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THE INVESTOR
W
e have seen global markets diverge
since talk of quantitative easing
tapering began, with share prices in
the larger and more mature markets
outperforming in 2013.This re ects not
only short-term capital ows, but also
signs of improvement in more mature
economies such as the US. Optimism
surrounding upcoming reforms has also
pushed up share prices in Japan
and China. In any case, for a further
re-rating of shares, there needs to be more
evidence that the improvement is self-
sustaining and will lead to higher earnings
growth. In December, Fed chairman
Ben Bernanke announced that the US
Central Bank would start to wind down
its asset purchases from January, re ecting
con dence in the nation’s economic
outlook. In the eurozone, it seems that the
European Central Bank will be reactive
rather than proactive in dealing with any
tightening of nancial conditions.Pending
more clarity, we anticipate global markets
to remain volatile. In our time, our
expectation is that tapering will force
a more rational focus on fundamentals.
U
S equity markets remained strong at
the end of the third quarter. Markets
reacted positively to the nomination of
Janet Yellen as the chairman of the Federal
Reserve, who seemed likely to continue the
loose monetary policies of her predecessor.
Investors also reacted positively to the
growing evidence of a sustainable US
economic recovery. On an absolute basis,
the portfolio posted notable returns for the
quarter despite its slight underperformance
relative to the benchmark.The main
detractors to relative performance were
found in the energy and information
technology sectors. In the energy sector,
Pioneer Natural Resources (an independent
oil & gas exploration and production
company) was the main detractor for the
portfolio.The company reported third-
quarter results that were slightly below the
company’s previously given guidance.The
lower (although still strong) results were
due to delays in bringing new wells into
production. In the information technology
sector, eBay was the largest detractor
for the portfolio. Despite the company’s
cautious guidance for the remainder of
2013, eBay’s long-term prospects remain
strong as we continue to see our investment
thesis play out. On a positive note, Bank
of America was up 13% in the month,
reacting positively to the news that there is
a tentative agreement to settle all past and
future disputes over residential mortgages.
Jamie Cumming
Hugh Young
Howard Gleicher
THE INVESTOR CENTRE
ABERDEEN ASIA
Far East
Mixed results in Asia but optimism
is bright for long-term potential
ARISTOTLE
North American
Evidence of US recovery leads to
positive reaction from investors
ABERDEEN
Ethical
Mature markets outperform in 2013
despite continued global volatility
Data in Japan suggest
that Abenomics is
bearing fruit
The portfolioposted
notable returns for
the quarter
Taperingwill force a
more rational focus
on fundamentals
J
H
A
slew of mixed GDP data is clouding
the prognosis forAsia. Overall, we
do not expect growth in the region to
pick up signi cantly. India and Indonesia
are both burdened by large de cits
and crucial reforms could be hard to
implement, particularly ahead of elections
in mid-2014.Thailand’s prime minister
has called for a snap election but, at the
time of writing, protestors continue to
demand her resignation.A deterioration
in the political situation would undermine
investor con dence.As for China, we are
guardedly optimistic over the government’s
plans to restructure the economy, including
an expanded role for the private sector.
Implementation is key. Meanwhile, data
in Japan suggest that Abenomics is bearing
fruit; but enforcing the full suite of reforms
to keep growth self-sustaining may prove
di cult in the face of vested interests.
As forAsian exports, a recovery in the
US could improve demand.Yet concerns
over how fast Fed quantitative easing is
withdrawn after January’s reduction are
likely to keep stock markets cautious
over the near term. Despite the current
headwinds,Asia’s long-term potential
remains bright, supported by favourable
demographics.Valuations look reasonable,
which should continue to bolster the
region’s investment appeal.
