Sophia may 2011 trip asian consumption-fund presentation v4 - slides_final
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Transcript of Sophia may 2011 trip asian consumption-fund presentation v4 - slides_final
Every time an Asian shops you benefit.
May 2011
UBS Asian Consumption Fund
Sophia Tang, Equity Strategist
STRICTLY CONFIDENTIALAsset Management
SECTION 1
Outlook
3
Transition to EM-led global economy
Source: Haver, Bloomberg, IMF, Morgan Stanley Research. Estimates from Morgan Stanley Global Economics Team
Real GDP Growth (%)
(4)
(2)
0
2
4
6
8
10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Industrialized EconomiesEmerging Market
The past ….
The future …. Real GDP Growth (%)2011-2015 (average)
0
2
4
6
8
Asia (ex. Japan) EM World US DM Euro area
Source: CEIC estimates & World Economic Outlook, IMF, UBS IB research and estimates as of Mar 2011
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EM, an increasingly significant contributor to global GDP
Share of Global GDP
Major EM economies projected to be 42% of global GDP by 2020
Notes: We assume share of “Others” remains constant at 5% of world GDP. The projections assume nominal GDP growth at potential real GDP growth and central banks inflation target. To compute FX for periods beyond 2010, we assume the normalization of REER over the forecasted period. Source: IMF, J.P. Morgan research as of December 2010
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Source: CEIC, UBS as of Apr 2011
Inflation a key risk
(4)
(2)
0
2
4
6
8
10
12
14
16
Feb-
98
Feb-
99
Feb-
00
Feb-
01
Feb-
02
Feb-
03
Feb-
04
Feb-
05
Feb-
06
Feb-
07
Feb-
08
Feb-
09
Feb-
10
Feb-
11
%y/y (2007 Nominal GDP weighted)
Asia inflation
Food inflation
Headline inflation
Coreinflation
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Central banks already exiting – to fight asset inflation Examples of policies
Source: J.P. Morgan estimates and research as of Nov 2010
Hong Kong Monetary Authority – Lower loan to value ratio
– Loan-to-valuation ratios for luxury property (more than HK$20 million) from 70 percent to 60 percent and tighten mortgage insurance criteria.
Reserve Bank of India – Higher provisioning
– RBI increased banks’ provisioning requirement for commercial real estate from 0.40 per cent to 1 per cent.
Korea – Higher taxes plus more supply
– Increase in ownership and capital gains taxes on owners of multiple homes
– More homes in southern Seoul and its satellite cities.
China – raised reserve requirement ratios; city level measures to regulate the property sector– Shanghai and Chongqing government have announced the respective local version of the Real
Estate Tax
– Beijing set a new target of 50% of land supply and new construction starts in 2010 for affordable housing (economic and price-cap housing).
Government of Singapore – To curb speculative activity in the residential property sector– Seller’s Stamp Duty: applicable to vendors of properties bought and sold within one year. Normal
stamp duty rates apply, with a tiered rate to 3%.
– Lowering the max LTV ratio from 90% to 80%: the LTV cap was raised in Aug 05 to 90% and banks currently charge a significantly higher rate on mortgages with a LTV above 80%. Less than 10% of mortgages are with LTVs in excess of 80%.
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Rate hikes, currency appreciation to mitigate inflation pressure
Asia ex Japan Policy rate (%)
Source: UBS IB research as of March 2011
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Jan
98
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Real rates
Nominal policy rates
Currencies (Dec 2009 – Mar 2011)1
1. Currencies indexed to Dec 2009 (RH chart)Source: Bloomberg, UBS Global Asset Management
95
100
105
110
115
Dec
-09
Ap
r-10
Jul-
10
Oct
-10
Feb
-11
Thailand
Indonesia
India
China
Malaysia
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0%
50%
100%
150%
2003
2004
2005
2006
2007
2008
2009
2010
E
2011
E
Asset Turnover Net Debt / Equity Net Margin
EM public, corporate and households debt levels are low
Public debt as % of GDP
Source: CLSA research as of April 2011. Data for 2009-2010
Asset turnover up, gearing down (ratios)
Source: UBS IB GEM Inc Workbook, UBS Global Asset Management
Consumer credit as % of GDP
Source: UBS IB research as of 2010
97%
78%71%
55%49%
39%
19% 17%10% 8%
0%
20%
40%
60%
80%
100%
U.S. Aus U.K TaiwanS'poreKorea Thai China India Indon
174%
116%
78%73%
62%58%
53%
35%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Japan Italy FranceGermanyU.K. U.S. Spain EM
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Asia ex Japan consumer sector valuations look attractive
Source: J.P.Morgan Quant Strategy as of Apr 2011
Markets have corrected on the back of macro concerns
PE Fwd to Mar 2011
SECTION 2
The Opportunity
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Every minute…
50 BABIES are born in India1
46 VISITORS arrive in China2
28 CHINESE RURAL DWELLERS migrate to the city3
Source: UBS Global Asset Management1 Estimated from 2008/2009 crude birth rate as provided by The World Bank 2 Based on number of visitor arrivals in 2008 as provided by the Nation Bureau of Statistics of China 3 Estimated from urban population in China from 2008 to 2009 as provided by The World Bank
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Asian Consumption – multi decade themeConsumption in Asia has been growing – and will continue to be so
Source: CLSA
Young population
More wealth
Urbanization More consumption
More debt
Low penetration of consumer goods
Asia Consumption Potential
Did you know?
One in four billionaires is now in Asia, up from one in ten in 2005
Greater China consumers will account for 44% of global luxury sales by 2020
Wine sales in Hong Kong rose 268% in 2010, making it arguably the world’s largest wine market
In India, only 17% of households have taken a mortgage loan
In Indonesia, 67% of households plan to buy a car in the next three years
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Young population => more consumersAsia accounts for 60% of world population, substantially younger than DM% of population aged 25 years and less
Source: UN population database, Merrill Lynch research as of July 2010Prediction, projection and forecast of economies or markets are not necessary indicative of future or likely performance of the UBS Asian Consumption Fund.
Expected addition (m) to working age population (15 – 64 age group) during 2010 – 2030
Source: United Nations Population Division estimates as of 2010
0
10
20
30
40
50
Asia U.S. France U.K. Spain Germany Japan
1818
-13-17
-48
24132
10
-100 -50 0 50 100 150 200 250 300
IndiaIndonesia
BrazilU.S.
ChinaJapanRussia
Europe
Expected addition of 283 mn working age population from IN, ID and CH by
2030
16x that from U.S.
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Urbanization => more economic activity => more consumption
Source: UN Population Statistics, GS Global ECS Research as of June 2010
Urbanisation ratio (%)
Much room for urbanization trend to continue in China, India, Indonesia
From…
To…
0
10
20
30
40
50
60
70
80
90
100
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
China Japan KoreaGermany US IndiaIndonesia
Japan(1962)
Korea(1972)
45%
India(2037E)
China, Indonesia (2010)
…leads to changes in culture & spending habits
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Low; 55%
Middle; 28%
Upper-Middle,
12%
High; 5%
Low; 30%
Middle; 31%
Upper-Middle,
24%
High; 15%
Low; 7%
Middle; 14%
Upper-Middle,
28%
High; 51%
Low; 62%
Middle; 28%
Upper-Middle,
5%
High; 2%
2005
Low; 49%
Middle; 35%
Upper-Middle,
13%
High; 4%
2010E
Low; 19%
Middle; 33%
Upper-Middle,
32%
High; 16%
2020E
Rising income levels => greater propensity to spend
E = Euromonitor estimates. Source: Euromonitor, Morgan Stanley Research as of Aug 2010
India: Income Pyramids
China: Income Pyramids
3x
2x
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Low penetration of consumer goods in Asia
Source: Ashwin Chotai, CEIC, CLSA Asia-Pacific Markets Apr 2010
Light vehicle ownership vs GDP per capita
0
100
200
300
400
500
600
700
800
0 10,000 20,000 30,000 40,000 50,000
Nominal GDP per capita (USD)
Light
vehic
le o
wner
ship
/ 1,
000
popula
tion
AustraliaNew Zealand
Taiwan
Malaysia
Singapore
Korea
Japan
Thailand
Hong KongIndonesia
China
Vietnam
IndiaPakistan
Philippines
PC Penetration (PCs per 1,000 population)
0
200
400
600
800
1000
US DevelopedEurope
Japan Worldwide Asia Pacific
Source: Gartner Data, Goldman Sachs Research March 2010
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0 0.5 1 1.5 2 2.5 3
Japan
USA
HK
Korea
Singapore
Taiwan
UK
Malaysia
Thailand
Philippines
China
India
Indonesia
0 10 20 30 40
China
Singapore
Hong Kong
India
Malaysia
Korea
Indonesia
Thailand
Australia
Taiwan
Japan
Philippines
USA
Increasing acceptance and accessibility to credit
Credit card per capita
2009 dataSource: CEIC, CLSA Asia-Pacific Markets as of April 2010
Household savings/disposable income
Household debt can grow from its current low base as receptivity to debt increases
SECTION 3
UBS Asian Consumption Fund
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Asian consumption companies with substantial business exposure to Asia
Non-Asian consumption companies with substantial business exposure to Asia
Non-Asian consumption companies with substantial business exposure outside Asia
Asian consumption companies with substantial business exposure outside Asia
How is UBS Asian Consumption Fund managed?A theme product rather than sector product
Note: Asia refers to Asia ex Japan
Business Exposure
Outside AsiaAsia
Dom
icile
Ou
tsid
e A
sia
Asia
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UBS Asian Consumption FundThe fund mainly invests in Asia ex Japan consumption companies with substantial business exposure to Asia
Includes: Food: e.g. ITC, Lotte Beverages: e.g. China Mengniu Dairy, Uni
President Agriculture: e.g. Olam Tobacco: e.g. British American Tobacco Consumables: e.g. Unilever
Includes Retail: e.g. Parkson Retail Autos: e.g. Honda, Tata Motors Media: e.g. Clear Media, Focus Media Gaming and hotels: e.g. Genting International Apparel: e.g. Giordano, Esprit, Ports Design
Includes Hospitals: e.g. Apollo hospital Pharmaceuticals: e.g. Sun Pharma Medical services: e.g. Mindray Medical
International
Note: This information should not be considered as a recommendation to purchase or sell any security.
Consumerstaples
(basic needs)
Consumerdiscretionary
(“good to have”)
Healthcare
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Luxury Spending Theme
Source: CEIC, CLSA Asia-Pacific Markets
Luxury market size and growth – by domestic spend
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(CH
F)
China 23%
Japan 3%
Americas 5%
Europe 7%
Rest of World 11%
Example: China ZhengTong Auto ServicesCar dealer (and service) of premium brands
including BMW, MINI and Audi.
Note: This information should not be considered a recommendation to purchase or sell any security
Source: Bloomberg
6.06.57.07.58.08.59.09.5
10.0
12-10 01-11 02-11 03-11 04-11
China ZhengTongLast Price (HKD)
Example: Trinity (China) High end apparel
0.0
2.0
4.0
6.0
8.0
10.0
11-09 03-10 07-10 11-10 03-11
Trinity Last Price(HKD)
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Disciplined investment philosophy and process
Example: China Mengniu Dairy
Proven Investment Philosophy
Established Investment Process
Price/Intrinsic Value Philosophy
Identify significant market price to fair value discrepancies
Research: Long-term focus, deep industry knowledge
Risk control: Starts at the company level
2008 2009Source: Bloomberg
Milk Scandal
Sep 2008
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Consumer Staple stock example: ITC
Leading player in India’s cigarette market
Strong and resilient growth in cigarette market, especially in the higher end
– High consumer loyalty
Strong pricing power, ability to pass on tax increase
Extensive distribution network - >1.2mn outlets
Entrenched brand name in strong growth cigarette industry
Note: This information should not be considered a recommendation to purchase or sell any securitySource: Industry sources, IIFL research as of Dec 2010
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Japan U.S China World average Pakistan Nepal Sri Lanka Bangladesh India
Cigarette Consumption(Number of cigarettes per adult per year)
India’s cigarette per capita consumption is abysmal
Price (indexed from Mar 2008 to April 2011)
Source: Bloomberg
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1.0%
0.7%
1.3%
3.5%
4.0%
6.6%
6.8%
15.7%
15.8%
19.1%
25.7%
0.0%
0.5%
2.3%
7.6%
6.6%
5.4%
8.3%
29.5%
10.2%
10.7%
18.8%
0% 5% 10% 15% 20% 25% 30% 35%
Cash
Philippines
Thailand
Malaysia
Indonesia
Taiwan
Singapore
Korea
Hong Kong
India
China
Fund BM
UBS Asian ConsumptionCharacteristics and portfolio structure
Investment objective: Stocks of companies that are engaged in business activities of providing goods/services to Asian consumers.
Number of stocks: Concentrated portfolio with 30-60 stocks
Universe: Asia (ex Japan) stocks and other equity rights.
Benchmark: MSCI Asia ex Japan Consumer and Healthcare sectors*
* There was no representative benchmark up to 31 March 2010. Since 1 April 2010, the MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) has been used as the benchmark. Source: UBS Global Asset Management, 31 March 2011
Sector allocation Country allocation
10.7%
2.8%
48.9%
37.7%
0.0%
5.6%
62.5%
32.0%
0% 10% 20% 30% 40% 50% 60% 70%
Others
Health Care
Consumer
Discretionary
Consumer
Staples
UBS Asian Consumption (%) Benchmark (%)
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Performance since inception to 31 March 2011
40
60
80
100
120
140
160
Apr
-08
Jun-
08
Aug
-08
Oct
-08
Dec
-08
Feb-
09
Apr
-09
Jun-
09
Aug
-09
Oct
-09
Dec
-09
Feb-
10
Apr
-10
Jun-
10
Aug
-10
Oct
-10
Dec
-10
Feb
2011
Asia Consumption Composite MSCI Asia ex Japan Consumer and Healthcare sectors MSCI Asia ex Japan
Asian Consumption Composite: Performance
YTD Mar
2011 2010 2009 2008*Since inception
(cumulative)Asia Consumption Composite -3.4% 22.2% 93.2% -38.3% 40.8%MSCI Asia ex Japan index 1.2% 19.6% 72.1% -47.8% 3.9%MSCI Asia ex Japan Consumer and Healthcare sectors** 0.9% 29.2% 88.6% -44.5% 35.5%Value added against MSCI Asia ex Japan index -4.6% 2.6% 21.1% 9.5% 36.9%Value added against MSCI Asia ex Japan Consumer and Healthcare sectors** -4.3% -7.0% 4.6% 6.2% 5.3%
Source: UBS Global Asset Management, Factset.*Strategy was incepted in 29 February 2008** There was no representative benchmark up to 31 March 2010. Since 1 April 2010, the MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) has been used as the benchmark. Based on Asian Consumption Fund (USD). Returns are gross of fees. The Asian Consumption Strategy was launched in February 2008 with the UBS (Lux) Institutional Sicav – Asian Consumption (USD)/(SGD) RA. This institutional vehicle was subsequently terminated after it was moved into the retail vehicle – the UBS (Lux) Equity Fund - Asian Consumption (USD) P-acc (valor 1041161) in Jul 2009.Please note that performance refers to the Asian Consumption Composite, which is not indicative of the future performance of UBS (Lux) Equity Fund – Asian Consumption USD/SGD P-acc. The manager of the UBS (Lux) Equity Fund – Asian Consumption USD/SGD P-acc will apply the same investment strategy, guidelines and objectives as those of the existing Asian Consumption Composite.
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Conclusion
Asia’s growth and consumption set to rise
Credible team, philosophy & process
Fund – Unique, proven track record
ACF for Asian Consumption Fund and for…
APPENDIX A
Investment philosophy and process
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Client portfolio
Risk systemAccurately quantify all portfolio risks
Portfolio teamWork as a team to challenge and implement best
research ideas
Global-Local Fundamental research70 – 80% of valued-added
…to create a single ´Optimal’ portfolio
Investment processDisciplined application of global fundamental research…
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Research drives results
Proven Investment Philosophy
Research with global and local perspectives
Common valuation process and system (GEVS)
Career analysts and PMs are ‘equals’
Established Investment Process
Remuneration linked to results
Analysts manage ‘real’ money
Experienced Investment Team
Sector portfolios = buy list
Comprehensive research database (Pedestal)
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Industry-leading risk system – GERS
Comprehensiverisk factors
Note: For illustrative purposes only. This information should not be considered a recommendation to purchase or sell any securitySource: GERS, UBS Global Asset Management, as at 1 March 2011
Highest conviction ideas
Industry and country risk factors that
mirror the way we manage regional
portfolios
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Distinctive investment philosophy & process
Intrinsic value is defined by the fundamentals which determine a security’s cash flows
Discrepancies between price and intrinsic value combined with market behaviour provide opportunities to add value
Overvalued
Price
Time
Intrinsicvalue
Undervalued
Price / intrinsic value is our only focus
Buy decisions Sell decisions
Declining alpha – price appreciation has reduced price/value discrepancy– Decrease / eliminate weight as security moves toward fair
value / becomes overvalued
– Fund new investment with sale of relatively less attractive holding
Thesis violation
High alpha – significant price/value discrepancy
Supporting industry analysis
Strong thesis on why we want to hold the stock
Portfolio weight is a function of:– Size of mispricing
– Degree of conviction
– Impact on risk
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Asia ex Japan Equities TeamA stable and experienced team. Avg investment experience ~14 years
Note: As of April 2011Source: UBS Global Asset Management
Part of a globally integrated team of over 100 analysts
Asia ex Japan Research Universe
Emerging AsiaAC Asia ex Japan Greater China Asian Consumption Asia 130-30
Geoffrey Wong
Head Asia Pacific Equities
Singapore / Hong Kong
Cheah Yit Mee
Portfolio Manager
Manish Modi
Portfolio Manager
Bin Shi
Portfolio Manager
Jimmy Chua
Head Trader
Choo Shou Pin
Analyst
Projit Chatterjee
Equity Strategist
Dorothy Lek
Trader
Sophia Tang
Equity Strategist
Han Yaw Juan
Trader
Chan Chee Seng
Analyst
Reginald Oh
Trader
Namit Nayegandhi
Analyst, Portfolio ManagerRoger Lum
Analyst
Matthew Adams
Analyst
Sanjeev Joshi
Analyst
Leslie Chow
Analyst
Hai Huang
Analyst
Paul Hillman
Trader
Joanna Mak
Analyst
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Why Asian consumption?
Sustainable growth story, both geographically and sector wise
Strong historical consumption growth
Young population and more consumers set the foundation for sustained domestic demand
Movement from villages to cities and associated increase in income will fuel consumption expenditure
Low penetration of consumer goods such as mobile phones, personal computers, etc. provides exponential growth opportunities
Low consumer debt levels – consumers are more inclined to use credit to fund purchases, creating a multiplier effect on consumption
Domestic Asian brands have become regional and are poised to develop into tomorrow’s global brands
APPENDIX B
Biographies
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Sophia Tang
Equity Strategist, Global Emerging Markets and Asia Pacific Equities, Director
Years of investment industry experience: 5
Education: Nanyang Technological University (Singapore), B Acc.
Sophia Tang is a member of the Global Emerging Markets and Asia Pacific Equities team, which is responsible for constructing and managing global emerging markets and Asia Equity portfolios.
Sophia has responsibility for communicating the above equity strategies to existing and prospective clients globally.
Prior to this, Sophia was a strategy project manager with UBS’s Wealth Management division in Singapore. In this role, Sophia developed business plans for market entry strategies, conducted product feasibility and market sizing studies.
Before joining UBS in 2006, Sophia was a consultant with several leading consultancy firms, including Boston Consulting Group, where she had extensive experience in strategic business development and project management.
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Namit Nayegandhi
Namit is a member of the Asia (ex-Japan) investment team, located in Singapore. As an analyst, he covers the regional consumer sector and is also Country Analyst for India focusing on Indian stocks in addition to some regional stocks. He is the Portfolio Manager for the Asian Consumption Fund and the India Country Fund.
Prior to joining UBS in February 2006, Namit spent three years in private wealth management with JM Morgan Stanley, one of the largest Investment Banks in India. Prior to that, Namit worked as a research analyst at ICICI Bank and was instrumental in setting up its private wealth investment advisory business. He started his career as a sell side analyst covering the consumer sector in India.
Research Analyst, Global Emerging Markets and Asia Pacific Equities, Executive Director
Years of investment industry experience: 13
Education: St. Xaviers College (India), BA; K J Somaiya Institute of Management Studies and Research (India), MBA
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Asian Consumption CompositeSchedule of composite performance
The composite's past performance is not necessarily an indication of how it will perform in the future.
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Disclaimer
UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.
This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented and discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions.
Please note that past performance is not a guide to the future. The value of investments and the income from them may go down as well as up, and investors may not get back the original amount invested.
This document is a marketing communication. Any market or investment views expressed are not intended to be investment research. The document has not been prepared in line with the FSA requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
The information contained in this document should not be considered a recommendation to purchase or sell any particular security and the opinions expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no assurance that any trends described in this document will continue or that forecasts will occur because economic and market conditions change frequently.
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