St i t d dStay invested and carry on · Year-to-date Total return perform ance of different asset...

St i t d dStay invested and carry onGlobal Market Outlook

GIC summaryGIC summary

December 2012

This commentary reflects the views of the Wealth Management Group of Standard Chartered Banky g p

December 2013

Overview

Macro: 2013, Year of Transition Bonds: Still underweight• Recent data reaffirms the outlook for 2013

to be a ‘Year of Transition’ towards stronger growth in 2014, led by Developed markets

• EM concerns remain

• Retain longer term outlook for US Treasury yields – Remain Underweight on a 12 month basis

• US and Europe HY preferred within USD portfolios, but moderate returns expected

• Keep maturity profile in USD portfolios shortEM concerns remain• B.R.I.D.G.E. investment framework

helped by Fed inaction thus far

Keep maturity profile in USD portfolios short

Equity: Europe and US preferred• Strengthening growth, a lack of

inflationary pressures and receding tail risks likely to support equities

FX: Fed delays USD modest appreciation• Delay in Fed tapering has weakened the USD,

but is expected to form a base going forward• Asian currencies have seen pressures declinerisks likely to support equities

• Equities still cheap relative to government and high yield bonds

• DM preferred on a 6-12m basis, led by Europe and the US

• Asian currencies have seen pressures decline, but this may prove temporary once tapering comes back on the agenda

• CNY likely to remain stable• AUD expected to weaken long-term

2

Global Market OutlookB.R.I.D.G.E. Investment

FrameworkFramework

Equities outperform – our key OW

2013 YTD asset market performanceYear-to-date Total return performance of different asset classes

Cash losing Cash losing purchasing power

Equities have 19.57

0.37

Equities

Cash

performed strongly

Bonds hit by rising yields HY1.63

-11.35

-2.93

USD Index

Commodities

Bonds

yields, HY outperforms

USD gradually i i i t t

-1.89

-20 -15 -10 -5 0 5 10 15 20 25

Asian FX

%

Source: Bloomberg, Standard CharteredAs of 21 November 2013

gaining against most currenciesCash = JP Morgan Cash Index

Equity = MSCI AC World Daily TR Index Bonds = CITI BIG Index Commodities = DJ UBS Commodities IndexUSD = DXY Currency

Global equities have led the way higherAsian FX = ADXY Index

B.R.I.D.G.E Framework

Year-to-date total return performance of difference themes within BRIDGE strategy

Strong performance

Good year-to-date performance

Global Equities of equities, our key call for 2013

High dividend stocks

11.5%

19.6%

Overweight Assets

Diversified Income Basket

Global Equities

High dividend stocks continued to perform well

‐5.7%

17.8%+ High Dividend Yield Equities

+ Asia Local Currency BondsTrade closed on 20 June 2013

Asian local currency bonds – strong 2012 performance partially offset by

‐2.9%

6.9%

Underweight Assets

+ Global High Yield Bonds

G3 IG Bonds partially offset by weakness in 2013

US high yield f d i b d


MSCI AC World TR USD, MSCI AC World High Dividend yield Net TR USD, Barcap Asia Local Currency Net TR,* Income basket is equally weighted performance of global high dividend yielding equities (MSCI ACWI High Dividend Yield

-12% -7% -2% 3% 8% 13% 18%

B.R.I.D.G.E. framework has had a strong H1 2013

favoured in bonds Income basket is equally weighted performance of global high dividend yielding equities (MSCI ACWI High Dividend Yield USD),Global HY bonds (BarCap Global HY TR USD) and Asian local currency bonds (BarCap Asia Local Net TR USD, until 20 June). Asia local currency bond performance after June 20 is not excluded.

Asset Allocation summaryAll figures are in percentages Currency : USD

Summary View vs. SAA Conservative Moderate Moderately Aggressive Aggressive

Tactical Asset Allocation - December 2013 (12M)

Cash UW 21 0 0 0

Fixed Income UW 35 35 17 4

Equity OW 27 42 60 85

Commodities N 5 10 10 5

Alt ti OW 12 13 13 6Alternatives OW 12 13 13 6

Asset Class Region View vs. SAA Conservative Moderate Moderately Aggressive

Aggressive

Cash & Cash Equivalents USD Cash UW 21 0 0 0

IG Developed World UW 24 15 0 0

IG Emerging World UW 4 9 3 0

HY Developed World OW 2 6 6 2

HY Emerging World N 5 5 8 2

N th A i OW 8 12 17 23

Investment Grade

High Yield

North America OW 8 12 17 23

Europe OW 9 12 17 25

Japan N 0 2 2 3

Asia ex-Japan UW 8 13 20 27

Other EM UW 2 3 4 7Emerging Market Equity

Developed Market Equity

Source: Standard Chartered

Commodities Commodities N 5 10 10 5

Hedge FoF/CTAs OW 12 13 13 6

US stocks continue to climb the wall of worryS&P 500 index

1900 US QuantitativeEasing (QE) 1

US (QE) 2 OperationTwist

US (QE) 3

1500

1700

g ( )

9.9% record high unemployment

Bailout on Greece, Ireland, Hungary

Double dip recession worries

900

1100

1300

Ind

ex

Fed tapering

500

700

concernsUS government

partial shutdownGrowth impact

of mandatory spending cutsS&P

downgrades US credit rating

US Predisdential elections

Debt ceiling debate

US debt ceiling reached

Yellen nominatedas Fed chair

Source: S&P 500, Bloomberg, Standard CharteredAs of 21 November 2013

*Highlighted areas refer to periods of Quantitative easing by the Federal Reserve

300Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

US stocks made a new all-time high within 24 hours of debt ceiling agreement

Expecting the same from Europe

Source: MSCI Europe, Bloomberg, Standard CharteredAs of 21 November 2013

Europe likely to continue out-performing as economy emerges from recession and profit margins expand

Global Market OutlookGlobal Market OutlookMacro: Still A Year of Transition

US: Still in recovery mode

Manufacturing

Forward-looking indicators still strongUS ISM new orders - Manufacturing and Non-manufacturing

70 Manufacturing weakness was an area of concern

R t d t hi t55

60

65

Recent data hints suggests a much brighter outlook for both manufacturing 40

45

50

Inde

x

gand service sectors

30

35

40

Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13


ISM Manufacturing PMI ISM Non-Manufacturing

Soft patch likely to be temporary

US: Labour market remains relatively robust

Average job creation has started to pick up againUS nonfarm payroll 3mma vs. Initial jobless claim 4wmma

700600

Job creation still running above our 2013 forecast of 175k

th550

600

650

0

200

400

a month

Initial jobless (benefit) claims have risen in 400

450

500

-600

-400

-200 '000

'000

recent times due to temporary factors

Wages are starting to

300

350

00

-1000

-800

600

Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Wages are starting to

pick up very slightlySource: Bloomberg, Standard Chartered

As of 21 November 2013

US nonfarm payroll Initial jobless claims 4wma (RHS)

Trend improvement in labour market likely to continue

US: Housing key to the economyHomeowners with negative equity decline% of residential properties where the size of mortgage is greater than the value of property

House prices remainHouse prices remain in an uptrend, reducing negative equity significantly

24

26

Rising mortgage rates a headwind, but lending standards are 18

20

22

%

geasing

Signs of stabilisation in housing market

14

16

18

2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

Source: Corelogic, Standard CharteredAs of 21 November 2013

in housing market after Q2/Q3 slowdown

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

3Q 2011

4Q 2011

1Q 2012

2Q 2012

3Q 2012

4Q 2012*

1Q 2013*

2Q 2013

* Q1 2013 and Q4 2012 were revised

Fed is likely watching housing developments very closely

Interest rates expected to remain low for a long time

Fed has managed to bring expectations lowerEurodollar 90 day futures

Fed is very keen for tapering not to be seen as tightening

Forward guidance has20-Nov

19-Sep

2

2.5

3

Forward guidance has been key to this effort

Tapering may be i d b

1-May

1

1.5%

accompanied by a reduction in the unemployment rate threshold for rate hikes

0

0.5

Dec13 Mar14 Sep14 Jun15 Mar16 Dec16


20-Nov 1-May 19-Sep

Short term interest rates likely to be stable through 2014

European recovery continues

European companies looking to increase capital expenditureBalance of European Companies increasing vs. cutting spending

Fundamentals in the 40% periphery are also

improving

ECB cuts rates in the10%

20%

30%

40%

ECB cuts rates in the face of falling inflation

Bank lending remains k lth h th-20%

-10%

0%

10%

weak, although there are signs that this is going to improve gradually in the

-40%

-30%

20%

May-12 Survey Nov-12 Survey Jun-13 Survey Oct-13 Survey g ycoming 6-12 months


Next 6 months Next 12 Months

Shift from recession into modest growth very important

Japan – A new source of growth?

Data continues to

Japanese companies accelerate investment spendingJapan Tankan business conditions, Manufacturing and Non-manufacturing (%,y/y)

3040 Data continues to show recovery extending

Pl d A il

10

20

0102030

Planned April consumption tax remains the key concern-20

-10

0

-40-30-20-10

%%

-40

-30

-70-60-50

Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13


Fixed Investments Manufacturing Fixed Investments Non-Manufacturing (RHS)

How the economy deals with sales tax hike in Q2 2014 will be critical test

Performance of the economy in Q2 2014 onwards key

1997 experience highlights risks from consumption tax hikeJapan Real GDP recovery (from 1Q 1997 to 3Q 2000)

More aggressive 490000 central bank and

offsetting fiscal measures means this time is expected to be480000

485000

490000

5.5 years

time is expected to be different

470000

475000

480000

JPY

(bn)

460000

465000

470000


460000Jan-97 Dec-97 Nov-98 Oct-99 Sep-00 Aug-01 Jul-02

The moment of truth for Abenomics?

China recovery remain tepid

US businesses have been more upbeat on prospects than China since 2009US ISM and China PMI Manufacturing new orders indices

China data has 70 stabilised, but has not

impressed

Growth expected to be55

60

65

70

Growth expected to be in the 7-8% range for 2014

C t l b k t d35

40

45

50

Inde

x

Central bank expected to retain a tight rein on credit growth

20

25

30

35

Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11 May-12 Apr-13


Jan 05 Dec 05 Nov 06 Oct 07 Sep 08 Aug 09 Jul 10 Jun 11 May 12 Apr 13US ISM China PMI 50-mark separating expsansion/contraction

China hard landing risks reduced, but strong recovery unlikely

Macro scenarios

1. Strong growth 2. Transition to

stronger growth

3. Muddle through

4. Global recession

10%

- US economy b d t l

50%

- The US weakens i t Q1 b t th

30% 10%

rebounds strongly as consumers give into pent-up demand. - Europe introduces

into Q1, but then rebounds strongly into the second half of the year to over 3% growth.

- The US economy continues to grow by around 1.5-2.5% through H2.

- Policymakers fail to offset the deleveraging forces and the world heads into

ia significant policy response which allows the core economies to rebound in H2.

- Europe remains in recession in Q1, but then recovers gradual in H2. - Asia continues to

- Europe remains in a slow burn recession.- China expected to stabilise around

recession. - The credibility of the single currency comes under huge scrutiny and the

- China experiences a V-shaped recovery.

recover, initially led by China and then the US.

7.5-8.0% growth. economy weakens sharply.

2013: Transition to stronger growth most likelySource: Standard Chartered

Global Market OutlookBonds: Continue favouring

corporatescorporates

The year so far for bonds

High yield continues to outperformYear-to-date performance

DM High Yield has been top performer YTD-2.42

0.98

Asia IG

Asia High Yield

G3 government and Asia IG bonds have weakened

6 44

4.71

10.98

US High Yield

Europe IG

Europe High Yield

Clipping coupons likely to remain the main theme for the

-1.19

6.44

-5 -1 3 7 11 15

US IG

US High Yield

rest of this yearSource: Citigroup, Barclays Capital, JPMorgan, Bloomberg, Standard Chartered

As of 21 November 2013Citi World BIGUSD ,Barclays Global HY TR Unh USD, JPM EM Global IG, JPM EM Global HY

%

Clipping coupons likely to remain key theme for rest of 2013

We favour Developed market HY

Directionally, lending conditions are supportive of HYFed Senior Loan Officers’ Survey, ECB Bank Lending Survey, % of banks tightening lending condition

100 US and Europe HY

both face continued low rates60

80

100

Lending conditions are turning increasingly 0

20

40

%

g ysupportive in Europe

Credit quality remains largely supportive

-40

-20

Apr-05 May-06 Jun-07 Jul-08 Aug-09 Sep-10 Oct-11 Nov-12

Source: Barclays Capital, Standard CharteredAs of 21 November 2013

largely supportiveEurope US

Favour diversified exposure to US and European High Yield credit

Further underperformance in EM, Asia HY likely

Asian HY premium over US HY risingUS HY vs. Asia HY spreads

Asia HY premium 14over US HY rising

However, credit quality remains a

11

12

13

quality remains a concern.

We still believe a 7

8

9

10

%

selective approach is key

4

5

6

7

Jun 11 Nov 11 Apr 12 Sep 12 Feb 13 Jul 13

Source: BarCap, JP Morgan, Bloomberg, Standard CharteredAs of 21 November 2013

Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13BarCap US HY OAS JACI HY Corp Spread

Asian HY attractiveness rising, but further underperformance remains possible for now

Be mindful of risks to USD bonds

Large, rapid rises in Treasury yields not uncommonUS 10yr Treasury yield (%), boxes show trough-to-peak rises in bps

Key risks:Key risks:

Interest rate risk

C dit i k11

13

15

+325bp Credit risk

Liquidity risk7

9

11

%

+285bp

325bp

+263bp

Recent experience was an illustration of risks from rising yields

2.401

3

5+160bp


yields11980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Percentage allocation to HY and short maturity profile key

FX, credit are key risks to Asia local currency bonds

Rebound was short-lived, as expectedPerformance of Asia local currency bonds*

Rebound was likely160 Rebound was likely led by rising expectations of Fed tapering delay

155

160

FX, Credit are key risks

145

150

Inde

x

We would not be adding at current levels

135

140

Source: Barclays Capital, Bloomberg, Standard CharteredAs of 21 November 2013

*Barcap Asia local currency diversified Total return unhedged USD

135Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13

FX, Credit key risks to local currency bonds in Asia

Underweight EM IG bonds

EMBI IG sensitivity to interest rates very highApproximate interest rate sensitivity (duration) of benchmark indices

EMBI IG carries the8 EMBI IG carries the largest USD interest rate sensitivity relative to other bond asset 6

7

8

classes

Low yields do not compensate investors3

4

5

Dur

atio

n

compensate investors for risks taken

0

1

2

Source: Citigroup, Barclays Capital, JPMorgan, Bloomberg, Standard CharteredAs of 21 November 2013

0EM IG DM IG EM HY US HY EU HY

Underweight EM IG (USD) bondsIndices: Citi World BIGUSD ,JP Morgan EMBI IG , JP Morgan EMBI HY, Barclays US HY, Barclays Pan-European HY

Equity risk-return profile superior to leveraged high yield

Leverage increases the risks of holding any assetReturns/maximum drawdowns of global equities and a global investment grade corporate index (50% leveraged and unleveraged) Leverage is a double-g p ( g g ) Leverage is a double

edged sword

We remain d i ht fi d

110

115

underweight fixed income

There is a very 100

105

Drawdown: 5.86%

Drawdown: 8.8%

ysignificant risk of negative returns for global bonds

85

90

95Drawdown:

11.7%

US HY expected to see more two-way volatilitySource: Bloomberg, Standard Chartered

As of 17 July 2013

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

Global IG Corporates Cumulative Return (Unleveraged)

Global IG Corporates Cumulative Return (Leveraged)

MSCI ACWI Cumulative Return

Use leverage carefully

yAs of 17 July 2013

Global Market OutlookGlobal Market OutlookEquity: Still favoured

Equities: A good year do far

Equity markets have performed well year to dateTotal Return* Performance year-to-date (in USD)

EU and US our preferred markets

Strong preference for EU on improving data-1.07

22.71

19.57

Emerging Markets

Developed Markets

Global equities

data

Asia ex-Japan and other EM remain UW b t till t

20.26

26.58

Europe

US

g g

UW but still expect upside

Japan Neutral in

26.21

2.26

-8 -2 4 10 16 22 28

Japan

Asia ex-Japan

pUSD allocation termsSource: MSCI, Bloomberg, Standard Chartered

As of 21 November 2013MSCI AC World TR, World TR, Emerging Market, TR US, Europe TR, Asia ex-Jap TR, Japan TR

* Including dividends

%

Overweight EU and US

The markets have climbed the ‘wall of worry’

Pullbacks have been good opportunities to addS&P 500 index price chart (year to date)

We advocated UW We advocated UW investors consider adding on weakness

1700

1800

-7.52%

-4.77%-4.68%

Pullbacks have been limited in size

1500

1600

Inde

x

-3.13%

-3.63%

-3.15%

+32%

1300

1400


Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13

‘Buying the dip’ has worked well this year

Equities – Still offer some value against history

Valuations remain attractive relative to historyMSCI AC World 12m forward P/E ratio Leveraged to

b d i l b lbroadening global growth

Receding tail risks in 19

21

23

25

P/Ex g

DM

Accommodative monetary policy is

13

15

17

12m

For

ward

P

monetary policy is positive for equities

Valuations below 7

9

11

Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12

1

Source: Datastream, Standard CharteredAs of 21 November 2013

median and cheap against bonds

MSCI AC WORLD 13.815 P/Ex Median +- 1SD

Environment supportive of Equities

Develop market equities offer more value

The equity-bond yield spread is greatest in DMEquity-bond yield gap*, deviation from long-term mean – across regions

Greatest relative value5 Greatest relative value in DM as yields still very low

3

4

5

EM equities no longer as attractive on a relative basis

1

2

3

%

-1

0

1

DM EM


-1Global US Europe Japan Australia AxJ China Latam

*Equity yield –10y sovereign bond yield

Developed market equities still preferred

Negative earnings revisions are stabilising

But a recovery is not yet obvious Consensus EPS growth expectations* (indexed=100)

Lacklustre economic105 Lacklustre economic outlook relative to the Developed markets

S t t ti i95

100

105

an 1

3)

Some tentative signs of stabilisation in China. This has yet to filter over to other 85

90

exed

(100

=1Ja

EM

Catalyst for sustained upside not

75

80


Ind

Source: IBES, Datastream, Standard CharteredAs of 21 November 2013

sustained upside not obvious

*MSCI World & MSCI Emerging markets 12m forward EPS estimates

Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13DM EM

Continue to prefer DM over EM

Europe: Our favoured market

Expectations for EU showing improvement Analysts starting to

i th iConsensus EPS growth expectations* (indexed=100)

revise up their forecasts

Margins improvement 125

135

Mar

13)

g pand operational leverage a key driver

95

105

115

exed

(100

=1 M

75

85


Inde

Source: IBES, Datastream, Standard CharteredAs of 21 November 2013

*MSCI World & MSCI Emerging markets 12m forward EPS estimates

Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13US EU

Higher margins will feed into higher earnings

EU operating margins are stabilising

Margins supported by lower financing and labour costs US and Europe operating margin (%)

EU corporate15 EU corporate margins have been declining for last few yrs and have greater

id th US12

13

14

15

upside than US

Benefit from high operating and 9

10

11%

p gfinancial leverage

Improvement in profit margins will support

6

7

8

Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12

Source: MSCI, Bloomberg, Standard CharteredAs of 21 November 2013

margins will support re-rating

*MSCI EU trailing operating margin

Europe US

Watch for upside earnings’ surprises

US remains a preferred region

US equities still cheap relative to bonds Improving housing

S&P500 earnings yield – UST 10yr bond yield, %10

and labour market

Resilient corporate margins

6

8Equities relatively cheap

margins

Earnings growth still supportive2

4

%

10y at 3%

10y at 4%

-2

0

Equities relatively expensive


-4Nov-88 Aug-91 May-94 Feb-97 Nov-99 Aug-02 May-05 Feb-08 Nov-10 Aug-13

US market still expected to generate solid returns

House prices a key driver for the economy

Positive wealth effect from rise in home pricesCase-Shiller Composite-20 house price index, y/y

Housing market is20 Housing market is recovering

High home prices d i lth ff t5

10

15

20

drive wealth effect

Positive impact on consumer sentiment 10

-5

0

5

Inde

x

and bank loan books

25

-20

-15

-10

Source: Case-Shiller index, Bloomberg, Standard CharteredAs of 21 November 2013

-25Jan-01 Nov-02 Sep-04 Jul-06 May-08 Mar-10 Jan-12

Fed policy still very supportive of equities

Japan: Remain Neutral but looking for upside

Market has broken through key resistanceTopix Index price chart (weekly chart)

Market has broken Market has broken through key resistance

Inflation still well below 1150

1250

1350

target – BoJ may print more

Expect further yen950

1050

1150

Inde

x

Expect further yen weakness

650

750

850


650Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13

Looking for a breakout to the upside

Underweight but not negative on Asia ex-Japan

Asia ex-Japan earnings revisions still negative but trend improvingMSCI Asia ex-Japan earnings revision ratio and 3m chg% in 12m forward EPS

Asia ex-Japan10 Asia ex Japan expected to generate positive returns

Chi d t h i2

4

6

8

10

2

4

6

China data showing some improvement but risks remain

-4

-2

0

2

-4

-2

0

Rat

io

%

-10

-8

-6

-8

-6

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13


Earnings revision ratio= (Net upgrades/Upgrades+downgrades)*100

MSCI ASIA EX-JAP 3m% Chg 12m Fwd EPS Earnings Revision Ratio(RHS)

Asia ex-Japan expected to generate positive returns

China: Policy reforms an uncertainty MSCI China is dominated by large SOEs

y y

Composition of MSCI China sectors* by state owned linked (SOE) companies Some early signs of stability in earnings1000 stability in earnings and economic data

Longer term, reform 62%

600700800900

1000

Bn)

measures are positive

Banks are very cheap

76%

75% 38% 19% 53% 36%100200300400500

USD

(B

Banks are very cheap but risks remain

36%

0100

Bank

s

Ener

gy

Telc

o

nsur

ance

eal E

stat

e

tal G

oods

Mat

eria

ls

Source: Datastream, Bloomberg, Standard Chartered, As of 21 November 2013

In Re

Cap

it M

Non SOE SOE*Top 7 sectors by market capitalisation , July 2013

Reform uncertainties are slowing becoming priced in

Global Market OutlookCommodities: Upside catalyst

missingmissing

We are Neutral commodities

China growth not supportive for commoditiesDJ-UBS commodity index vs. China Manufacturing PMI index

Extended period of58180 Extended period of weakness likely limits further downside risks

55565758

150

160

170

180

However, upside catalyst is lacking

51525354

120

130

140

Inde

x

Inde

x

484950

90

100

110

1/5/2009 1/5/2010 1/5/2011 1/5/2012 1/5/2013

Source: DJ-UBS, Bloomberg, Standard CharteredAs of 21 November 2013

DJUBS Commodity Index China Manufacturing PMI

Neutral commodities. We struggle to see why prices would turn higher

Gold: Downtrend remains in place

Prices likely to fall furtherGold price, spot (USD)

High inflation-2135 adjusted price, rising

opportunity costs, USD strength negative factors for1535

1735

1935

2135

negative factors for gold

Break below long-t t li

935

1135

1335

USD

/Oz

term support line would be very bearish for gold

135

335

535

735


135Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12

We remain Underweight and bearish gold/silver

Commodities: Balanced energy outlook

Seasonality may dampen returnsAverage monthly performance of Brent crude oil from 1988

Both demand andBoth demand and supply trends have remained stable

G liti l i k

3.97%

2.56%

5.61%

3.19% 3.06%4%

6%

Geopolitical risk may have been overstated in the short term0.57%

1.60%

56%

0.59%1.18%

0%

2%

%

However, we are entering a seasonally weak period for oil-2.98%

-2.61%

-1.15%

-4%

-2%

Source: Bloomberg, Standard CharteredAs of 24 October 2013

4%Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

We remain Overweight oil

Global Market OutlookGlobal Market OutlookFX: Return of the (US) Dollar

Modest USD strength expected

USD likely to remain within recent rangeDXY Index

We do not expect a85 We do not expect a break lower out of recent range

D l i F d83

84

85

Delay in Fed tapering likely increasingly priced in80

81

82

Index

Long-term, we expect the USD to rebound77

78

79

rebound


Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

We are moderately bullish on USD

Moderate EUR weakness expected

Dovish ECB likely to be EUR-negativeEUR currency and 10-year German Bund yield (%)

Strong currentStrong current account, reducing ECB balance sheet, USD weakness have

t d EUR1.35

1.37

1.39

2

2.2

supported EUR.

However, EUR is likely to weaken

1.31

1.33

1.35

1 4

1.6

1.8

EUR/

USD

%

yfrom here:(a) USD rebound(b) Risk of further ECB easing

1.25

1.27

1.29

1

1.2

1.4

J 13 M 13 M 13 J l 13 S 13 N 13 ECB easingJan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-1310yr German Bunds Euro (RHS)


We are moderately bearish on EUR

Shift in BoE stance opens divergence with ECB

Short GBP/CHF may be best way of expressing this viewCHF/GBP spot

BoE raised its BoE raised its growth forecasts, brought forward timing of expect rate hike

This opens divergence withdivergence with likely ECB policy

Short EUR/GBP or CHF/GBP tCHF/GBP to express this view


We are neutral GBP in the medium term

Bullish on CNY

Rising FX reserves highlight appreciation pressureChina foreign exchange reserves

China likely to China likely to maintain stable CNY amidst policy reform, Renminbi

3

3.5

internationalisation

Rising FX reserves highlight continued

2.5

3

Trilli

on

highlight continued appreciation pressures

1.5

2

J 09 S 09 M 10 J 11 S 11 M 12 J 13 S


Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-

CNY remains our preferred regional currency

JPY likely to weaken long-term

Short market positioning, though, remains a riskJPY non-commerical future positions

BoJ’s inflation goal100 BoJ s inflation goal means quantitative easing likely to stay in place

0

50

100

000)

This is JPY-bearish long-term

-100

-50

0

. of c

ontra

cts (

'

Very short market positioning continues to pose a i k

-200

-150

N 05 N 07 N 09 N 11 N

No

risk


Nov-05 Nov-07 Nov-09 Nov-11 Nov-

Bearish on JPY, but risk of interim rebound exists

Fed delay a temporary reprieve for Asian FX

Weak current account balances to weigh on currenciesADXY index vs. Current account % of GDP – Weighted according to components of the ADXY Index Delay in Fed p

tapering likely only a temporary positive for Asian currencies115

120

6

7

External imbalances will still need to be addressed105

110

4

5

Index

% o

f GDP

Risk of renewed weakness once Fed tapering approaches95

100

2

3

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 p g pp


Current Account % of GDP - ADXY weighted ADXY Index (RHS)

We remain bearish on Asia ex-Japan currencies

Long-term bearish on AUD

Use any rebounds to reduce exposureAUD vs. RBA Commodity Price Index

Short-term AUD-1.1120

positive factors largely played out:- USD weakness- Short market positioning0.9

1

1.1

90

100

110

120

D - Pricing out of rate cut expectations

Long-term the currency0.7

0.8

60

70

80

AUD-

USD

Inde

x

Long term the currency remains expensive

Strong USD, narrowing i ld k

0.5

0.6

30

40

50

Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12yield gap, weak commodity prices likely to work against AUDSource: Bloomberg, Standard Chartered

As of 21 November 2013

RBA Commodity Index (LHS) AUD-USD

We remain bearish on AUD

H2 outlookAlternative Strategies: A great

alternativealternative

Favour Equity Long/Short strategies

L/S Strategies offer low volatility equities exposure

Equity long/shortSharpe ratios, HFRX Equity Long/Short Index vs. MSCI AC World

Equity long/short strategies retain high correlation with equities

0.484

0 4

0.5

0.6

o

However, volatility is lower

0.2

0.3

0.4

Shar

pe R

ati

Suitable for investors wanting to build in some downside insurance

0.003 0.0

0.1

1994 - 2013

Source: Credit Suisse, MSCI, Bloomberg, Standard Chartered

As of 24 October 2013

insuranceCredit Suisse Equity Long Short MSCI World

Indices used are Credit Suisse Equity L/S, MSCI AC World, UST 10y (Rf rate)Period (Monthly 1994-date)

Favour equity long/short strategies as an alternative way of gaining equities exposure

B.R.I.D.G.E. Tweaked Broadening Global recovery • 2013 – a year of transition towards strengthening

growth and reduced uncertainty

• Growth gap between DM and EM growth expected Bto narrow

• DM tail risks receding, but increasing in EM

Receding tail‐risks

Income generation still relevant • Yield still an important aspect of any investment in l l

R

an ultra‐low interest rate environment

• Rising bond yields and higher valuations mean asset selection is increasingly important for income focused investments

I

Diversification remains key • Maintain a balanced portfolio

• Gradually rising USD bond yields expected

Go local (bond) and global (equity) • Take profit on Asian Local Currency Bonds

D

Go local (bond) and global (equity) • Take profit on Asian Local Currency Bonds

• Preference for DM over EM equity remains

Equity offers the best value • Equities still cheap on a relative basis

G

E

54

• Europe is our favoured equity market, followed by the US

E


Investment Advisory & Strategy

List of Investment Strategy Market Commentary (Private Bank)

Global Market Outlook

Publication that captures the house view of key asset classes i d b th Gl b l I t t

Weekly Market View

Update on recent developments and the key things to look out for

issued by the Global Investment Council. Release: Monthly

y gin the coming week. Release: Weekly

Market Watch

Commentary issued during periods of elevated market volatility

Global Market Outlook presentation

Captures the key rationale of the of elevated market volatility.

Release: Ad hoc

Captures the key rationale of the latest Global Investment Council (GIC) view and tactical asset allocation (short and long term). Release: Monthly

Investment Advisory & Strategy

List of Investment Strategy Market Commentary (Priority)

FX Strategy Weekly Market View

Weekly update on the currency market outlook. It looks at both fundamentals developments as well as technical analysis. Release: Weekly

Update on recent developments and the key things to look out for in the coming week. Release: Weekly

Market Watch

Commentary issued during periods of elevated market volatility

Global Market Outlook

Publication that captures the house view of key asset classes issued by the Global Investment Council. of elevated market volatility.

Release: Ad hoc

Release: Monthly

DisclaimerThis document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment

h d i t bj t t hibiti d li h d f th di i ti f i t t h Thi d t d t il t th iresearch and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function.Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority.In Dubai International Financial Centre (“DIFC”), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. 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THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.

Global Market OutlookGlobal Market OutlookAppendix

Asset Class 12M Views Key Reasons

Asset Allocation Road Map

Bonds: Investment Grade

We are Underweight G3 sovereign bonds and Neutral corporate IG bonds. We expect US Treasury yields to continue rising on a 12m horizon as the tapering conversation returns to the fore. IG corporate credit spreads are now a little tighter than their long-term historical average, but we continue to see a little more value here relative to Treasuries. We continue to believe USD-denominated bond portfolios should maintain a short maturity profile on a 12 month horizon.

Bonds: We remain Overweight Developed market HY as we believe it offers the best risk/reward trade-off relative to the rest of the corporate credit

universe. Continued low rates, still-low default rates and loose lending conditions are supportive factors, not only for US but also for European

U

OHigh Yield HY. Asian and EM HY also appear to be offering a little more value relative to US HY, but we remain concerned about the credit quality backdrop, which is less attractive than the US, and thus expect relative underperformance to continue.

Equities: US

The US housing market continues to show an improving trend which has a significant impact on consumer sentiment via the wealth effect. We consider the US to be in the mid-phase of the business cycle which usually sees Consumer Discretionary, Financials and Technology sectors perform best.

While the market is trading at median valuations, earnings growth is still expected to come in at high single digits and may accelerate if economic growth is better than expected.

O

O

Equities: Europe

Economic data is improving both in the core and periphery countries. We believe moving from recession to even sluggish growth is a positive backdrop for European equities.

Parts of the market offer significant value as well as yield and it remains a very good ‘stock pickers’ market. We expect the market to post positive returns over the coming 12 months.

Equities:

With the BoJ’s clear mandate to achieve 2% inflation and the rapid upward revision of earnings expectations, we are Neutral Japan from a USD allocation standpoint. While the weaker yen will benefit the exporters, the additional liquidity will also feed into the housing market as well as

O

Equities: Japan

equities in general which is likely to have a positive wealth effect. The authorities are now moving onto the hard work of micro policy reforms. The market has recently broken through key resistance and we are looking for further upside.

Equities: Asia ex-Japan

We are Underweight Asia ex-Japan on concerns of slower growth and weaker Asian currencies. Under this backdrop, parts of Asia including Indonesia, India and Thailand may be more vulnerable to fund outflows. In the case of China (N), valuations are cheap, but this by itself is not sufficient to drive outperformance. Growth outlook though, appears to be stabilising, but not attractive to override our preference for Developed markets.

N

U Asia-ex Japan equities still expected to generate positive returns on a 12m view.

Equities: Other EM

Emerging markets have underperformed ytd, the recent strong bounce notwithstanding, and we continue to have a preference for the Developed markets.

Given the fragility in the market, we expect investors to rotate into ‘defensive cyclicals’ such as Technology before they go into the more cyclical higher risk markets, such as EM. These areas are, however, increasingly offering excellent longer term value.

We are turning Neutral commodities (from underweight earlier). An extended period of weakness now suggests increasingly limited downside,

U

NCommodities though we continue to see very little reason to be optimistic on prices. We remain Underweight Gold and continued tapering concerns are negative for the metal. We are also entering a seasonally weak period for oil.

Alternatives

We remain Overweight Alternative Strategies, based on our view that the asset class offers exposure to our preferred asset classes, but with the possibility of lower volatility. A diversified approach offers attractive exposure to the asset class, but given our strong preference for equities, we favour equity long/short as an alternative way of gaining equity exposure.O


N

Over Weight NeutralUnder WeightO U NU NO

Country Equity Insight SummaryCountry Relative Rank Rationalea

12M

Korea South Korea is well-leveraged to improvements in the developed markets and China. Exports have turnedaround led by a recovery in US and EU While a stronger Won may represent a potential headwinds foraround, led by a recovery in US and EU. While a stronger Won may represent a potential headwinds forexports, the impact so far has been muted, reflecting the resiliency of the sector. Consumption, whilelackluster, would likely be less a drag on growth going forward with house prices imparting a positive wealtheffect. Valuations look cheap on the back of improving earnings revisions and growth in Developed markets.

Technicals (3-6m): A move above 2012 top would bring the all time high back in focus, decline below 1920will likely downside to the index. Support at 1920 and resistance at 2160.

OW

Hong Kong While the market is well-leveraged to a growth recovery in China, eventual higher long term interest ratessuggest potential headwinds particularly for property developers, which account for over 30% of the market.We prefer to be selective in HK, preferring consumer discretionary and banking sectors.

Technicals (3-6m): Expect to target 2010 highs above 23500 with momentum picking up. Support at 20020and resistance at 24860.

Taiwan Consumer deleveraging is well advanced and increased economic linkages through ECFA with China should

N

Taiwan Consumer deleveraging is well advanced and increased economic linkages through ECFA with China shouldbenefit the banking sector. A synchronised recovery of global demand will likely be constructive for Taiwan’sexport and tech sectors. We have a preference for financials and technology sectors.

Technicals (3-6m): Chart patterns appear to support further recovery. Support at 7565 and resistance at9015.

China Recent data suggests that growth has stabilised and earnings revisions have trended higher. The ThirdPl ti i i ith li k ti i t f t t l f hi h ld

N

Plenum meeting was unsurprising, with policymakers continuing to focus on structural reforms, which wouldbe positive longer term. In the short-term though, some of these initiatives may negatively impact the state-own sectors which account for the bulk of the market. Valuations are cheap, but we prefer a more selectiveapproach to gaining exposure to China

Technicals (3-6m): Expect index to revisit the upper band of broad sideways trend channel, with a moveabove 10800 further reinforcing the constructive optimism. Support at 9920 and resistance at 12750.

N

India Recent measures taken by the central bank have helped to stabilise the rupee and alleviate concerns overfund outflows. Longer term, structural reforms are needed to address current account vulnerabilities. We seevalue in the market, but it is likely to remain volatile in the short-term.

Technicals (3-6m): Market should see further upside but short term signals getting overbought. Support at18925 and resistance at 22500.


N

Over Weight NeutralUnder WeightO U NO U N

Country Equity Insight SummaryCountry Relative Rank Rationale

12M

Singapore Valuations are fair, with the index trading close to the historical mean on a price-earnings basis and a dividendyield of c.3%. GDP growth estimates have been revised up recently, on the back of strong exports andmanufacturing growth. Singapore, with its export-oriented economy, is well leveraged to growth in the Developedmarkets as well as the Asia region. Expectations of higher interest rates though, may present headwinds forproperty prices as well as the REIT sector, which we remain cautious on.

Technicals (3-6m): Medium term uptrend remains intact however momentum is deteriorating. Support at 3000and resistance at 3340.

Thailand Macro data has weakened on the back of funds outflows and a slowdown in consumption/investments. Weremain vigilant on the Thai baht for potential signs of weakening given their vulnerable current account surplus

N

N remain vigilant on the Thai baht for potential signs of weakening, given their vulnerable current account surplusposition. There are increased signs of political flaring, which may increase investors’ risk perception of investingin Thailand equity market.

Technicals (3-6m): Risk of pullback has risen since the strong rally from 2008 lows. Support at 1330 andresistance at 1530.

Malaysia We expect investment growth and domestic demand to pick up pace under the Economic Transformation Plan.P d fi l f d f th t ’ b id t i l t iti A th ASEAN

N

Proposed fiscal reforms and reforms on the country’s subsidy system is a long term positive. Among the ASEANcountries, Malaysia is one of the most defensive market, with a comfortable current account surplus and domesticgrowth drivers, that help mitigate some weakness within the region.

Technicals (3-6m): Upward Momentum remains firm. However, technicals looks stretched. Support at 1680 andresistance at 1960.

Indonesia We are UW on concerns over funds outflows re-emerging as the market returns to Fed taper expectations early

OW

g g p p ynext year. While we are positive on structural growth longer term, recent policy rate hikes as well fuel price hikespose risks to the growth outlook. We expect potential further downside to earnings forecasts.

Technicals (3-6m): Charts appear stretched with momentum turning down. Support at 3850 and resistance at4800.

Brazil Brazil is a levered play on the China growth story. The Brazilian economy remains weak and earnings revisions still negate We remain Neutral within the Other EM UW

UW

N still negate. We remain Neutral within the Other EM UW.

Russia Look to do as a trade rather than as a longer term hold as can be very volatile. Market offers good exposure to oil.

61

N

N


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