All information correct as at 30 September 2014
26
|
THE INVESTOR
G
lobal equities have been fairly
resilient in the year to date, against
the backdrop of an improving US economy
and still-ample global liquidity. In the
months ahead, however, markets could face
increasing monetary policy divergence,
leading to heightened volatility. Given the
more optimistic US outlook, the Federal
Reserve is poised to end quantitative easing
later this year and start hiking interest rates
in 2015.A rate increase by the Bank of
England is also possible, provided growth
remains on track. Major central banks
elsewhere, however, are likely to keep their
policy taps running. In Japan, recent poor
data is clouding prime minister Shinzo
Abe’s year-end decision to further hike
consumption taxes.The administration
has suggested it is supportive of further
stimulus to boost growth, while the Bank
of Japan said it will be exible in adapting
to macroeconomic changes. China is
also expected to continue with targeted
stimulus to keep its growth engine purring.
Meanwhile, the European Central Bank
took on a more dovish stance by cutting
rates, while agreeing to buy asset-backed
securities and o er more cheap loans.
Policy decisions aside, geopolitical
tensions in Ukraine and the Middle East
could exacerbate market uncertainty.
Incongruously, corporates appear in much
better shape than before. Cost cutting and
rationalisation have bolstered margins amid
slowing demand.
M
arkets continued to show strength
in the third quarter as the S&P 500
Index reached new highs while economic
news remained mixed.Also, despite
multiple sources of geopolitical concern that
could put upward pressure on prices, oil
dropped below $100 per barrel.The reason?
It’s boom time for US oil production.The
portfolio underperformed the benchmark
in the quarter and this underperformance
was largely attributable to binary events
in two companies,TimeWarner and
Walgreens. 21st Century Fox proposed an
unsolicited merger withTimeWarner in
July – which was subsequently withdrawn
inAugust, wiping out prior months’ gains.
In spite of event-driven volatility,Time
Warner has performed well year-to-date
in terms of both fundamentals and share
price gains.Walgreens announced that it
will not participate in a tax‘inversion’
after acquiring the remaining interest
inAlliance Boots.There had been
speculation thatWalgreens would
relocate its headquarters to the UK.The
announcement, combined with a revenue
shortfall, drove the stock price lower. On
a positive note, Home Depot gained over
the quarter.The company continues to
perform well as second-quarter results were
strong. Propelled by its‘customer-driven’
focus and nancial discipline, Home Depot
continues to exceed expectations.
Jamie Cumming
Hugh Young
Howard Gleicher
THE INVESTOR CENTRE
ABERDEEN ASIA
Far East
Japan may look to further stimulus
after recent poor economic data
ARISTOTLE
North American
Boomtime for US oil production sees
price drop below $100 per barrel
ABERDEEN
Ethical
Major central banks likely to continue
policies as equities remain resilient
Apick-up inUS
demand couldbene t
Asian exports
TimeWarner has
performedwell
year-to-date
A rate increase by
the Bank of England
is alsopossible
H
E
ncouraging growth signals in India,
Thailand, Malaysia and the Philippines
ensured continued momentum in those
markets. However, a persistently sluggish
Japanese economy dampened domestic
returns, while Singapore and Hong Kong
lagged on the back of uncertainty over the
West’s monetary policy plans. In Japan,
recent poor data is clouding prime minister
ShinzoAbe’s year-end decision to further
hike consumption taxes.The administration
has suggested it is supportive of further
stimulus to boost growth, while the Bank
of Japan said it will be exible. China is
also expected to continue with targeted
stimulus. Interest rate decisions taken
by major central banks will continue to
determine the direction of capital ows into
or out of Asia.While Europe and Japan are
expected to keep rates pinned to the oor,
the US recovery has given investors reason
to worry about an earlier-than-expected
normalisation of Fed policy. Should tensions
in Ukraine spike amid widespread Russian
troop presence and violence in the Middle
East escalate, uncertainty will persist. On
the other hand, the prospect of continued
selective stimulus in China and additional
quantitative easing in Europe could help
mitigate any market downside, while a
pick-up in US demand could bene tAsian
exports. Short-term liquidity concerns aside,
Asian companies have more to gain from an
entrenched global recovery than easy money,
which can ebb as quickly as it ows.
