Sarasin & Partners Spring Investment Seminar

Transcription

1 Sarasin & Partners Spring Investment Seminar Imbalancing Act: Resilient returns in an imbalanced world March 2017

2 Tactical outlook: Current market backdrop, tactics and portfolio positioning Guy Monson March 2017

3 Trump Economic Policy and the US Market Response

4 The Trump rally continues with equity volatility hitting new lows and equity markets new highs S&P 500 RETURNS PRE & POST US ELECTION US EQUITY VOLATILITY PRE & POST-ELECTION

5 Risk 1: US Constitution is based on the principle of separation of power Trump is attempting to tilt this in his favour Constitution Legislative Executive Judicial Congress: Senate: 52 Republicans 48 Democrats House: 247 Republicans 188 Democrats Mitch Mcconell/Paul Ryan Trump & Pence Cabinet Miller, Bannon Supreme Court: 4 Liberals 4 Conservatives 1 Vacancy Neil Gorsuch

6 Risk 2: Trump moves away from multilateralism toward a US-centric system COUNTRIES IN THE WHITE HOUSE FIRING LINE Japan EU UK WTO EM US From WTO Rules Mexico China UK To a US-centric global trading system Japan US EU Canada Other EM

7 China Update

8 China growth may be stronger than many expected as the Old Economy finally rebounds while the New continues to boom CHINA: GDP VS. THE LI KEQIANG INDEX THE RESURGENCE OF THE OLD ECONOMY 30 Annual growth, % THE NEW CHINESE CONSUMER OLDER, RICHER AND MORE TECHNOLOGY SAVVY 80 RMB, trillion Li Keqiang Index China GDP 20 0 Jan-08 Jan-10 Jan-12 Jan-14 Jan Agriculture Industry Services Chinese Premier Li Keqiang once remarked to a US diplomat that Chinese data was man-made he preferred bank lending, rail freight and electricity consumption Source: Bloomberg, Macrobond Note China s E-Commerce Giants Tencent & Alibaba are the 2 nd and 3 rd largest listed companies in the Emerging World (we hold both across our Funds) Source Macrobond

9 Air Quality Index (AQI) at US Embassy in Beijing China climate agenda now policy priority #1 WEATHER ON MY TRIP LAST WEEK GOVERNMENT POLICY IS NOW HAVING SOME IMPACT 250 Beijing Monday 13th Feb Beijing Tuesday 14th Feb Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

10 China is now the biggest CO2 emitter - climate control beneficiaries now a strong investment theme COULD ASIA BE THE NEW CENTRE OF ACTIVE CLIMATE POLICY AND SPEND? CO2 Emissions (kt) of major economies and Share of Global Clean Energy Spending ,000,000 10,000,000 China Germany India United States Japan South Korea United Kingdom France 8,000,000 6,000,000 4,000,000 2,000,000 - Source: The World Bank, Bloomberg

11 Global Economic Update

12 Global recovery modestly accelerating European politics, protectionism and BREXIT negotiations the key challenges GLOBAL ECONOMIC GROWTH SINCE THE CREDIT CRISIS

13 European Election Calendar is starting to be reflected in German Bond Spreads EUROPEAN BOND SPREADS IS UK THE SAFE HAVEN?

14 Improving global economic activity is leading to a slow but a gradual persistent rise in core inflation but soaring PPI s US, UK AND EURO AREA CORE INFLATION RATES PRODUCER PRICE INDICES NOW SENDING THE FIRST INFLATIONARY SIGNALS

15 Sterling depreciation will continue to push UK inflation higher into 2017 UK INFLATION COMPONENTS - CPI OF 1.8% NOW CLOSE TO BANK OF ENGLAND TARGET BANK OF ENGLAND S INFLATION PROJECTION BASED ON MARKET INTEREST RATE EXPECTATIONS 6 %, annual The chart depicts the probability of various outcomes for UK CPI inflation Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Food, alcohol, bev and tob Transport Services Goods Other Total Source: Sarasin & Partners and Macrobond Source: BOE Inflation Report Nov 2016

16 BREXIT Update and Market Implications

17 UK survey data stable but Bad Habits are returning as the UK savings ratio collapses UK ECONOMIC SURVEYS UK HOUSEHOLD SAVING RATIO

18 While the austerity agenda needs to stay - 3% of GDP reduction in the structural deficit expected this Parliament FACTORS THAT CONTRIBUTE TO THE PROJECTED FALL IN THE STRUCTURAL DEFICIT OF THE UK Note: RDEL = (Resource) Departmental Spending Limits

19 Key Issues for the UK s Brexit Negotiating Teams HOW THE EU GET TO OUR EURO 60BILLION EXIT BILL WITH THE EXCEPTION OF IRELAND, THE UK S TRADE BALANCE IS CLOSE TO ZERO OR NEGATIVE WITH ALL Note that Contingent Liabilities and receipts for UK projects & Rebate are broadly equal Source: Centre For European Reform Feb 2017 Source: Department for Exiting the European Union Feb 2017 White Paper

20 Sterling can continue recovering unless post-article 50 discussions breakdown STERLING INDEX AND UK CRISES EVENTS Source: Bank of England Inflation Report 2017 Lending Growth (esp. Consumer) is rising too fast

21 Global Investment Risks

22 Investment Risk 1: There are worrying signs that protectionism is on the rise exacerbated by a growing Populist Agenda TRADE POLICIES IN A HISTORICAL PERSPECTIVE : AVERAGE VOTING SHARE OF FAR- RIGHT & LEFT PARTIES, FIVE YEARS BEFORE & AFTER FINANCIAL CRISES Source: IMF World Economic Outlook Oct 2016 Source: Politics in the Slump (Funke, Schularick & Trebesch 2015)

23 Investment Risk 2: Global productivity continues to decline could Trump s deregulation agenda help? ADVANCED ECONOMIES: OUTPUT PER HOUR WORKED

24 Investment Risk 3: US Equity markets are rising faster than profits monitor equity valuations & price targets US INDEX EXPANDED FASTER THAN EARNINGS IN THE DOTCOM BUBBLE AND AGAIN RECENTLY

25 Market Strategy - Global Equities still the preferred asset class but US valuation risks rising

26 World equities have rallied on Trump (led by EM) and may now be more effective inflation hedges than index linked gilts EQUITY MARKET RETURNS 2016-TO-DATE LOW UK INDEX LINKED YIELDS SUGGEST REAL ASSETS MAY NOW BE BETTER INFLATION HEDGES 2016 Source: Source Bloomberg/Sarasin & Partners

27 Odd Couple? Rising yields have favoured Value stocks & Banks, but also Disruptive Technologies WORLD EQUITY GROWTH VS. VALUE WORLD EQUITY MARKET RETURNS HAVE BEEN DOMINATED BY BANKS AND TECHNOLOGY STOCKS Rebased to 100)

28 Global dividend strategies are still supported by low bond & cash yields, but there is rising interest rate risk 30-YEAR PEAK FOR UK EQUITY VS GILT YIELD 5-YEAR PEAK FOR US DIV/BUYBACK YIELD VS 10-YEAR BOND

29 Preference for Global Equity over Bonds, with rising alternative holdings as US equity valuations rise GLOBAL STRATEGY UPDATE 1. Bonds: Underweight. Underweight Government and Corporate issues and maintain short duration. 2. Equities: Neutral. US Valuations peak as US & global political uncertainty surges. Caution required: Global: Caution on higher valuations as global bond yields rise. Neutral vs UK US Banks: Rising dividend flows & buybacks likely as bond yields rise & regulations loosened Emerging Markets: Valuation opportunities developing but retain at least neutral exposure until clarity on Trump Trade Policy Global REITS: Attractive after recent correction 3. Alternatives: Overweight. UK and Global Infrastructure still attractive as bond alternatives. Gold attractive as hedge against Trump Policy & Deficit Risk. 4. Cash: Neutral. Exposure to Sterling should now be neutralised after recent declines. 5. Risks: A Populist Agenda moves to Europe (GE, FR & possibly IT Elections), confrontational Brexit negotiations and Trump Policy Uncertainty finally spill over into Global Economy.

30 Important information This promotion has been approved by Sarasin & Partners LLP of Juxon House, 100 St Paul s Churchyard, London, EC4M 8BU, a limited liability partnership registered in England & Wales with registered number OC which is authorised and regulated by the Financial Conduct Authority with firm reference number and passported under MiFID to provide investment services in the Republic of Ireland. The investments of the fund are subject to normal market fluctuations. The value of the investments of the fund and the income from them can fall as well as rise and investors may not get back the amount originally invested. If investing in foreign currencies, the return in the investor s reference currency may increase or decrease as a result of currency fluctuations. Past performance is not a guide to future returns and may not be repeated. These Funds are for registered charities only. It should also be noted that some of the protections provided by the UK regulatory system do not apply to these products and in certain circumstances compensation will not be available from the UK Financial Ombudsman Scheme. Frequent political and social unrest in Emerging Markets, and the high inflation and interest rates this tends to encourage, may lead to sharp swings in foreign currency markets and stock markets. There is also an inherent risk in the smaller size of many Emerging Markets, especially since this means restricted liquidity. Further risks to bear in mind are restrictions on foreigners making currency transactions or investments. For efficient portfolio management the Fund may invest in derivatives. The value of these investments may fluctuate significantly, but the overall intention of the use of derivative techniques is to reduce volatility of returns. This document does not explain all the risks involved in investing in the fund and therefore you should ensure that you read the scheme particulars which contain further information including the applicable risk warnings. The scheme particulars as well as the annual and semi-annual reports are available free of charge from www. sarasinandpartners.com or from Sarasin & Partners LLP, Juxon House, 100 St Paul s Churchyard, London, EC4M 8BU, Telephone +44 (0) , Telefax +44 (0) Telephone calls may be recorded. All details in this document are provided for marketing and information purposes only and should not be misinterpreted as investment advice or taxation advice. This document is not an offer or recommendation to buy or sell shares in the fund. You should not act or rely on this document but should seek independent advice and verification in relation to its contents. Neither Sarasin & Partners LLP nor any other member of Bank J. Safra Sarasin Ltd. accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The views expressed in this document are those of Sarasin & Partners LLP and these are subject to change without notice. Where the data in this document comes partially from third party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third party data is provided without any warranties of any kind. Sarasin & Partners LLP shall have no liability in connection with third party data. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect of any such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct. indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI s express written consent. Persons domiciled in the USA or US nationals are not permitted to hold shares in the fund and shares may not be publicly sold, offered or issued to anyone residing in the USA or to US nationals. This publication is intended for investors in the United Kingdom and Republic of Ireland Sarasin & Partners LLP all rights reserved. This document can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact marketing@sarasin.co.uk. 154

31 Sarasin & Partners LLP Juxon House 100 St. Paul s Churchyard London EC4M 8BU T: +44 (0) F: +44 (0) E: marketing@sarasin.co.uk Use the footer function to insert the presentation title and date here 155