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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 December 2014
G
lobal growth slowed in the fourth
quarter, with continued geopolitics
in the Middle East and Russia.The Ebola
outbreak and concerns about de ation
also weighed on sentiment.The US was
something of a bright spot. Fears about the
slowing of growth in the eurozone spurred
speculation that the European Central
Bank might provide additional monetary
policy accommodation.A key European
manufacturing Purchasing Managers’ Index
fell to 50.4, with France responsible for
much of the weakness.The People’s Bank
of China (PBOC) cut benchmark interest
rates for the rst time since 2012. PBOC
o cials stressed that the cut was not related
to concerns about growth. Instead, they
emphasised the need to reduce corporate
nancing costs to help struggling companies.
In the UK, in ation dropped to its lowest
level in ve years because of lower food
and energy prices.The upward momentum
in UK house prices also dropped o ,
especially in London, because of tighter
credit conditions.The Bank of England cut
its growth forecast and said in ation could
fall further, to below 1% within the next few
months, as a renewed slump in the eurozone
weighs on the generally well-performing
UK economy.
N
ational elections in the portfolio’s
two most heavily weighted countries
– India and Brazil – continued to in uence
these countries’ nancial markets during
the fourth quarter.While on a recent
research trip to India, we observed high
levels of optimism that the new government
will enact the reforms necessary for the
Indian economy to operate closer to its
full potential. Much of that optimism has
spilled over into the Indian stock market,
where it fuelled strong gains both before
and after the election.While we anticipate
selling stocks that become richly valued on
our metrics, we plan to maintain signi cant
positions in Indian companies that we
believe are well-situated for long-term
growth. Regarding global energy demands,
since the portfolio has signi cant holdings
in India, the Philippines andTurkey – which
are all major importers of oil – the recent
decline in oil prices should continue to
be a positive in uence for stocks in these
countries. In Brazil, the outcome of the
presidential election sparked o a rally in
stocks despite a slim victory by incumbent
Dilma Rousse over market-friendly
challengerAécio Neves. Brazil faces
macroeconomic headwinds that include
above-target in ation, a widening budget
de cit and an ongoing recession.With the
election behind her, investors now hope that
Rousse will be free to enact reforms that
will be good for the country, although less
popular politically.
WELLINGTON MANAGEMENT
Gilts
UK Gilts
Slump in eurozone leaves its mark
on well-performing UK economy
WASATCH
Emerging Markets Equity
High optimism after recent election
spills over into stock market
In theUK, in ation
dropped to its lowest
level in ve years
We plan tomaintain
signi cant positions
in Indian companies
E
conomic data has continued to
disappoint in recent months with the
US representing a rare beacon of economic
vigour compared to an increasingly
lacklustre environment elsewhere.The
signi cant decline in the price of crude oil
and other important commodities re ects
the deteriorating global growth outlook
and, although it does represent a rare piece
of good news for consumers, it is also likely
to exacerbate the de ationary pressures
that are already evident across much of the
world.The robustness of developed world
equity markets does not appear consistent
with the price action in sovereign bond
markets, where falling yields are indicative
of growing concern about the economic
outlook and, in particular, the de ationary
pressures mentioned above.We feel more
sympathetic to the view of the world
implied by the bond market’s behaviour. In
the short term, this makes us feel slightly
nervous about the outlook for the UK
stock market but we continue to believe the
portfolio is appropriately positioned for a
challenging future, both in the near term
and, most important, the long term.With
sensible investment horizons in mind, we
remain very con dent about the prospect
of delivering attractively positive returns
to investors.
WOODFORD
Income Distribution, UK Equity and
UK High Income
A challenging 2015, but portfolio
is well-positioned for long term
We’re slightlynervous
about the outlook for
theUK stockmarket
Ajay Krishnan and Roger Edgley
Haluk Soykan
Neil Woodford
