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General advice warning
This information is general in nature and does not take into account personal objectives, financial situations or needs of any person. It is not a personal recommendation about any securities or stocks mentioned.
This presentation has been prepared specifically for the exclusive use of financial advisers, researchers and trustees. It is not to be published without the prior written consent of Zurich Financial Services Australia Limited ABN 11 008 423 372.
Please consider the important information slide at the back of this presentation.
Any investment objectives do not represent a guarantee of performance, return or income. Past Performance is not a reliable indicator of future performance.
Zurich Investment Management Limited ABN 56 063 278 400 AFSL 2325115 Blue Street North Sydney NSW 2060 Phone 1800 500 655 (Zurich Investments)
PNOE–009109-2014
• Corporations are financially strong and continue to drive efficiency to protect and grow profits
• Global monetary policy remains highly accommodative; the cost of money is cheap
• The global financial system is on sturdier footing
• Commodity and labor inflation remain subdued
Macro backdrop - Environment supportive of future growth
4
5
Global leading indicators still solid
Source: Bloomberg
1/06/2011 1/12/2011 1/06/2012 1/12/2012 1/06/2013 1/12/201340
42
44
46
48
50
52
54
56
58
Regional Manufacturing PMIs
US Eurozone Japan China Expansion
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How long will the expansion last?- We can look a previous expansions
• Current expansion 59 months (May)
• Last 3 expansions were:- 73 months (2001-2007)- 120 months (1991-2001)
- 92 months (1982-1990)
= average 95 months
Source: KKR
0 20 40 60 80 100 120 140
December 1900 - September 1902
August 1904 - May 1907
June 1908 - January 1910
January 1912 - January 1913
December 1914 - August 1918
March 1919 - January 1920
July 1921 - May 1923
July 1924 - October 1926
November 1927 - August 1929
March 1933 - May 1937
June 1938 - February 1945
October 1945 - November 1948
October 1949 - July 1953
May 1954 - August 1957
April 1958 - April 1960
February 1961 - December 1969
November 1970 to November 1973
March 1975 - January 1980
July 1980 - July 1981
Nov 1982 - July 1990
March 1991 - March 2001
Nov 2001 - Dec 2007
June 2009 to now
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USA - Still room for many sectors to grow
1959-01-01 1969-01-01 1979-01-01 1989-01-01 1999-01-01 2009-01-010
500
1000
1500
2000
2500
3000
US housing starts
55 year average
Housing normally peaks at 2 to 2.5
million units
Source: Federal Reserve of St Louis
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USA - Energy revolution
• Energy self sufficiency ahead?
• Huge competitive advantage• Energy prices• Feedstock• US industry to benefit
• “Onshoring”
Source: iStockphoto
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Europe - Righting the ship
• “Whatever it takes”• Core showing signs of life• Periphery accessing bond
markets
• BUT• Unemployment problems• Action recently taken to
address deflationary pressures• Geopolitical tensions
Source: Google images
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The ECB acts - But scope for further expansion
• Low core inflation provokes
ECB response
• Number of measures including cutting deposit rate to -0.1%
• Targeted LTRO over four years
• Additional QE very possible
ECB balance sheet
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Japan: Abenomics working..so far
Source: Bloomberg
• Prime Minister Abe’s second coming
• Three arrows• Aggressive monetary
policy• Public works spending• Private sector reforms
• Stock market up 57% in 2013, has been volatile – best since 1972
• Other nationalistic policiesJan 2009 to Mar 2014
Jan-
2009
May-2
009
Aug-2
009
Dec-2
009
Mar-2
010
Jul-2
010
Oct-2
010
Feb-
2011
May-2
011
Sep-
2011
Dec-2
011
Mar-2
012
Jul-2
012
Oct-2
012
Feb-
2013
May-2
013
Sep-
2013
Dec-2
013
6000
8000
10000
12000
14000
16000
18000
2013 marked best calendar year
return since 1972
Nikkei
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China: Challenges & Choices
Source: Bloomberg
• Third Plenum policies
• Crackdown on credit • “SHIBOR”
• Policy induced slowdown• Excess capacity still
needs addressing
• Labour costs increasing• Double edged sword
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Iron ore
Jun-
2009
Jan-
2010
Aug-
2010
Mar
-201
1
Oct-2
011
May
-201
2
Dec-2
012
Jul-2
013
Feb-
2014
50
70
90
110
130
150
170
190
Oreful
Iron ore spot
-
10
20
30
40
50
Australian Iron ore exports to China
mm tonnes, total volume
$dm
t
Source: Bloomberg
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Budget recap - “Contribute and build”
• Increasing the retirement age to 70 by 2035• Bring back indexation of fuel excise• Cuts to welfare; From the “cargo net” to the safety net
– Reduce threshold for family benefits– Paid parental scheme stays, but at lower threshold
• Introduction of a Medicare co-payment• “Temporary” deficit levy on high income workers• Scythe through government agencies• $40 billion road building plan, plus additional state and private
sector funding
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Recent and current environment•Equity & fixed income markets are being driven by policy developments•Monetary policy is encouraging rent-seeking, discouraging wealth creation
Manage risk
•Cannot outright dismiss possible unfavorable outcomes of extreme monetary policy:
•Focus on balance sheet strength
•Avoidance of investments predicated on the revival of a cycle based on borrowing, asset leverage and consumer spending•Avoidance of Europe (that are not global companies)
Position for long term wealth creation in a low growth world
•Digital technology shift in business models driving efficiency as a source of wealth creation rather than scale •Knowledge over capital
•Shale hydrocarbons in North America (also geopolitical risk diversifier)
•On-shoring in the US
Investment considerations
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Outlook
Europe Stuttering, but all four major economies expected to grow in 2014.Policy error remains a risk. Further action possible to counter deflationary threat.Tensions in Ukraine a clear concern, though recent developments more positive
USA Economic data improving following the winter freeze.Tapering progressing. How long until interest rates move?The energy revolution should not be underestimated in the US.
China Policy induced economic slowdown.Crackdown on shadow banking, watch corporate defaults and “WMPs”.Overcapacity in many industries unresolved.
Australia RBA removes easing bias on interest rates with upbeat assessment on economic progress and housing recovery on east coast. Watch for prolonged adverse impacts from budget announcement.Ongoing focus on cost control by Australian companies.
Source: Zurich Investments
Important information
This information, dated June 2014, is given in good faith and has been derived from sources believed to be accurate as at this date and is subject to change. However, it should not be considered as a comprehensive statement on, or study of, any matter and should not be relied on as such.
Neither Zurich Investments nor any related entities, or any of their employees or directors give any warranty of reliability or accuracy and to the fullest extent possible under law, accept no responsibility arising in any way whatsoever including by reason of negligence for errors or omissions.
Investors should consider the relevant Zurich Investments PDS when making financial decisions about an investment in any fund. The relevant PDS is available from your financial adviser or Zurich.
Zurich Investments Australia’s funds are not available for investment to US residents, US citizens or US nationals. They are not to be marketed, promoted and must not be offered in any way to US citizens, US nationals or US residents. The Funds are not regulated by the SEC under any U.S securities or US Insurance laws.
The issuer of the relevant Fund’s PDS is Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511, GIIN FVHHKJ.00012.ME.036 of 5 Blue Street North Sydney NSW 2060 Australia (Zurich Investments).
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