Investor 91

THE INVESTOR CENTRE

lobal equity markets have

rebounded faster than expected

from the Brexit shock.This may seem

good news but it betrays the ongoing

disconnect between sentiment and

fundamentals.The world economy

is toiling under sluggish investment

and subdued trade, and we expect

global growth to slow further.

Familiar vulnerabilities linger. In the

US, election uncertainty and weak

wage growth would likely limit rate

rises to one this year. Political risk

ranks high in Europe, owing to

post-Brexit challenges and a rising

groundswell of anger over

immigration. Oil prices have been

volatile ahead of the OPEC summit.

We are likely to see greater

pressure on policymakers to support

growth.More stimulus could be

unleashed in Japan, but the yen’s

strength is foiling attempts to

rein ate the economy. China’s

growth targets point to fresh policy

moves. Other parts ofAsia remain

resilient, given sturdier fundamentals

and progress with reform.

Over the short term, it will be a

bumpy ride for markets and we see

this as an opportunity to add value.

hile weakening at the end of

the quarter, US markets

continued to advance, climbing a wall

of economic and geopolitical worries.

Driven by strong corporate earnings,

results showed a wide divergence in

economic sectors.The utilities stocks

gave back some of their 2015 gains,

while IT stocks advanced.

The portfolio performed well in this

volatile environment.Generally, our

underweight in nancial stocks was a

drag as the sector performed strongly,

but our selection in that sector more

than made up for that headwind.

Several of our nancial holdings have

asset management divisions that

continue to show strength.

Long-time holding Morgan Stanley

performed well.Assets under

management continue to improve,

while we continue to see value in our

holding in the busy M&A environment

as e ciencies achieved post the 2008

nancial crisis bear fruit. Food retailer

Kroger lagged in the quarter as it

battled food price de ation but it

continues to pick upmarket share.

As always,we continue to uncover

strong businesses while keeping a

cautious eye out.

ABERDEEN ASIA

Far East

Portfolio is well positioned for the

current environment

ARISTOTLE

NORTH AMERICAN

Financial stocks performed well, led

by Morgan Stanley

ABERDEEN

Ethical

Focus is on quality stocks supported

by proprietary research

Asianmarkets regain

poise, but potential

storms lie ahead

USmarkets continue

toperformwell despite

macro concerns

Brexit bounce-back

mayhide ongoing

headwinds

Jamie Cumming

Hugh Young

Howard Gleicher

sian stock markets have regained

their poise but potential storms

lie ahead. Of concern is a US rate

hike and the fractious run-up to the

US presidential election. In Europe,

Brexit-related political risks persist as

anti-immigration and protectionist

parties gain ground.

Against this backdrop,Asia o ers

value and stability backed by

improving fundamentals. Equities

remain attractively valued compared

to historical levels and other regions.

Most governments have been prudent

and central banks have capacity to cut

rates to support growth.The pace

of reform has been encouraging,

notably in India and Indonesia. China

is curbing the shadow banking sector

but more is needed to x other

structural aws. But in Japan, the

yen’s strength and negative rates

weigh on pro ts.

Given weak demand, our holdings

have yet to see a signi cant rebound

in revenue, but their management

have cut costs and conserved cash

to strengthen balance sheets. They

are well positioned for the current

environment.

All information correct as at 30 September 2016

THE INVESTOR