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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 December 2015
W
ith the normalisation of US scal
policy and the still-decelerating
world economy, global equities are likely to
remain unsettled for some time. China’s shift
towards a more consumption-led economy
will continue to weigh on investor sentiment.
However, the yuan’s entry into the IMF’s
global reserve basket marks a major vote of
con dence for Beijing’s economic reforms.
Central bank policy divergence is set
to be a starker theme in 2016, as both the
European Central Bank and the Bank of
Japan indicate a willingness to employ
further, although somewhat underwhelming,
quantitative easing measures to kick-start
their respective economies. In contrast, the
US Federal Reserve has begun raising interest
rates, albeit at a gradual pace.
There is no end in sight to low crude oil
prices, particularly with OPEC showing no
signs of achieving consensus on controlling
output. Oversupply worries also continue to
dog other commodity producers.
Events such as Europe’s refugee crisis
and worldwide terror attacks have further
dampened the outlook.TheTrans-Paci c
Partnership, signed by the US and 11
Paci c Rim countries after ve years of
negotiation, may help lower trade barriers
and boost exports in the long term.As share
prices remain volatile, we view this as an
opportunity to stock up on well-managed
businesses with balance sheet strength that
are trading at attractive valuations.
U
S markets recovered nicely in the fourth
quarter.The rst Federal Reserve
tightening of monetary policy is evidence of
the US economy gaining strength.Markets
have begun to focus on the winners and
losers as interest rates begin to tick up.
From a sector standpoint, US markets
were driven by IT, nancial and energy
companies, typically economically sensitive
sectors. Detracting were the historically
stable consumer staples and utility sectors.
The nancial sector, at least initially, should
begin to see net interest margins normalise as
interest rates move up.
The portfolio posted another strong
quarter.As usual, the outperformance was
due to security selection, predominately
in the IT, nancial and energy sectors.
Detracting from performance were consumer
discretionary and consumer staples.
The investment process atAristotle is
highly dependent on long-term investment
catalysts, or what we internally refer to as
‘a di erentiated thought process’.While
impactful in the short term, the economic
ebbs and ows are less meaningful in
determining fundamental business valuations.
The above-mentioned catalysts play a much
more important role in the overall success at
Aristotle Capital.
We generally leave others to worry about,
and spend intellectual capital on, predicting
short-term economic movements.
ABERDEEN ASIA
Far East
Outlook is still positive for Asia after
this short-term uncertainty passes
ARISTOTLE
North American
Portfolio performed well thanks to
focus on security selection
ABERDEEN
Ethical
Share prices will remain volatile, but
investors can find value in market
Further post-US rate
rise volatility is likely in
theAsianmarkets
US economy shows
strength as interest
rates begin to rise
Central bank policy
divergence is set to be a
feature of 2016
Jamie Cumming
Hugh Young
Howard Gleicher
W
e expect further volatility inAsian
markets following the US Federal
Reserve’s rate hike.The consequent impact
on capital ows, currencies, economies and
nancial markets across the region is likely
to weigh heavily on investors’ minds. Other
headwinds persist in the form of China’s
slowing economy and weak commodity
prices. Despite the short-term uncertainty,
we remain positive aboutAsia’s longer-
term prospects.The region has stronger
fundamental bu ers compared with other
parts of the world.MostAsian countries
have sizeable foreign exchange reserves
while central banks have room to cut rates to
support growth.
In volatility, we see opportunity.Valuations
ofAsian stocks appear reasonable on an
absolute and relative basis, although these
vary across sectors and countries.We have
been active.When markets sold o , we added
to some of our holdings at cheaper levels.
We also took a closer look at good-quality
stocks that had been too expensive in the
past, particularly those in Hong Kong and
Indonesia. Such activity ts our disciplined
approach.We look for quality companies and
buy them at the right price to ensure good
long-term returns.We expect to do more of
the same in the coming year.
