 2,059.7 0.1% 0.5% 3.9% 5.0% -4.4% -1.8% 6.9% 7.7% -3.6%

Activist hedge funds USD 2,756.9 0.0% 12.7% 6.1% 9.1% 0.2% 8.5% 19.2% 9.3% -16.9%

MONTHLY VIEWPOINT


17th October 2018

___________________________________________________________________________________________


Performance and valuations of international equity markets

Year to Market Rolling 1-yr Rolling 2-yr Rolling 3-yr EPS growth

Country date Cap (USDbn)* change change change 2018E 2019E 2019E 2018E 2019E

WORLD

All Country MSCI MXWD Index -3.6% 60,786 -0.1% 20.3% 22.0% 14.9 13.6 9.7% 2.6% 2.8%

Developed World MXWO Index -1.9% 47,326 1.7% 21.8% 23.1% 15.5 14.2 9.5% 2.5% 2.7%

Emerging World MXEF Index -15.4% 13,460 -13.0% 9.3% 13.3% 11.3 10.2 11.1% 3.1% 3.4%

AMERICAS

US (S&P500) SPX Index 3.5% 25,540 8.4% 29.7% 36.7% 17.0 15.4 10.2% 2.0% 2.1%

US (Dow Jones Industrial) INDU Index 2.5% 7,380 10.8% 39.7% 47.8% 16.0 14.6 9.4% 2.3% 2.4%

US mid/small cap RTY Index 0.7% 2,652 2.9% 27.6% 33.0% 25.1 20.0 25.8% 1.3% 1.3%

Canada SPTSX Index -4.9% 1,910 -2.5% 5.7% 11.5% 15.0 13.2 13.6% 3.1% 3.3%

Mexico MEXBOL Index -3.9% 317 -5.1% -0.5% 7.6% 16.2 14.1 14.7% 2.3% 2.7%

Argentina MERVAL Index -1.6% 93 9.1% 70.0% 166.4% 9.0 6.7 34.3% 7.8%

Brazil IBOV Index 8.5% 602 8.2% 35.9% 68.1% 12.3 10.0 22.2% 3.7% 4.4%

EUROPE

Europe SXXP Index -7.8% 12,049 -8.3% 5.6% -0.6% 13.7 12.5 9.7% 3.9% 4.1%

Germany DAX Index -10.8% 1,317 -11.3% 8.9% 14.5% 12.5 11.2 11.7% 3.4% 3.7%

France CAC Index -4.1% 1,886 -4.8% 14.0% 9.0% 13.6 12.4 9.6% 3.5% 3.8%

UK UKX Index -9.0% 2,731 -7.2% -0.3% 10.4% 12.5 11.6 8.4% 4.7% 4.9%

Spain IBEX Index -11.4% 681 -13.2% 1.5% -11.9% 11.7 10.8 8.2% 4.6% 4.9%

Italy FTSEMIB Index -11.9% 572 -14.1% 16.1% -13.3% 10.6 9.2 15.2% 4.6% 5.1%

Switzerland SMI Index -7.7% 1,128 -7.0% 7.1% 0.1% 15.2 13.7 10.4% 3.7% 3.9%

Norway OBX Index 11.8% 276 14.8% 46.3% 50.9% 15.9 13.2 20.3% 3.9% 4.3%

Sweden OMX Index -2.6% 601 -6.5% 6.3% 5.7% 15.0 13.8 8.7% 4.5% 4.6%

Austria ATX Index -6.4% 106 -5.2% 32.4% 35.4% 10.9 10.1 8.0% 3.5% 4.0%

Greece ASE Index -21.7% 52 -17.5% 6.6% -9.5% 15.9 14.1 13.0% 2.9% 3.3%

EMERGING EUROPE

Hungary BUX Index -7.7% 26 -6.5% 28.0% 65.2% 9.5 9.2 3.3% 2.9% 3.1%

Kazakhstan KZKAK Index 1.9% 15 7.3% 79.3% 142.6%

Ukraine PFTS Index 75.8% 2 86.5% 125.3% 90.2% 21.3

Russia RTSI$ Index -1.1% 560 -1.3% 16.1% 30.3% 5.6 5.5 1.9% 6.4% 7.0%

Poland WIG Index -11.3% 319 -13.5% 19.5% 9.5% 11.3 10.1 11.2% 3.2% 3.5%

Czech Rep PX Index 0.1% 56 2.5% 20.1% 12.0% 13.0 12.4 4.7% 4.5% 4.8%

Turkey XU100 Index -16.2% 107 -9.0% 24.6% 21.9% 7.3 6.2 17.6% 4.3% 4.9%

MIDDLE EAST & AFRICA

South Africa TOP40 Index -10.0% 594 -8.1% 5.9% -0.4% 13.4 12.0 11.2% 3.8% 4.0%

Egypt Hermes Index -10.9% -2.0% 76.1% 88.7% 9.0 7.9 14.2% 7.1% 4.2%

Namibia FTN098 Index -2.8% 141 6.5% 26.5% 23.1% 10.7 10.0 6.7% 4.8% 5.2%

Nigeria NGSEINDX Index -15.1% 33 -11.9% 16.5% 9.3% 23.1%

Israel TA-25 Index 5.8% 10.3% 12.8% 4.6% 13.2 11.9 11.0% 2.1% 2.2%

Saudi Arabia SASEIDX Index 0.6% 4.0% 27.6% -7.0% 13.3 12.1 9.8% 3.9% 4.1%

Qatar DSM Index 15.3% 17.8% -5.6% -17.2% 13.2 12.0 9.4% 4.3% 4.5%

Dubai DFMGI Index -19.5% -25.9% -19.1% -27.1% 7.7 7.2 7.1% 5.6% 5.7%

ASIA

Asia MXAPEXA Index -15.3% 3,281 -12.9% 17.3% 25.7% 11.0 10.1 9.1% 2.8% 3.0%

Japan TPX Index -6.3% 6,015 -0.4% 26.4% 14.2% 13.2 12.3 7.8% 2.2% 2.4%

Japan NKY Index -0.3% 3,590 7.3% 34.6% 25.4% 16.0 14.3 11.7% 2.0% 2.1%

Hong Kong HSI Index -13.8% 2,305 -9.4% 11.1% 12.7% 10.7 9.6 11.0% 3.9% 4.2%

China domestic shashr Index -21.2% 4,374 -23.1% -14.9% -21.9% 10.6 9.4 13.2% 3.0% 3.3%

China offshore HSCEI Index -12.0% 1,477 -10.6% 7.3% -2.4% 7.8 7.0 11.1% 4.3% 4.8%

South Korea KOSPI Index -12.4% 1,365 -12.6% 6.9% 6.3% 2.2% 2.3%

New Zealand NZSE Index 2.5% 89 6.4% 16.1% 38.9% 20.6 18.6 10.5% 4.0% 4.3%

Australia AS30 Index -2.6% 1,458 2.1% 8.8% 14.1% 15.0 14.2 5.7% 4.6% 4.7%

Pakistan KSE100 Index -7.3% 59 -5.8% -9.5% 10.6% 7.8 6.4 21.7% 6.7% 7.8%

Thailand SET50 Index -1.8% 377 1.9% 18.1% 20.7% 15.4 14.2 8.6% 3.0% 3.3%

Indonesia JCI Index -9.4% 454 -2.8% 6.6% 27.7% 14.9 13.0 14.0% 2.3% 2.6%

India NIFTY Index -0.6% 1,115 3.0% 22.0% 28.0% 18.1 15.0 20.1% 1.6% 1.8%

Singapore FSSTI Index -9.8% 412 -7.5% 9.0% 1.8% 12.5 11.5 8.2% 4.3% 4.4%

Malaysia FBMKLCI Index -3.7% 270 -1.4% 4.3% 1.0% 16.6 15.6 6.8% 3.3% 3.5%

Philippines PCOMP Index -18.2% 169 -17.1% -5.2% -0.6% 16.3 14.4 12.8% 1.8% 2.0%

Vietnam VNINDEX Index -1.4% 140 18.2% 41.2% 63.8% 16.8 14.2 18.5% 1.6% 1.6%

Source(s): ACPI, Bloomberg Data as of: 28-Sep-2018 * Market cap for the main index

PER Dividend yield

MONTHLY VIEWPOINT


17th October 2018

___________________________________________________________________________________________


Three-month outlook

Highly indebted major World economies are characterised by steady GDP growth, slowly-rising inflation and re-synchronising growth patterns, whilst the lack of fiscal stimulus puts the burden on central banks, which will keep interest rates relatively low for a long time to come.

Weight

Cash We are overweight cash from reductions in fixed income.

Eq

uit

ies

US Valuations are high but US equities benefit from improving growth. Rising wages and a stronger dollar could provide EPS

headwinds. Bullish sentiment is the missing ingredient to push stocks closer to the tops in this cycle.

Europe Earnings growth continues to be robust and the economic backdrop of the eurozone is strong. Interest rates will stay low for the

foreseeable future although support from QE will diminish over time. Valuations are attractive.

Japan Japanese equity markets are still amongst the cheapest globally and for as long as yields remain anchored, the market remains

attractive, although currency volatility induces substantial equity volatility in the country.

China A shares are inexpensive as the country is undergoing a major transition. The domestic consumer is becoming stronger and

savings are rising, despite tightening and rebalancing measures.

EM Emerging markets are suffering from idiosyncratic issues in addition to dollar strength and a dollar liquidity squeeze. In some

markets, valuations are attractive whilst in others we may not have seen the bottom yet.

Central

Banks

Aggregate central bank balance sheet growth will consolidate on a global level, leading to less liquidity provision and, hence,

reduced support for asset markets. Central banks will gradually continue/begin to tighten.

Fix

ed

In

co

me

DM govt In the medium term, yields can rise further as expectations for growth and inflation improve. As sovereign bonds are expensive,

downside risks dominate and the asset class is only suitable as a hedging instrument.

EM govt Dollar bonds of countries with low external debt levels and low/no trade and budget deficits are interesting. Should the dollar

strengthen sustainably, risks within EM would increase and crises in several countries are a possibility.

DM credit Spreads have been tightening substantially, leaving little room for further compression. Spreads in the US and the UK are more

attractive than in the eurozone where rates are extremely low but likely to rise.

EM credit We avoid issuers with substantial hard-currency debt relative to the underlying revenue mix. We would stress-test balance

sheets against any EM FX deterioration. Spreads for fundamentally strong issuers in hard currency are attractive.

Alt FI We like alternative areas of fixed income such as peer-to-peer lending (P2P) and structured credit. Return potential in this area

is still attractive due to an embedded illiquidity and complexity premium.

Cu

rren

cie

s

USD GDP growth is strong, inflation accelerating but under control and the Fed is set to continue to raise rates and reduce its

balance sheet. Also, the tax reform has been accomplished, all of which is bullish for the dollar in the short term.

EUR The euro performed strongly last year and is expected to consolidate. Further tapering by the ECB would be bullish for the euro

and eurozone assets. However, tensions within the Eurozone are present and should be reflected in a EUR fair-value discount.

JPY The BoJ has turned less aggressive recently with regards to providing additional monetary stimulus. The market is trying to

find a new direction for the yen. Inflation is slowly rising and GDP growth is also robust, which is positive for the currency.

EM The resurgent dollar is creating problems for EM currencies. We prefer commodity exporters over commodity importers. Parts

of LatAm and Turkey are experiencing a crisis. A sustainable dollar recovery could pose a substantial threat to EM assets.

GBP The GBP cheapened substantially because of the Brexit vote. Due to the long timeline of the Brexit process and unpredictable

political noise, uncertainty will continue, adding a substantial risk premium to the currency. Rangebound.

Co

mm

od

itie

s

Oil The oil market is increasingly rebalancing as inventories are declining and shale production is only growing slowly while

demand is rising steadily. Capex that has been neglected for years is slowly returning.

Metals Industrial metals have been supported by stronger-than-expected growth in Asia in general and China in particular where the

government managed smoothly to rebalance the economy, successfully addressing major areas of concern.

General We believe that after its five-year (2011-2015) streak of high negative returns, the commodity complex in general could become

more attractive again, especially energy and agricultural commodities but also precious metals as a hedge against tail risks.

MONTHLY VIEWPOINT


17th October 2018

___________________________________________________________________________________________


DISCLAIMER

This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. While

based on information believed to be reliable, no guarantee is given that it is accurate or complete. Any investments referred to may not be suitable for the specific

investment objectives, financial situation or individual needs of recipients. Reliance should not be placed on the views and information expressed herein when making

any individual investment and/or strategic decisions.

You should also be aware that the value of investments and any income from them can go down as well as up, and you may not receive back the amount you originally

invested. There can be no assurances that appreciation in value of investments will occur, or that currency fluctuations will not affect the outcomes of any investment

adversely.

Past performance of the index or individual funds is not a guide to future performance.

Certain funds invest in emerging markets which by their nature are higher risk and potentially more volatile than those inherent in established markets.

This material is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without the

consent of the issuer of this document.

Where foreign securities are included in collective investment schemes, there may be additional risks that arise because of events in different jurisdictions. These may

include but are not limited to; potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks,

settlement risks and potential limitations on the availability of market information.

Issued by ACPI Investment Ltd (Registered in England - Number 03781549, at 37-43 Sackville Street, London, W1S 3EH), which is authorised and regulated by the

Financial Conduct Authority (Register Number 192403). Details can be found on the following link www.fca.org.uk/register.

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otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without the

prior written permission of ACPI Investments Limited.

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