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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 March 2015
T
he trend of slowing global growth,
which was already evident in the fourth
quarter of 2014, continued into the rst
quarter of this year, while uncertainty over
the Greek elections and continuing discord
between Russia and Ukraine created a risk-
averse environment. Over the course of the
quarter conditions became more positive
as Greece reached an agreement over its
bailout programme and a cease re was
agreed between Russia and Ukraine.There
was also an improvement in data from the
US, where payrolls surpassed expectations
and consumer sentiment remained high,
supported by lower energy prices. In
Europe, GDP increased to 0.3% during
the fourth quarter. Consumer and business
sentiment rose, along with the Purchasing
Managers’ Index (PMI), driven by a lift in
new order numbers. In the UK, low levels
of in ation persisted, with the latest CPI
gure, released in February, standing at
just 0.3%.This implies there is not likely to
be a move in interest rates until 2016.The
fourth-quarter GDP release surprised slightly
to the downside at 0.5%, explained by
weakness in industrial production from lower
exports to Europe.The PMI data was above
expectations, providing a bright spot among
recent data releases.
O
ur outlook for emerging markets
remains optimistic in 2015.We believe
the positive developments driving emerging
markets are likely to remain intact as the
year moves on. Because most emerging
markets (with some notable exceptions)
are net importers of oil, the falling price
of crude is improving current account and
in ation situations, while supporting local
currencies and providing leeway for central
banks to lower interest rates. In addition,
strong economic growth in the US should
continue to provide a tailwind for exporters
from emerging markets. Renewed monetary
easing by the ECB and the Bank of Japan
also appears likely to keep emerging-
market currencies on a stable footing going
forward.While emerging markets remain
reasonably valued and generally trade at
attractive discounts relative to developed
markets, valuations in certain countries
may be stretched over the short term. In
India, for example, optimism surrounding
Prime Minister Modi’s agenda for reform
has fuelled gains in the major stock indices.
Overall earnings growth, however, has
not kept pace with stock prices and has
been driven by widening pro t margins
rather than increased sales. Our medium
and long-term outlooks for Indian equities
are very positive, but until we observe a
pick-up in top-line growth we anticipate
paring back the portfolio’s India weighting
in favour of countries such as Mexico and
the Philippines.
WELLINGTON MANAGEMENT
Gilts
UK Gilts
European uncertainty eases and US
and UK report improved data
WASATCH
Emerging Markets Equity
Emerging markets reasonably valued
but certain countries may be stretched
Over the course of the
quarter, conditions
becamemore positive
We anticipate paring
back the portfolio’s
Indiaweighting
G
lobal stock markets have enjoyed a
positive run, buoyed by some better-
than-expected economic data in Europe, the
introduction of QE by the ECB and what has
been greeted as a successful outcome to the
negotiations between the new government
in Greece and the European Union.The
European data comes as a welcome relief
for the region’s troubled economies but,
in our view, does not herald the start
of a sustainable recovery. Indeed, more
noteworthy is the contrasting deterioration
in US economic data, which seems to have
lost considerable momentum recently.
Similarly, the outcome of the Greece
discussions is no cause for celebration.
Syriza was elected with a mandate to end
austerity and renegotiate Greece’s credit
commitments to Europe. Instead, they
appear to have meekly succumbed to
Europe’s demands to permit a four-month
extension to its existing loan arrangements.
This is a short-term agreement – nudging
the battered proverbial can a little further
down the road – not a sustainable long-
term solution.The equity market’s
reaction to these recent developments,
as has so often been the case recently,
looks complacent.We therefore remain
cautious about the near-term outlook for
equity markets but continue to believe the
portfolio is appropriately positioned for a
challenging future, both near term and, most
importantly, long term.
WOODFORD
Income Distribution, UK Equity and
UK High Income
Greece outcome no cause for
celebration as caution remains
Syrizawas elected
with amandate to
end austerity
Ajay Krishnan and Roger Edgley
Haluk Soykan
Neil Woodford
