All information correct as at 31 March 2014
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THE INVESTOR
T
he US Federal Reserve’s decision to
begin paring back its asset-purchase
programme ended months of uncertainty
and equity markets reacted more with
relief than panic.This muted response
indicates that the prospect of tighter
liquidity has been factored in to an extent,
after years of central bank largesse. So far,
the withdrawal has been at a measured
pace and we expect it to remain so, given
the mixed outlook for the US economy.
Meanwhile, we do not see an imminent
threat to ultra-low interest rates across the
rest of the developed world, particularly
with the spectre of de ation lurking in
Japan and Europe. Russian interference
in Ukraine has heightened geopolitical
risks, although the impact on the
broader global economy appears limited.
Elsewhere, pivotal elections in several
emerging economies should dominate
headlines over the next few months. Given
macroeconomic headwinds across both
the developed and developing worlds, and
simmering political tensions, we remain
cautious.We would not be surprised to see
a correction within the next six months,
but this could present buying opportunities
as valuations become more appealing.
U
S markets returned to more‘normal’
volatility in the rst half of the quarter
as geopolitical and macroeconomic events
hit the newswires. Currency concerns in
emerging markets drove global markets
early in the quarter, followed by the
con ict in Crimea and concern over a
potential‘hard’ economic landing in China.
As unusually cold weather gripped the
US, economic activity was temporarily
curtailed.The US equity market produced
returns that, while positive, were below
historical norms.The key driver of the
fund’s relative outperformance was security
selection. In consumer staples,Walgreen
Co. was the top performer.The drugstore
chain reported higher operating margins
and management remains optimistic
about its partnership withAlliance Boots,
Europe’s largest wholesale drugstore
chain.AES Corp., our only holding in the
utilities sector, declined as unfavourable
currency movements in emerging markets
caused concern. Long term, management
continues to execute its strategic plan of
focusing on core markets. Our investment
team analyses a multitude of factors in
order to better understand what we believe
to be great businesses. Some elements are
quanti able. Other pieces of the puzzle are
‘softer’ in nature and require experienced
interpretation. Ultimately, we seek to invest
in businesses whose current stock prices are
not fully re ective of their intrinsic values.
Jamie Cumming
Hugh Young
Howard Gleicher
THE INVESTOR CENTRE
ABERDEEN ASIA
Far East
Bumpy ride for Asian stock markets
and fears over a China slowdown
ARISTOTLE
North American
Icy weather blows through US
economy but equity returns positive
ABERDEEN
Ethical
No threat to ultra-low interest rates
as spectre of deflation lurks
The near-term
outlook for the region
remains clouded
Unusually cold
weather gripped
theUS
Elections in emerging
economies should
dominate headlines
H
H
S
ince the start of the year,Asian stock
markets have continued on their bumpy
ride, with the exception of India and
Indonesia, which have rebounded on the
back of rosier economic data. On the other
hand, the Japanese market has stumbled
after 2013’s excellent performance, as
investors were beset with doubts over the
sustainability of the recovery. Overall, the
near-term outlook for the region remains
clouded by recurring worries over China’s
potential slowdown and a possible debt
crisis, uncertainty about the soon-to-be-
implemented sales tax in Japan that could
undo all the good that Abenomics has
wrought, and political risks stemming from
national elections in India and Indonesia.
Nevertheless, the region’s long-term
prospects remain intact and undiminished.
In comparison with the previous crisis in
1997,Asian economies are in better shape,
with healthier government balance sheets,
lower debt levels and greater exchange-rate
exibility. In mainland China, for example,
state co ers are still brimming over and
the authorities are fully aware, and single-
minded in the pursuit, of what needs to be
done to shore up investor sentiment, and
have enacted reforms that will rebalance
growth.At the corporate level, companies
have been disciplined in managing costs
and conserving capital amid the slowdown,
positioning themselves for a turnaround.
With earnings revisions stabilising,
valuations are starting to appear attractive.
