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Balancing risk and opportunities

Balancing risk and opportunities. Han de Jong Chief Economist May 2014. Statement 1. The global economy is set to Strengthen Weaken Continue at its recent pace. Statement 2. In 2014, risky assets will provide Above average returns Below average returns Average returns.

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Balancing risk and opportunities

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  1. Balancing risk and opportunities

    Han de Jong Chief Economist May2014
  2. Statement 1. The global economy is set to Strengthen Weaken Continue at its recent pace
  3. Statement 2. In 2014, riskyassetswill provide Above average returns Below average returns Average returns
  4. Statement 3. My biggestworryfor 2014 is: China Ukraine/Russia The ‘vulnerable 5’, (emergingeconomies) Disappointinggrowth in US/UK/Eurozone Deflation Tapering Overvaluedassetmarkets Re-escalation of euro crisis Scottishindependence
  5. Headwinds abating Balance-sheet repair progressing Austerity easing Stress financial sector easing Inflation lower Pent up demand unlocked
  6. DM private sector balance sheets back in health US assets minus liabilities % GDP, 100 = long-term average Source: Thomson Reuters Datastream
  7. Eurozone bank deleveraging Financial institution assets, % yoy Source: Thomson Reuters Datastream
  8. Bank lending survey Source: Thomson Reuters Datastream
  9. World PMI and GDP Source: Thomson Reuters Datastream
  10. Business confidence Index Source: Bloomberg
  11. Signs of moderate recovery of eurozone capex Industrial production of capital goods, % yoy Source: Thomson Reuters Datastream
  12. US: non-defense capital goods, ex-aircraft % yoy Source: Bloomberg
  13. US, eurozone and UK car sales % yoy Source: Bloomberg
  14. Statement 4. The euro crisis is over Yes No
  15. How Europe is beating the crisis SSM European Semester LTRO IDR DGS MIP OMT SMP ESM Two pack SRM Bail-out Bail-in Six pack GLF EFSM EFSF AQR BRRD Fiscal Compact
  16. Portugal: confidence 16
  17. Statement 5. Over the next 24 months, important parts of the globaleconomywill See a significant rise of inflation Fallintodeflation
  18. Inflation % yoy Source: Bloomberg
  19. Statement 6. A hard landing in China is during the next 12 months is: Likely Unlikely
  20. China’s problems Corporatedebtlevels Shadow-banking system Lack of discipline amonginvestors Pollution Corruption Theyneed jobs
  21. China’s solution(s). Xi and Li and their reform agenda Step by step Squeezeshadow banking Allowdefaults New urbanisationapproach Fightcorruption Low level of central-governmentdebt and huge FX reserves My conclusion: slowergrowth, butnotmuchslower, nosystemic shocks
  22. Risks from excessive debt in China Total debt to GDP, % Source: CICC, PBoC, ABN AMRO Group Economics
  23. Corporate debt high compared to other large EMs Corporate debt to GDP, % Source: CICC, PBoC, ABN AMRO Group Economics
  24. China: key indicators point to resilience Electricity production, % yoy Source: Thomson Reuters Datastream
  25. EM exports starting to move higher Index 25 Source: Thomson Reuters Datastream
  26. Positive EM fundamentals: FX reserves FX reserves to short-term external debt Source: IIF, ABN AMRO Group Economics
  27. Statement 7. Tapering and the reversal of monetarypolicywill have a big impact onfinancialmarketsthisyear Yes No
  28. Who is afraid of tapering? Tapering and US 10yr UST Source: Thomson Reuters Datastream
  29. Who is afraid of tapering? Tapering and S&P500 Source: Thomson Reuters Datastream
  30. Who is afraid of tapering? Tapering and VIX Source: Thomson Reuters Datastream
  31. Who is afraid of tapering? Tapering and EM equities Source: Bloomberg
  32. Who is afraid of tapering? Tapering and CRB Index Source: Thomson Reuters Datastream
  33. Who is afraid of tapering? Tapering and EUR/USD Source: Bloomberg
  34. Bonds Monetary policy changing direction Very low inflation Default risk easing Valuation: expensive
  35. Valuation equities PE Source: Thomson Reuters Datastream
  36. Equities Improving growth picture will support earnings Valuation not cheap / not expensive Investors still somewhat cautious What are the alternatives?
  37. Statement 8. Carlo Ancelotti JuergenKlopp Louis van Gaal Diego Simeone Ryan Giggs
  38. ABN AMRO Group Economics on het internet https://insights.abnamro.nl/category/economie/ – Dutch publications https://insights.abnamro.nl/en/category/economy/ – English publications NEW: App voor de iPad (Insights) – seeapp-store (alsofor English docs) Follow Han de Jong on www.handejong.nl (Dutch only) This material is provided to you for information purposes only. Before investing in any product of ABN AMRO Bank NV, you should inform yourself about various consequences that you may encounter under the laws of your country. ABN AMRO Bank NV. has taken all reasonable care to ensure that the information contained in this document is correct but does not accept liability for any misprints. ABN AMRO Bank NV reserves the right to make amendments to this material. This material which is subject to change without notice is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments. While ABN AMRO makes reasonable efforts to obtain information from sources, which it believes to be reliable, ABN AMRO makes no representation or warranty of any kind, either express or implied as to the accuracy, reliability, up-to-dateness or completeness of the information contained herein. Nothing herein constitutes an investment, legal, tax or other advice nor is it to be relied on in any investment or decision. Certain services and products are subject to legal restrictions and therefore may not be available for residents of certain countries. You should obtain relevant and specific professional advice before making any investment decision. The past performance is not necessarily a guide to the future result of an investment. The value of investments may go up or down due to various factors including but not limited to changes in rates of foreign exchange and investors may not get back the amount invested. ABN AMRO disclaims any responsibility and liability whatsoever in this respect.
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