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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 30 June 2015
I
n the near term, we expect global stock
markets to continue being led by major
central bank policies.While underwhelming
US economic data has pushed back
expectations of a Fed interest rate hike, the
eventual increase will inevitably trigger
some capital out ows from emerging
markets. Elsewhere in the world, however,
monetary policy is anticipated to remain
accommodative.The ECB has committed
to policy loosening in order to overcome
the current environment of low growth
and low in ation. In China, lacklustre data
continues to raise hopes of further stimulus.
As a result, we have seen share prices
driven mainly by speculation, as economic
and corporate fundamentals continue to
lag stock market performance. Recent
headline news should also serve to keep
risk appetite in check.With the breakdown
in Greek debt talks, fears that the nation
will default have caused jitters, not only in
the local debt market but also in peripheral
eurozone bonds.Additionally, the oil price
slump presents a double-edged sword.
While cheaper oil will bene t importers
and provide a boost to consumption, it has
strained the budgets of energy producers
such as Russia. In short, market volatility
is likely to persist. In such an environment,
our strategy remains unchanged: we
continue to focus on identifying solid
businesses with robust balance sheets and
proven management, which are well-
positioned for a cyclical upturn.
T
he US markets continued to show
increased volatility with daily swings
(both positive and negative) of 0.5% to 1%.
We consider this increase in volatility as an
opportunity. Our long-term, fundamentally
driven process focuses on business values,
not short-term‘noise’.The fund performed
well in the quarter.As is often the case,
particularly in volatile periods, the vast
majority of our outperformance came from
security selection.This was particularly
strong in the industrials and nancials
sectors, while selection in the energy and
consumer discretionary sectors were net
detractors. In the industrials sector a notable
contributor was Pall Corporation, which
announced it will be acquired by Danaher
for $127.20 per share. Subsequent to the
completion of the acquisition, Danaher
plans to split into two companies and the
Danaher name will remain.As the purchase
price was similar to our view of its value, the
position was liquidated.The energy sector
underperformed during the quarter. Faced
with signi cantly lower commodity pricing,
one of our holdings – oil and gas producer
Pioneer Natural Resources – announced the
sale of itsTexas-based pipeline assets, freeing
up capital to focus on what we believe to be
highly advantaged properties in westTexas.
Going forward, we will continue to focus on
what we believe to be high-quality businesses
with sustainable competitive advantages.
ABERDEEN ASIA
Far East
Asian central banks still have room to
manoeuvre on interest rates
ARISTOTLE
North American
Market volatility presents new
opportunities for investment
ABERDEEN
Ethical
Targeting solid businesses that can
prosper in cyclical upturn
E ectsof aChinese
slowdowncontinue to
be felt across region
Vastmajorityof our
outperformance from
security selection
In short, market
volatility is likely
topersist
Jamie Cumming
Hugh Young
Howard Gleicher
C
entral bank policy is likely to continue
dominating sentiment inAsian equity
markets.The prospect of a US rate hike, no
matter how well signalled, could compel
fund out ows in the near term. But we
think this is no bad thing as it should help
wean markets o some of the speculative
capital bloating share prices without any
corresponding improvement in earnings.
A refocus on fundamentals would be
desirable. Furthermore, the region as a whole
seems much better placed to withstand short-
term out ows, given the vast improvement
in government nances.That said, still loose
policy in much of the developed world,
including Japan and Europe, could keep
global assets of all types well supported.
On the economic front, the e ects of a
Chinese slowdown continue to be felt across
the region. Growth is unlikely to improve
soon as Beijing balances expansion with
crucial reforms. In India and Indonesia,
investors have tempered their expectations
over the pace of restructuring amid fractious
politics, and share prices will need to be
underpinned by concrete reform e orts,
economic revival and an earnings uplift.
The good news is thatAsian central banks
should still have room to cut interest rates
further, given lower oil prices and receding
in ationary pressures.
